CNBC: A Day of Missing Information (Fool on the Hill) March 16, 2000

An Investment Opinion

CNBC: A Day of Missing Information

By Bill Barker (TMF Max)
March 16, 2000

On May 3, 1990, author Bill McKibben and some helpful friends taped all 24 hours of all 93 stations on the Fairfax, Virginia cable system. McKibben then proceeded to watch the whole thing, and from that experience came one of the best books I'll ever read, entitled The Age of Missing Information. One of the book's premises is that in this "Information Age" the ubiquitous instrument of information delivery, the television, does not entirely fulfill its promise. In homage to McKibben's incredible work, on Thursday, May 27, 1999, I taped an entire programming day of CNBC's market coverage.

Last night, I finally sat down to watch it....

It's 5:00 in the morning, and Liz Claman is welcoming the insomniacs, market compulsives, night watchmen, owls, raccoons and whoever else is insane enough to be up and watching CNBC at that hour. Coverage will continue until 7:00 p.m, meaning CNBC has a full fourteen hours to cover what information it deems most relevant for investors to know on this day. For a little perspective, fourteen hours is longer than just about any mini-series ever put on television.

The day opens with a few general news items as well as a tidbit here and there about trouble in the prospective Texaco-Chevron merger, a deal which apparently is now "on life support" according to an unnamed source. There are a lot of these during the day at CNBC -- unnamed sources, rumors of unattributed origin, and unnamed experts who "say" things, apparently often in unison at whatever club the experts hang out at.

A few insightful assessments of the upcoming day are provided ("Investors are keeping their fingers crossed for another rally like the one they saw yesterday.... Technology is still the sector to watch. The question is whether yesterday's rally was for real, or just a head-fake.") before a named expert comes on around 5:15. Jack Shaughnessy, head strategist of Advest, appears to have drawn the short straw among the talking heads today and gets the early assignment when his appearance can be guaranteed to be seen by as many as 12 people -- a figure which as it turns out might be too many.

Mr. Shaughnessy is explaining why there is "safety" in big cap value stocks as opposed to tech stocks and growth stocks. He has five picks for us, and he is given all of three minutes and thirty seconds to provide his assessment for why viewers should alter their portfolios solely on his recommendations.

His chosen stocks are Weyerhauser (NYSE: WY) ("a good long-term investment vehicle"), Ross Stores (Nasdaq: ROST) ("selling at a discount to the market... an outstanding value"), Aflac (NYSE: AFL), Allstate (NYSE: ALL) ("sells at a discount... none of the danger of growth stocks with high P/Es"), and Public Services Enterprise (NYSE: PEG) ("a good play").

Given the fact that Mr. Shaughnessy is allowed about 40 seconds to introduce each company and explain why it is a nifty buy, we can't fault him too much for the excruciating superficiality of his analysis. We can fault him for managing to get virtually everything wrong. Time reveals that Allstate is not in fact less dangerous to own because it "sells at a discount to the market" -- the stock is down 50% since the date of the recommendation. This just barely edges out the harmfulness of Mr. Shaughnessy's other picks, each of which is in the red, and as a group are now down 26%. Going 0 for 5 isn't easy, and Mr. Shaughnessy's setting a tough standard for other acts to top, but it's only 5:20 in the morning -- the day is young!

What "selling at a discount to the market" might mean goes unexplained, as does a lot of the insider jargon presented to CNBC's audience. In part this is because, with a mere fourteen hours to fill and a lot of that assigned to commercials and weather reports, there's simply no time to address a topic with any depth. I assume that Mr. Shaughnessy meant that Allstate had a lower P/E in comparison to the market's average, which is kind of a useless way to pick stocks, but -- what the heck, it's early and probably nobody is paying attention.

Using a lot of inside lingo is perhaps intended to make the long-timers feel especially good about their depth of knowledge. Take the example of Dow Jones reporter Bob O'Brien stating, with a straight face and without any sense of irony, "Computer Associates is expected to come in with better than expected earnings." The sentence bears repeating. "Computer Associates is expected to come in with better than expected earnings."

There is a piece of information that helps move this sentence out of the land of inscrutable oxymorons, but this piece of information is missing from my videotape. What Mr. O'Brien means here is that analysts have two sets of numbers that they "expect" regarding quarterly earnings reports. There is the public pronouncement, and then the real expectations, which are not uttered in public, but which are provided to institutional clients and, one assumes, CNBC reporters. One of the major problems for viewers is that these very analysts are constantly invited onto CNBC to elaborate on their public pronouncements -- the very pronouncements that CNBC's reporters themselves know (and report without even thinking about it!) are not actually believed by the analysts. Strange.

Really, there's no time to dwell on the strangeness of this, because we're off by now to the next segment, which is a piece on individual investors. (For some reason the pre-commercial teaser for an earlier piece on individual investors includes stock footage of people at what is obviously a daytrading firm.) The thrust of the "Investment Strategy" piece on individual investors is that they have it all wrong, and need the kind of help that "experts" can bestow.

According to "the experts" (not named), small investors are dangerously exposed to stocks -- "worse" they have too many Internet, tech, and high-growth stocks. Small investors should be buying more value stocks, and more bonds. Having more than 60% of your portfolio in stocks is not appropriate according to CNBC's invisible experts referenced in the report, though there's little reason given for that, or whether that is age specific advice. The possibility that the experts are working for firms that have a financial interest in people constantly rejiggering their portfolios is a piece of information which, once again, is missing.

In fact the thrust throughout is that today -- like every day! -- is a good day to completely rethink your whole portfolio. Changing your investment approach is particularly worth doing if what you have been doing has been working. As Greg Miles points out, "Without the right strategy, those paper profits could disappear very, very quickly."

On May 27, 1999, the Dow stood at 10,702 and the Nasdaq Comp at 2,427, meaning that in the intervening nine and a half months, "tech stocks" as measured by the Nasdaq have basically doubled, and "value" stocks as measured by the Dow are down.

It's not even 7:00 a.m. yet. There's a lot of information yet to be missed.

Next: Squawk Box