Why I Don’t Watch CNBC

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, June 29, 2011: Issue #1545

This week at a meeting in New York, Investment U’s Chief Investment Strategist, Alexander Green, told a crowd of investors that they shouldn’t watch CNBC.

I couldn’t agree more.

As Alex put it, “CNBC’s goal is not to make you money, but to sell advertising.” While I believe that most of the reporters are committed to doing their best on a story, the structure of CNBC is to keep you on the edge of your seat, depending on them for information on what to do next.

  • The jobless numbers were higher than expected – what do you need to know to keep your portfolio safe?
  • Inflation ticked higher – can your portfolio withstand a higher inflation environment?
  • How should you get your portfolio positioned before the Fed meeting next week?

It reminds me of an old bit by comedian Tom Kenny (who went on to fame and fortune as the voice of SpongeBob SquarePants). Kenny talked about how sensationalized the commercials are for your local news. No matter what the story was, the voice-over would say, “Would you survive? Would your family survive?”

And then the scenarios became even more ridiculous. “What if you were in an earthquake, trapped in a store that sold nothing but knives, propped up on flimsy shelves made of jagged glass? Would you survive? Would your family survive?”

CNBC Wants a Reaction to Every Market Hiccup

That’s essentially what CNBC is trying to do. They want you to live in fear and react to every little hiccup in the market so that you’re glued to their network in order to receive the investment advice from their guests and anchors.

But if you make just one move to improve your portfolio’s performance this year, it should be turning off CNBC.

In fact, you should tune out most of the financial media.

If you’re invested for the long haul, it really doesn’t matter…

  • If inflation is up two-tenths of a percentage point this year,
  • Or if the Consumer Confidence Index dips three percent,
  • Or if the Bull Bear Sentiment Indicator switches from bullish to bearish.

Your portfolio should be positioned to withstand good times and bad. You shouldn’t be jumping in and out of the market or sectors based on news, politics, the economy, or any other event.

Why Market Timing and Portfolio Repositioning Don’t Work

That kind of constant repositioning virtually guarantees that you’ll miss some of the biggest up moves in the market and be in the wrong place at the wrong time.

In 2009, Invesco conducted a study showing the effects of missing the 10 best days of market performance over the past 81 years.

  • If you invested $1 in the S&P 500 in 1928 and held it, in 2009 it would have been worth $45.18.
  • However, if you missed the 10 best days during those 81 years (all of which came during the Great Depression and Great Recession), you’d have just $14.99, two-thirds less.

It would have been easy to miss those 10 days if you were spooked out of the market during those turbulent times. Of course, you likely would’ve missed the 10 worst, as well.

  • If you missed the 10 best and 10 worst, you would’ve ended up with $47.59, a tiny bit more than the buy and hold strategy.

However, market timing is nearly impossible. If it was easy, everyone would do it. In my 20 years following the market, I’ve never come across anyone who could do it well consistently.

You shouldn’t try, either.

Stop Depending on the Financial Media and Allocate Your Assets Intelligently

For your long term funds, be sure the assets are allocated in an intelligent way. I recommend The Investment U Asset Allocation Model or The Gone Fishin’ Portfolio, which consists of inexpensive Vanguard index funds.

I don’t mean to pick on just CNBC. Much of online financial media is designed to generate page views, not make you money. There’s a proliferation of websites that throw every ticker symbol they can into a story so that it shows up in as many places as possible – all designed so you click through to see what the news is – increasing page views.

I’ve lost count of how many times I clicked on a story involving one of the stocks in my portfolio, only to read the “news” item that had absolutely nothing to do with my stock.

The lesson here: Don’t get bullied by the media into changing your well thought out plans. Once you have a plan, stick to it, until your needs change, not the market or economy.

I haven’t had CNBC on in my office in four years. It’s wonderful.

Good investing,

Marc Lichtenfeld