I enjoy watching Warren Buffett talk. He just makes so much sense! But it’s especially fun to watch him on his semi-regular visits to CNBC. In this one from earlier this week (video below) Becky Quick does give Buffett room to talk and a chance to break some news (like his opinion that Quantitative Easing 2 should end.) But CNBC is still CNBC and it’s fun to watch her try to drag the man famous for long-term investing into commentary on the market’s momentary gyrations.
The first time Quick asks him about oil prices and the market over the last week and a half, he answers:
“I am just no good in day-to-day or week-to-week or month-to-month stock prices, and fortunately I don’t have to be.”
His reply the second time Quick asks:
“I don’t know the answer to that, that would depend on events in the future.”
As a network focused on the moment by moment movements of the stock market, CNBC is most often the opposite of long-term oriented. They’ve cultivated a similar audience. Academic studies have shown that the reaction to CNBC news coverage can be significant, and split-second. A 2001 study by finance professors Jeffrey A. Busse and T. Clifton Green of Emory University’s Goizueta Business School found that a favorable comment by CNBC anchor Maria Bartiromo about a company made during the trading day, resulted in a share price jump of “an average of 60 basis points within a minute, 11 basis points in the first 15 seconds, 20 in the next 15 seconds and 12 basis points in the remaining 30 seconds.”
Other research suggests that this kind of trading on the news rarely pays off for retail investors. Berkeley Professor Terrance Odean is among those who have studied the phenomenon. In separate studies he and co-authors have found that, in general, the stocks investors bought underperformed those that they sold, and that individual investors are net buyers of attention grabbing stocks (stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one day returns.) Mark Seasholes, then a professor at Berkeley, and Guojun Wu of the University of Houston, found that individual investors on the Shanghai Stock Exchange were also big buyers of stocks gaining attention. Unfortunately, the stocks subsequently returned to more normal (lower) levels.
“The proliferation of 24/7/365 business news channels has brought about a journalistic conundrum,” says Manisha Thakor, a frequent personal finance TV commentator and founder of the Women’s Financial Literacy Initiative. “Let’s be honest. There are just so many times viewers can stand hearing classic investment advice such as keep costs low, establish a sensible asset allocation for your circumstances, and keep an eye on the long run. While those are solid tips, they doesn’t always make for sexy TV.”
Thakor’s advice: “When watching any form of business news I always encourage viewers to ask themselves if they are watching a segment that is focused on presenting thoughtful information or titillating entertainment. The two are very different beasts indeed.”
Buffett’s not one to bend to CNBC’s rules, and in this segment does manage to give lots of insight into what he focuses on and how he does his long-term investing analysis.
(Thanks to Mycroft Psaras for alerting me to this interview.)
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