With the information age we live in there is no shortage of coverage or opinion on the financial markets. Instant updates are delivered on your phone and you need only tune in to one of the many financial channels such as CNBC or Fox Business to get their hot takes on the markets. It would seem that someone smart, good looking, with endless reasons to support their position would be a good source of financial advice, right? Not so fast!
What one must realize is that these financial websites and television networks exist for one reason, to get people to click on links and tune in so that they can sell advertisements. It doesn’t matter how good or accurate the news they report is. No viewers means no advertisements which means they don’t exist anymore. Because of this financial news networks have a perverse incentive to run stories that promote fear because that gets more people to click on links and tune in. On the positive end they have an incentive to run or publish people with extreme positive views because, once again, that is going to get more viewership.
Additionally, I have seen fund managers, especially those who know their comments can move markets, go on TV and say the opposite of what they really think. Why would they do this? Let’s say a fund manager has a big position of a stock he wants to buy. Instead of going on TV and saying that he really likes the stock he will instead use his TV appearance as an opportunity to bash the stock. He knows his comments will panic people, get them to sell, and drive the price of the stock down. This panic he intentionally creates gives him a prime opportunity to buy at a lower price.
Bill Ackman, CEO of Pershing Square Capital Management, gave us a prime example of this on March 18, 2020 at the height of the coronavirus market crash. Mr. Ackman is a terrific fund manager and a person whose comments can move markets. On this particular day Mr. Ackman went on CNBC and pleaded to President Trump to shut down the country for 30 days and also said that Hilton stock could go to zero soon if no action is taken. These comments caused a huge upheaval in the stock market sending it plummeting afterwards on further fears of economic shut down.
On Wednesday, March 25th it was reported that Bill Ackman turned a profit of $2 billion after he sold the investments he had made that were betting on a decline of the market. He then took those profits and used the proceeds to add to existing positions, including Hilton which he said the week earlier could go to zero! It could be argued that Mr. Ackman intentionally created market chaos and then profited from that. Mr. Ackman did receive much criticism for this in the media but unfortunately there is nothing illegal about what he did. As long as nothing illegal is being done this kind of thing is going to continue to happen.
Even if you assume the best of intentions for a fund manager or market commentator and they are telling you what they genuinely believe you still should not listen to them. Why? You are getting a snapshot of their opinion on that particular day of the week. It could change a week later and you would never know. So either way you look at it, taking investment advice from CNBC or any other financial news source is not in your best interest.
Financial media is interesting and entertaining. In my opinion there is nothing wrong with watching to be informed of the latest headlines. However, using it to make investment decisions is not likely to turn out well for your investment portfolio.
Portfolio Manager & Financial Advisor
Bluewater Investment Strategies, a member of Advisory Services Network, LLC
All views/opinions expressed are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.