The Financial News Media Is Detrimental to Your Returns
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives
Although innate biases lead to irrational investment decisions, external levers influence our investment behavior as well – none more so than the financial news media. When seeking information to help your odds of investment success, know the difference between entertainment and sound advice.
Professional investors don’t rely on CNBC
Professional investment firms tune into financial news channels like CNBC for background noise and atmosphere, rather than as sources for actionable information. By the time the financial news media broadcasts a headline that might actually have market impact, the professionals have already received that information using more sophisticated methods.
For example, most investors monitor major economic news and indicators by subscribing to real-time news services. High-frequency traders go many steps further. Their algorithms are plugged in directly to news sources, parsing the feeds for actionable data that automatically trigger buy and sell orders. These market participants react in milli- and micro-second time frames. By the time you blink, a history of trades has already taken place. The few seconds of lag time it takes for economic news to traverse to CNBC is an eternity in the high-frequency trading space.
If CNBC doesn’t help you in the short-term, what about watching to gain an advantage for longer-term market insight? Well, to test whether there is value from watching CNBC at all, pay attention to the markets. If the content on CNBC was useful, then the markets would react.
In actuality, the markets don’t care what anyone says on financial news channels. The conveyor belt of guests and influencers are ignored. Most talking points are about events that have already happened, and opinion pieces are irrelevant. For example, Jim Cramer’s recommendations have no market impact; there is no Cramer “bump” in the prices of those securities he recommends. This not because the markets are stupid. Quite the contrary; if there was any value to the content on those shows, the markets would take notice. The reality is that hyper-competing market forces are too efficient to rely on CNBC.