Dec 19, 2013

Why I'm Petrified of CNBC

Mike Piper over at The Oblivious Investor has an incredible logo.  It's a picture of a smiley face with earmuffs... a clear homage paid to the wise investor that tunes out the "noise" and focuses instead on staying the course, boosting their savings rate, and rebalancing their portfolio once a year.  In today's world, we eat, sleep, and breathe the news.  I won't deny it.  I watch CNN every morning!

One network I used to watch, but thankfully do not anymore is CNBC.  I'd go out on a limb to say that investors who habitually watch this network greatly damage their chances of success as the constant "sky is falling" or "extreme bull" mentality will cause them to act not on their pre-planned investment policy statement, but on an emotional news-driven decision that is based on nothing more than a few talking heads making crystal ball predictions on how a report with a colorful name will effect the Dow Jones Industrial Average.

Paid to Dramatize

For novice investors and the everyday retirement saver, the first few times tuning into CNBC can be exhilerating.  All of a sudden, you know exactly what is happening with the economy and have heard several predictions on what will happen with the stock market.  With that, you log into whatever discount brokerage you use and place several orders to buy stocks based on a recommendation by, DOH, Jim Cramer. 

Oh boy, you're in for it. 

Hey, I did it too!

As a college student in 2007, I took basically all the money I had at the time (a whopping $3,000) and bought several stocks on Jim Cramer's magical predictions, and I'll let you imagine what happened. 

Everything he said was a "BUY BUY BUY!!!"

Not long after, there weren't many people in the world that were willing to "BUY BUY BUY!!!" the stock I had. 

Lesson learned. In total including the $105 in $7 trades in my taxable account I lost $975.  A healthy 28% loss.  Why was I using a taxable account and not an IRA? 

I didn't properly educate myself, and instead relied on CNBC.

Could have been worse, and I fear that for many people the stakes are far greater.  I was lucky to have learned this lesson at such a young age and discovered the outstanding forum over at Bogleheads.org which set me straight. 

No Matter Who You Are, CNBC Will Eventually Get You to Act Irrationally

I almost feel as if drinking and watching CNBC should be illegal, just as drinking and driving is.  That "hot stock tip" that you see on Fast Money will draw you in, and even if you've read The Coffeehouse Investor, understand the Bogleheads Wiki like the back of your hand, and have read The Four Pillars of Investingtwice, you will pull the trigger and do something dumb.

Do Yourself a Favor and Turn it Off

Let me bring you in on a little Tortoise Banker secret. 

You can't beat those Wall Street guys sitting in front of 15 screens in the short-term trading world. 

Warren Buffet told us this.  Benjamin Graham, Warren's teacher, even told us this in The Intelligent Investor

Get it through your head.  You can't beat those guys in the short-term trading world.

However...I have some outstanding news.

You CAN beat 80% of all investors in the world by forgeting about what you see on CNBC and "staying the course" via index fund investing with Vanguard in tax-advantaged accounts.

Write an Investment Policy Statement

Check out my post on Stay the Course Investing for tips on creating an IPS to refer back to when you're tempted to act on that stock tip you saw on Cramer, or when your co-workers are all telling you the market is going to crash and you should sell all your stocks.

It'll probably be the most important investing move you'll ever make.

Rest Easy

Once you've set up your IPS, check your accounts once a year to rebalance.  I like having an excel spreadsheet that shows my total portfolio and how it's allocated, and over time I like to track progress as a motivator.

The peace of mind I've had since deleting CNBC from my channel lineup has been wonderful.  Speaking as a true recovering addict, I now kindly avoid water cooler discussions about the stock market and try my best to get friends and family to do the same.

So, friend, let me know if you have any questions... and take care until the next time!
TB

4 comments:

  1. Excellent advice! Buffett famously said that he buys on the assumption that they could close the market the next day and not reopen it for five years! It takes a rare talent to tune out the noise.

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    1. That's a great point. A lot of investors don't really understand the benefits of waiting a year to qualify for long term capital gains vs. short term. How does a 0% tax rate sound for many investors!?

      Thanks Moneycone!

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  2. I stopped watching CNBC quite some time ago, most of the commentary is a complete waste of airtime. What investors should pay attention to are the overall economic indicators and invest in quality index funds. Rebalance quarterly and bump your conservative holdings as you approach retirement.

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    1. Wise words from a wise man. Thanks PAUL!!!

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