How CNBC Built an Entire Financial Channel That Mainly Loses People Money

If you wanted to design a financial channel that would cause investors to underperform the stock market, you’d create CNBC, NBC’s financial counterpart that runs on cable news and ostensibly tries to make viewers better investors. You’d make it sober and rational (well, there is Jim Cramer, but we’ll get to him later), no need to feature anyone foaming at the mouth about stocks that could triple in six months or worried Cassandras warning that it’s time to sell everything and burrow underground.

And yet, you’d ensure that viewers stay engaged by keeping them on edge, worried and confused about what might happen next. Anxiety, you’d discover, is your friend, viewer hypervigilance your bread and butter.

In other words, CNBC makes viewers nervous in a very specific way. Nervous that they’re about to lose money in a market downturn. Nervous that they might miss a hot trend or stock. Or uncertain that they’re in the right sectors. Then an “expert” comes on and says, “Hey, you’re in the wrong sectors—it’s time to leave tech for industrials, financials, and health care.” In its sober, rational way, the network creates a sense of urgency. Although its tone is never like that of an infomercial, sometimes the message is similar. Act now.

The problem is, hypervigilance is probably the worst quality most investors can have. “Sit on your ass,” the late Charlie Munger advised investors, emphasizing that when it comes to investing, less is more. Feeling nervous leads to excessive trading. And “all the evidence shows that individual investors do worse the more they trade,” says Jay Ritter, professor of finance at the University of Florida’s Warrington College of Business. “Buying and selling something based on what you see on CNBC is not likely to be a successful strategy.”

Studies also indicate that trying to move deftly from sector to sector is a mug’s game. Which means CNBC is in the strange business of telling viewers that they can do things—time the market, pick winning sectors—that can’t actually be done.

I’ve been watching CNBC more than I should because I’m writing a book on investing mistakes. (Watching financial TV merits its own chapter.) In October, the channel almost caused me to make a $5,000 blunder. And believe me, I should have known better than to get steamrollered into a bad trade. I was a market-beating money manager for 15 years. I’m not an idiot. Most days.

So, there I was, just doing research, not thinking about buying or selling anything, when the talking heads began discussing Netflix’s earnings, which were due the next day. I own Netflix, and everyone with an opinion on the stock on the 5 p.m. show Fast Money was bearish. One man said confidently (if you don’t sound confident, you don’t get on CNBC) that the earnings would probably send the stock diving another 10 percent. Netflix had been befouling the tape of late, falling 26.7 percent in the past three months and declining on 21 of the previous 29 trading days. I had already noticed this. My 106.8 percent profit was now a 51.7 percent profit. Oopsie.

And that’s when the loose trading talk got me squirming, desperate to act. Why not sell the stock today and buy it back after the earnings debacle that everyone could see coming? There’d be no tax consequences, since I held Netflix in a retirement account. I could make 10 percent by avoiding that obvious 10 percent decline. Thanks to the out-of-character tizzy watching so much CNBC threw me in, I came close to making the trade. Normally, I never dart in and out of stocks, but hey, shame on me—if you don’t intend to trade, don’t watch a show called Fast Money.

As it happened, Netflix surprised the Street—and CNBC and me—with terrific earnings and excellent guidance. The stock rose 16.1 percent the next day. It’s up 56.8 percent in the four months since the pre-earnings close.

Part of CNBC’s problem is that it actually does try mightily to help investors. It seems to mean well, even as it sabotages investor performance. Its questioners are smart and well prepared. But its determination to protect the little guy sometimes gives it an unarticulated agenda. Consider Nvidia, the sixth-largest company in the world by market capitalization and the hottest large-cap stock of 2023 (up 239 percent). I’m anything but a disinterested observer here. I have 5 percent of my portfolio in Nvidia vs. its market weight of 3.3 percent.

Maybe they’re scarred by the breathless way the network treated internet stocks before the tech crash of 2000, but CNBC anchors are not encouraging viewers to buy Nvidia. Quite the contrary. While they often chide guests for not owning Apple—or enough Apple—they never blame anyone for shunning Nvidia. Few guests say they own the stock, and those that do tend to have small positions. Granted, resident guru Cramer says he’s wildly bullish on Nvidia, but a quick look at the CNBC Investing Club portfolio, which he runs, tells a different story. Nvidia accounts for 2.9 percent of Cramer’s portfolio, less than its 3.3 percent market weight. So, mathematically, he’s slightly bearish on Nvidia, although he is bullish compared to … almost everyone else who appears on CNBC. (On Jan. 2, he reduced his holdings in Nvidia and Apple, as well as some other large tech stocks.)

On Aug. 23, though, Fast Money contributor Bonawyn Eison broke ranks and recommended that viewers buy Nvidia at $500. But he cautioned that if the stock fell to $450, people should sell. Five days later, the stock breached $450. A 10 percent loss in a week is obviously not good, and two months later, Nvidia hit $392.30. At least the sell part of Eison’s trade was looking smart. Except that, as of the close on Feb. 12, Nvidia is trading at $722.48, so what is someone to do who bought at $500 and sold at $450 or $392.30?

This is what I mean when I say that one of CNBC’s fatal flaws is that the channel encourages trading, and most people, both professionals and amateurs, stink at trading. I’m awful at it. Still, I do know that when you own a highflier like Nvidia—an undeniably great company—bailing out after a 10 percent decline doesn’t make sense. Highfliers are volatile: 10 percent moves are frequent and usually meaningless. Why isn’t that the kind of context CNBC is offering its viewers?

CNBC’s broadcast day starts calmly. There’s economic and political news, plus a trading recap—Asia, Europe, commodities. Guests opine about events—the trajectory of the economy, war in the Middle East, the Fed’s next move—that they may or may not be right about, and these events may or may not move markets. The leisurely pace encourages multitasking.

Then—watch out—the parade of CEOs uber-bullish on their companies no matter what travesties have befallen them begins. (Think: “It was a really good quarter, and we expect to be able to find our missing CFO any day now.”) Sometimes they remind me of Dustin Hoffman’s producer character in Wag the Dog, who, in the face of disaster, was fond of saying, “This is NOTHING!” A yammering bevy (or is it portfolio?) of money managers and market strategists follows. In the past five months, almost none have been bullish, with a few notable exceptions (Tom Lee of Fundstrat, Ed Yardeni of Yardeni Research, and emeritus professor Jeremy Siegel of Wharton), but the market has risen anyway.

Soon it’s time for CNBC’s unfortunate non-Heisenbergian “uncertainty principle.” Anchors and other interviewers often ask guests what to do about the uncertainty in the market. Uncertainty is a favorite word on CNBC. Alas, the people using the word in their questions seem not to recognize that uncertainty is a constant and that simply introducing the word has consequences. If there were certainty, investing would be easy, and it’s not. (Munger, who was Warren Buffett’s partner for 45 years and a great investor in his own right, estimated that only 5 percent of professionals beat the market over their careers. I’m sure many were certain they’d do better.)

In response to the questions about uncertainty, the pros either say they are holding a larger-than-average amount of cash or suggest that it’s fine if viewers, feeling uncertain, hold a 10 percent or 20 percent cash position in their portfolios. This is dangerous hogwash. Since 1926, cash has returned 3.3 percent a year, woefully less than the 10.2 percent delivered annually by the S&P 500 (with dividends reinvested). Which means that the CNBC guests who advocate holding 10 percent to 20 percent in cash are flattering and deluding viewers. The message: You, the smart viewer, will invest this cash at lower prices in a month, six months, or a year. Studies show that this seldom happens. Nervous investors who raise cash usually reinvest the money at higher prices. Only higher prices make them feel “comfortable” enough to reenter the market—or so uncomfortable with their decision to raise cash that they are now desperate to deploy it.

Then, at 9 a.m., Cramer joins the crew for an hour. (Disclosure: He and I were colleagues at the American Lawyer in the 1970s.) Cramer is living proof that education (Harvard, Harvard Law), intelligence, and experience aren’t sufficient to generate market-beating performance. Despite his history as a successful hedge fund manager, his picks at TheStreet.com and the CNBC Investing Club have underperformed the market by about 1.7 percent a year for 23 years, not even counting the $400 fee he charges. This calculation is based on Cramer’s performance from 2000 to 2017 and 2019 to 2023. I asked CNBC media relations for data on his 2018 performance but received no response. (Cramer’s performance pickle reminds me of screenwriter William Goldman’s famous assessment of Hollywood: “Nobody knows anything.” The Wall Street corollary would seem to be that Cramer and other professional investors know a lot, but what they know isn’t useful.)

Many people hate Cramer, mostly because of his bombast and over-the-top showmanship. My younger daughter thinks of him as “the man who yells.” What bothers me about his entertaining schtick is that he suggests he can turn viewers into excellent, market-beating investors when he can’t beat the market himself. Saying this, after a 23-year performance drought, is grotesque.

In 2023 his CNBC Investing Club selections trailed the market by 1.7 percent. His acolytes might have done even worse if they followed his Mad Money recommendation of keeping 10 percent of their portfolio in gold. (Gold rose 11 percent in 2023, far less than the S&P 500’s return of 26.2 percent.) Through Feb. 12, he’s beating the market by 0.4 percent.

But results be damned. Cramer and CNBC relentlessly hawk his investing club, which costs that $400 fee a year.

So, trying to see what was going on here, I paid the $400. I was shocked at what I found.

Cramer repeatedly sings the praises of Nvidia and Apple, saying they are the two stocks you should own and never trade. He’s been so adamant about them that I assumed he was overweight both stocks.

But he’s not just underweight Nvidia—he’s underweight Apple too. His portfolio has 4.9 percent of its money in Apple, less than Apple’s 5.5 percent weighting in the U.S. market. Kudos to him for recommending the two stocks, but if you followed his portfolio religiously, you would have lost ground to the market every time Apple and Nvidia rose. (Cramer also holds 14.1 percent in cash, which is high.)

One of Cramer’s defects, then, is that he doesn’t put enough money into what he considers his best ideas. It’s a common investor failing—and one that I share. I bought Alphabet (parent of Google) a month after it went public in August 2004 and have owned it ever since. The stock has risen from $3 to $147.53 since I bought in, but I have nothing to brag about. It hasn’t helped my performance all that much because I kept pruning my position.

Turns out, I was inadvertently following Cramer’s Mad Money rule No. 1: “Pigs get slaughtered.” That’s old Wall Street wisdom, and it’s terrible advice. Oh, sure, if you bought a highly speculative stock or a piece of raw sewage meme pump-and-dump like Tupperware at $1 and saw it zoom to $5 (it’s now $1.49), you should sell some or all of your position. But when you own a great company, the rules are different. You need to press your advantage. That doesn’t mean you allow Nvidia to account for 40 percent of your portfolio—that would be arrogant folly—but you do follow the genuine Wall Street wisdom that says “Let your winners run.” I didn’t sit on my ass enough. I think my failing is the result of excessive risk aversion and the fear of doing something stupid. I don’t want to be that rare person who had a gargantuan gain in Alphabet and then lost money. Then again, all great stocks suffer huge declines at some point—Amazon fell over 90 percent from late 1999 to 2001—and I didn’t want to be caught in that kind of vortex. Silly me. I don’t intend to make the same mistake with Nvidia.

Or, to quote George Soros: “It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.”

To be fair to Cramer, maybe he’s not actually looking to maximize profits. He says one of his goals is to help his followers stay in the game, to make sure they avoid severe losses. He knows that booking profits makes them feel good, so he trims winners frequently, even if it results in more haphazard outcomes ultimately. And if noninvestors become investors because of Cramer—then follow him—he is performing a service, even if those investors trail the market by 1.7 percent a year. At least they’re in the market. Stocks rise 10 percent a year, on average, and are the best investment the average person can make, so being in the market is essential if you can afford it. Besides, thousands of financial planners and money managers charge 1 percent a year for delivering results worse than Cramer’s.

The CNBC paradox is that giving investors more information can hurt them because—hello, hypervigilance—it makes them think they need to act all the time to make money, when the opposite is actually true. Going on automatic pilot is the best course for most investors, but simply turning on CNBC can make an investor think he needs to override the controls. The one thing CNBC anchors can never say is that there is a way to avoid losing the investing game. Virtually all investors would do better if they owned nothing but index funds and never traded them, except—perhaps—to lower their risk profile as they aged.

You don’t need to know the investing record of CNBC experts to be suspicious of what passes for on-air wisdom. Four stock pickers, including Dewardric McNeal of Longview Global LLC and Barbara Doran of BD8 Capital Partners, recently mispronounced Nvidia as “Nuh-vidia” rather than “En-vidia.” This suggests they’ve never listened to a single company conference call or, heck, simply paid attention when other pros were discussing the stock. And yet they felt competent to discuss it on national television?

There’s a cautionary tale there somewhere, but then almost all of CNBC is a cautionary tale. Why would a network keep telling viewers to do things that don’t work and never tell them to do the one thing that does work?

Because that’s its job. Nervous, restless viewers, not stock outcomes, pay the bills. It’s fine if the viewers’ portfolios don’t do all that well, as long as viewers worry enough to tune in. There’s no incentive to protect them from themselves.

So, instead, you protect them from Nvidia. And tell them they shouldn’t feel bad about missing the enormous Nvidia rally because, well, now they’re likely too late. Chasing it here would make them greedy and, quite possibly, foolish. And remember, losing money in Nvidia is a terrible thing.