Tuesday, January 16, 2007

CNBC: From Great to Ridiculous - Buffett to Ratigan

I had the day off for Martin Luther King day yesterday and was alone in the house so after doing a few chores and things, I put the TV on to see if anything would catch my interest.

CNBC had a documentary on "the history of video games," which I really enjoyed. I played a ton of video games growing up, starting with the Oddysey system and the Commodore 64 when I was a kid. It was interesting to see the business machinations behind the consoles I spent hours on.

One of the commercials advertised a Liz Claman (the host of CNBC's Morning Call ) interview with Warren Buffett coming up at 7pm. As many of you know, I'm a Buffett fan, so I made a mental note to check out the program at that time.

Seven o'clock rolled around and I parked myself in front of CNBC in time to watch the program. It was a pretty good show. Liz basically hung out with Buffett for a day, he showed her around Omaha, Nebraska, and they talked about his life and his philosophy.

The focus of the show seemed to be more on his lifestyle than on his investment guidelines, which was somewhat disappointing to me. He is a billionaire, but he lives a fairly simple life. He likes to go home after work and watch some Nebraska football. He doesn't attend many social events. He doesn't have huge sprawling estates etc... It was all stuff I had heard about before, but it was interesting to see him talking about it in person.

If you were looking for any insights from the program, you were looking in the wrong place. Buffett basically said he looks for businesses with four characteristics: 1) He understands them 2) The management team is competent and ethical 3) They have a sustainable competitive advantage and 4) They are selling at the right price.

For anyone who's read any of the Buffett books, none of this stuff should come as a surprise. The question I'm waiting for someone to answer is EXACTLY how Buffett puts a price on a stock. I know he uses DCF models, but I don't know what his inputs look like. I don't know what he uses as a discount rate, which cash flows he models etc... I know he doesn't subscribe to modern portfolio theory, so he ignores Beta and the CAPM and all of that stuff, but I would basically like to see him price a business. As far as I know, nobody has ever gotten into that level of detail with him.

Anyway, it was a great show full of good old fashioned investing common sense.

That's why I was so shocked when I saw the piece of crap show they put on after it.

I had never seen this particular program before, but the contrast between the Buffett interview and Fast Money, hosted by the god-awful Dylan Ratigan was incredible. Here's how Fast Money describes itself on the CNBC Web site:

"Faster than a New York minute, Dylan Ratigan and the "Fast Money" traders give you the information normally reserved for the Wall Street trading floor, enabling you to make decisions that can make you money. The "Fast Money" five gives you the news, as only the savviest traders can, with an angle that you won’t see until tomorrow’s papers.

Dylan Ratigan serves as "the Commissioner" of Fast Money, orchestrating the dialogue between the four Wall Street traders:
Guy Adami, Eric Bolling, Jeff Macke and Tim Strazzini."

This is without a doubt the worst show I have ever seen on CNBC. Even worse than John McEnroe's show. There is something inherently unlikeable about Mr. Ratigan, and I couldn't stand him since the first time I saw him on the channel. I forget when he joined, but im going to guess it was within the past 8 years or so. I can't point to anything in specific, but watch him for 5 minutes and you'll see what I mean.

He surrounds himself with four of these masters of the universe type guys and they all try to talk about trading angles in a back and forth, shoot from the hip style with upbeat rock music playing in the background. The music is supposed to pump you up and get you trading, I assume. The style is kind of like Fox's NFL pregame show with Terry Bradshaw and company, but it is extremely cheesey.

The angle of this particular show was something like "how to trade global conflict and fear." Talk about a ridiculous premise! The guys went around talking about stock investments they would make if the US went to war with Iran, or if the Avian flu broke out. Every minute or so "the Commissioner" Ratigan would butt in and say "BUT HOW DO I TRADE THIS?" That was his contribution, as commissioner. "HOW DO I TRADE THIS?"

Investing is not a game. I am sure these guys got plenty of amateur investors fired up to go buy whover makes Tamiflu, or the OIL exchange-traded fund, but they did not help any actual investors. In fact, I think this show probably does more harm than good.

Honestly, a highschool kid could have made the recommendations these guys made.

One of them in particular, Tim Stazzini, reminded me of every single wall street guy I've ever met and hated in my 7 years working in the finance business. He was smug, he was overconfident, and none of what he said would have been any good to anyone.

On the other end of the spectrum, the guy I probably liked the most was Eric Bolling. Despite the fact that he's a market technician (a practice I think should be outlawed), he made some actual sense when he spoke. I disagreed with his use of charts to predict future stock price movements, but apart from that he gave some reasoned arguments.

I really hope CNBC takes this show off of the air. It's an obvious attempt to imitate the success of Jim Cramer's Mad Money program, except it's not nearly as entertaining as Mad Money. For the record I watch Mad Money every now and then for some info and entertainment, but I wouldn't wager a New York nickel on a stock based on Jim Cramer's recommendation alone.

If you want to grow and protect your savings, read an article about Warren Buffett. If you want to give your commissions to your broker, follow the crowd, lose money on your investments, and waste your time, by all means watch "Fast Money" with The Rat- Dylan Ratigan.

4 comments:

Ken - NC said...

News flash for you: following the suggestions of these guys I have made more money in the last 6 months than over the last few years follwing the suggestions of so called financial experts.

Why don't you give the show a chance. Track their suggestions and tell us whyyou could do better..

MoneyMan said...

Thanks for the comment Ken.

We have had an unprecedented bull market over the past 6 months and as the old saying goes "a rising tide lifts all boats."

You would probably have made even more money if you listened to my brother's advice (see previous post) over the past 6 months. You would have also made money throwing darts at a page full of ticker symbols over the past 6 months.

I would love to track their suggestions but a) I don't have the time and b) this would mean watching the program every night and I have seen more than enough of that show to last me for a lifetime.

As for telling you why I could do better, I'm not claiming that. In fact, I don't even want to try the game they are playing- short term trading. I see investing from a totally different viewpoint, I take a long term approach, and I could care less what the popular stock of the day is, and I also don't have the time to study and recommend individual stocks. In the short run, the market is a voting machine. In the long term, it is a weighing machine.

I would suggest you read "The Intelligent Investor" by Benjamin Graham to understand what I mean by having the time to select stocks. If you get in and out of the market, follow the advice of talking heads on a nationally televised program and don't pay attention to value, I can almost guarantee you that you're going to end up poorer in 20 years than you would have been if you just put your money into a low fee index fund tracking the S&P 500. And you'll save a boatload of time in the interim.

I don't pretend to have all of the answers. I don't pretend to have any of the answers... what I'm saying is just my educated opinion.

As Yukon Cornelius said in "Rudolph the Red Nosed Reindeer": you eat what you like and I'll eat what I like. You are certainly welcome to disagree with what I think. Disagreement is what makes markets!

Have a good one.

Anonymous said...

MoneyMan-
This is the best Article I have seen in ages.
I think the publics wallets are in jeopardy between Mad Money, and Fast Money.
Cramer recently said not to hold, but homework. He mentioned trading costs and taxes are so low today its okay to go in and out of positions. I am a Buffet fan as well and we all know Cramer and the Fast Crew will never see the weatlh that Buffet has.
Peter.

MoneyMan said...

Peter thanks for your comment. I'm always glad when something I put on here resonates well with a reader.

As for Cramer, in general I like the guy. One time on CNN (before he got really popular like he is today) in 2000 or 2001 or 2002 or somewhere around there, he was being interviewed alongside the author of "Dow 20,000" or some similar book like that. The guy called Cramer a trader and cramer went ballistic "You wrote a book called dow 20,000 and I'm a trader???!" I have admired him a ton ever since then.

I don't follow his stock recommendations though because I don't think that's a good way to go.