When you’re looking for investment advice, CNBC may seem like a perfect option. The news outlet focuses on topics related to business and investing almost exclusively, which makes it seem like the ideal choice. This question is, are the recommendations on CNBC sound? If you’re wondering if you should get your investment advice from CNBC, here’s what you need to know.
Separating Flash from Solid Advice
One of the main issues with turning to a television station for investment advice is that media approaches to information sharing often rely on flash and feelings. Not unlike clickbait titles on articles you see on social media, many of the lead-ins that are there to keep you tuned in are designed to invoke emotional responses.
In the world of investment advice, the emotion they target watchers with is usually excitement, fear, or a combination of the two, such as the “fear of missing out.” Some of the shows also try to be “entertaining,” featuring bright visuals, sound effects, or other triggers designed to keep a person engaged.
The issue is, the flash doesn’t mean the advice is solid. When market “gurus” – like CNBC’s Mad Money host, Jim Cramer, who is well known for his on-air antics – make market calls, on average, they are right less than half of the time. Jim Cramer’s accuracy rate during the analyzed period was just 47 percent.
However, even with the frantic approach, that doesn’t mean everything personalities like Jim Cramer share should be ignored either. Commonly, Jim Cramer offers some great recommendations, particularly when it comes to encouraging viewers to do their own research.
Often, when it comes to the fundamentals, CNBC does offer some stellar advice. Many of the hosts advocate for diversification, research, and making choices that align with your risk tolerance. All of that is positive. The problems usually only arise when it comes to specific stock recommendations, as many of the “experts” are wrong about as often as they are right.
The Risk of Hype
When a stock recommendation hits CNBC or other business channels, it can create a lot of initial hype. Many people believe they can rely on the advice, so they make investment decisions based solely on it.
The problem is, since a large group of viewers is getting the same recommendation simultaneously, this can lead to a significant uptick in activity. When that occurs, you get a heightened amount of volatility, so much so that it may unfairly or unjustifiably inflate or deflate the value of a particular investment.
If you hop onto the bandwagon, you may be buying or selling at a less than ideal moment. The price you end up with may not be an accurate reflection of what that investment would typically be worth, causing you to experience a greater loss or smaller gain than you would under different circumstances.
Dealing with the Onslaught
With business channels like CNBC, the sheer volume of information you’ll be subjected to can quickly become overwhelming. For television, stations understand they need to keep viewers engaged. Usually, a deep, methodical dive into an investment topic isn’t the way to maintain viewership. Instead, it’s rapid switching between new ideas that keep watchers glued to their seats.
Often, this means viewers are being given more information than they could reasonably manage. Any recommendations merely scratch the surface of what a person should know before making a decision about where to place their money.
But since there are so many recommendations, stopping to do your own research on all of them might not be practical, leading some viewers to skip that part and move their money based on the advice alone. To put it simply, this is never ideal, as it means investing in something without knowing the full story.
However, that doesn’t mean you can’t use the advice as a starting point. You simply need to focus on one or two of the presented options and then spend time digging into each one before you make a decision. That way, you can make sure it’s actually the right move for you.
Avoiding High Churn in Your Portfolio
Another issue with many business channels like CNBC is they don’t benefit from recommending the same investments over the long-term, even if they would be sound recommendations. Constantly promoting the same options isn’t going to keep viewers engaged, as they’ll soon learn what to expect.
To keep watchers intrigued, channels like CNBC need to mix things up constantly. As a result, they promote new investments frequently, often to the point where keeping up would result in a significant amount of churn in most portfolios.
When you’re constantly buying and selling, you aren’t necessarily coming out ahead. This is especially true if your broker has a fairly high fee structure. Additionally, it could wreak havoc on your taxes.
Again, this doesn’t mean any particular recommendation isn’t sound. Instead, it is simply that following every piece of advice could have ramifications, something that isn’t commonly addressed on CNBC.
By the Time It Hits CNBC, It May Be Too Late
In some – but not all – cases, by the time a stock recommendation comes rolling through a business channel, including CNBC, it may be too late to capitalize on certain investment options. At times, a stock makes the news because of a meteoric rise.
By the time that rise is noted in more mainstream media, average investors may not be able to capitalize on it. Now, if you’re a firm believer in doing additional research, you may be able to separate stocks with more potential from those that have hit a peak. However, even that can be tricky, particularly as news stories bring the stock to the attention of more people.
Should You Use CNBC for Investment Advice?
Overall, CNBC can have some solid investment advice. You can certainly use it as a resource. The thing is, it shouldn’t be your only source of recommendations.
The main issue is, you need to separate the good from the flash and the hype. At times, this isn’t easy, usually requiring additional research on your part.
Additionally, even a solid recommendation may not align with your investment strategy. Again, research can help you determine if it’s a good move for you.
If you want to use CNBC as one resource among many, you may be in good shape. Like with investing, diversifying your information sources is a smart idea. That way, you can get a more complete picture, increasing the odds that you’ll make the best decision for you.
Do you consider CNBC to be a good source of investment advice? Why or why not? Share your thoughts in the comments below.
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