“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” – Warren Buffett
“Renting space in my head to CNBC seems like a bad use of square footage.” – Carl Richards
With March Madness in full swing and upsets at every turn I’m sure there are many people out there who filled out brackets that have turned out horribly (I am one of them). It’s an annual tradition to have your bracket dismantled by Cinderella stories or just bad picks.
Seth Davis (one of the CBS college basketball analysts) said he was getting tons of flak from his Twitter followers for their brackets being busted. They were blaming him for his bad picks that they then used to pick the winners and losers for each round.
This invariably happens every year. Why do people think that things will change? Who knows what motivation these guys have for making their selections? Sure, they want to be right. But they also like to mix it up with the other commentators to make for interesting television. So maybe they make an upset pick or two to go against the grain to show how much they know about some obscure team that no casual fan has ever heard of. Then that casual fan takes the advice, gets the pick wrong, loses their office pool and blames the commentator. Plus, the fact of the matter is that in a win-or-go-home sudden death tournament random things can and do happen.
A similar situation plays out on business news channels on a daily basis. Between Fox Business News, CNBC and Bloomberg TV there is a whole lot of air time to fill in a 24 hour day. And since the long-term advice that they should be giving you wouldn’t make for good TV around the clock, they fill the airwaves with short-term economic data points, opposing viewpoints and stock picks. Taking your financial advice from these talking heads will do you just as much good as following the expert picks for your bracket. You may as well flip a coin or throw a dart at a list of stocks.
You don’t know the motivation or investing style of talking heads that they bring on these business stations. And they don’t know your risk profile or time horizon so they can’t possibly make an informed recommendation in the 5 minutes they have to argue with 6 other portfolio managers on air. So while it can be entertaining (or annoying) to listen to grown men scream at each other over stock picks, it will do absolutely nothing for your financial well-being.
The owners of these TV stations have one job and one job only – to get viewers for their advertisers. They don’t care about your finances or your long-term viewpoint. They are incentivized to create fear and greed for their viewers to make them come back for more.
Remember it’s not necessarily about finding out who is right about their financial advice. You must figure out whether or not the advice makes sense for your time frame and investment plan.
There are no certainties when investing so you should stay away from advice from those who are either always bullish or always bearish. A broken clock is right twice a day so eventually these people will be right. That’s no reason to listen to what they have to say.
You must always consider the source when you get investment advice, whether it’s from CNBC or your next door neighbor. Try to figure out what incentive they have for giving you that hot stock tip or predicting a guaranteed 20% increase in stocks over the next 6 months.
And remember that there is no substitute for your own homework when making an investment decision. If you want to watch these shows and take their biased advice, at least follow-up with your own research to make sure their thesis looks correct and that the idea fits into your investment plan.
No onto your weekly round-up of common sense stories from around the web:
- Are investors starting to act like Justin Beiber? (The Reformed Broker)
- Avoid your biggest investing mistake (NY Times)
- The fine art of doing nothing (The Big Picture)
- 10 Lessons we can learn from Warren Buffett (bestfinanceschools)
- Tracking your finances, one number at a time (NY Times)
- Thoughts on the future of home prices (Pragmatic Capitalism)
- The best money question you can ask (Motley Fool)
- How to make better choices in life and work (Farnam Street)
- Money expert reveals his investment strategy (Money)
- Best March Madness buzzer beaters (YouTube)
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