Thursday, April 21, 2011

Why You Should Turn Off CNBC

Up until yesterday, it had been a long time since I really watched CNBC. The business news network is a ubiquitous presence on trading floors and in the homes of many investors throughout the world. As a younger investor, I was one of those people addicted to the constant flow of information and endless ticker scrolling across the screen. Ultimately, I wised up and turned the channel to something that became more interesting, namely, SportsCenter. The problem with CNBC and other business news networks is that not only do you suffer from information overload, but by being drawn into the constant drone of information, you're more likely to make a rash investment decision as you begin to believe in the madness of crowds and adopt the "herd mentality." You may even think things like, "hey, if everyone is doing it, why am I so late to the party?"

I tried watching yesterday but I felt compelled to turn it off after a half hour. A key afternoon segment focused on gold prices hitting all-time highs and the show highlighted different ways individuals could "profit from rising gold prices". This is precisely the problem with CNBC - where were they when gold prices were at levels much lower than they are now? I fear some investors watching the network may have felt compelled to add a significant gold position to their portfolio at the expense of a more rational thesis (namely, having a plan and sticking to it). Unfortunately, this type of thing happens all the time on business networks. If it's not gold that they're talking about, you can simply insert whatever commodity/market sector/area of the world that's experiencing major out or underperformance and CNBC will have plenty of "experts" on telling you how you can make money off the moves.

This is not to say that I blame CNBC - they're simply catering to an audience who craves business and market news - but therein lies the problem. A financial news network should never dictate what investment decisions you make and the noise that it represents serves as a big distraction when it comes to your overall investment plan. If investors are serious about building wealth, they would realize that you don't build wealth by following what CNBC says. You build wealth by creating an asset allocation plan that works for you and systematically investing in it for the long-term.

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