CNBC provides entertainment, not serious investment advice

Dollars & Sense

March 31, 2002|By Pat Dorsey | Pat Dorsey,MORNINGSTAR.COM

I WONDER who the unsung television genius is who thought of covering the stock market like a sporting event. "The Dow's ahead by a nose! The Nasdaq's down for the count! Techs strike out again, while cyclicals score a homer!"

This whole notion of the stock market as a spectator sport is as watchable as it is absurd because stock prices become news in and of themselves, regardless of what's actually going on with the company. It's almost as if share movements were the real thing worth watching, instead of corporate financial performance.

Think about it for a minute. CNBC often does stories because a stock's price has gone up or down, and then looks for a talking head who'll attribute an event to that price move.

Sometimes the reason is obvious: "Well, it turns out the company's software actually does cause impotence, Maria."

But usually it's not: "It looks like investors are continuing to rotate out of the widget sector into gizmo stocks, Joe. The widget sector has had a strong run over the past several trading sessions, so it looks like profit-taking to me."

In either case, the reason these people are being interviewed is that the stock's price has already moved, which is really only useful if you're watching for entertainment value. From an investment perspective, the horse has already left the barn.

All the information is already in the stock's price, or CNBC wouldn't be running the story. And more often than not, there really isn't much reason for the share-price move other than that old standby "profit-taking," which is pundit-speak for, "I have no idea."

The only exception to the general uselessness of CNBC - or any moment-by-moment market coverage, for that matter - that I can think of is when the news on a stock is really awful, because the market sometimes overreacts and thus presents those of us who have time horizons longer than a week with a buying opportunity.

What I would love to see is someone compiling the "CNBC silence service," which would list companies that hadn't been mentioned on CNBC for at least six months - a year would be even better.

This list would be sort of like the daily list of stocks hitting 52-week lows, which I think is often a great starting place when you're looking for cheap, out-of-favor stocks.

After all, if the stock hasn't been mentioned on CNBC recently, maybe there's a chance that it's being misvalued by the market - meaning it could be a worthwhile investment.

Since the market is reasonably efficient, the stock probably won't be greatly misvalued, but it would sure be a better starting point than looking at stocks that got mentioned on CNBC, wouldn't it? The idea that some people devote energy to figuring out what stocks will be discussed in a given segment of CNBC so they can trade on the information is laughable.

To be fair, what CNBC is doing makes sense from a media perspective. Stock prices change a lot and are thus "newsworthy" (especially for a channel that's got to fill 12 hours of airtime a day, come hell or high water), while stuff like cash flows and profit margins are pretty tough to jazz up for live TV.

I've discovered this myself over the past 18 months on FoxTV's Bulls and Bears show. My chart-loving adversary has lots of telegenic visual aids, complete with lines and three-dimensional graphics, while I'm stuck trying to explain discounted cash-flow models in two minutes or less.

I suppose the bottom line is to take CNBC for what it really is - entertainment, designed to attract viewers and generate ratings. As a source for investment advice, however, it leaves a lot to be desired.

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