Just How Good are the Experts on TV?

About three months ago, I wrote a post about why it’s dangerous to listen to self-proclaimed stock “experts” instead of doing your own research. In that post, I included the same graph of my portfolio compared to the S&P 500 that can be found on the cover (and throughout the inside) of my book. MVD

In my book, I have an entire chapter devoted to stock “experts” and the benefits and limitations to their advice. I especially focus on Jim Cramer and CNBC because I learned so much from Cramer and all of the CNBC crowd when I first started educating myself about the stock market. However, it’s extremely important that you stay grounded when listening to some person on TV in a suit bloviating about some “can’t miss” stock. From my book:

…the biggest problem with TV [analysts], in my opinion, is that there is very little accountability for the “experts.” Sure, the anchors might call some of the guests out for being wrong on a trade, but people are bad at assessing trends based on a single data point at a time. In baseball, I can tell how good a hitter is because as soon as he steps to the plate his batting average is displayed on the screen. A .270 batting average tells me that he gets a hit 27% of the time. So why don’t the guests on CNBC have batting averages? If the host calls out an expert on an incorrect pick, it is easy for the viewer to think, “Oh, he got one wrong. Everybody makes mistakes. He is a TV stock expert, so I’m sure it was just a fluke.” But if I see that the “expert” has a stock batting average of .270, I might not be so inclined to listen to him or her when he or she is only right 27% of the time! Unfortunately, the TV channels do no such thing. Remember, CNBC wants viewers to believe that they need to watch their network to gain insight on their investments. If the insight comes from an expert that is only correct 27% of the time, the viewers will think that watching CNBC is a waste of time.

The other day, I saw on CNBC as close to a trader “batting average” as I’ve ever seen, and it was pretty insightful. CNBC’s “Fast Money Halftime Report” has a contest going for 2014 among eight of their esteemed analysts in which they compete against each other using mock trading accounts to determine which of them will be “trader of the year.”  Here are the results year-to-date:

Joe Terranova: +23.0%
John Najarian: +18.8%
Mike Murphy: +16.9%
Pete Najarian: +12.8%
Josh Brown: +9.4%
Stephanie Link: +4.3%
Stephen Weiss: +0.7%

For those of you who are observant enough to notice that there are only seven names on that list, apparently Simon Baker tapped out sometime in July. Based on Baker’s decision to withdraw coupled with the fact that I can’t find a single surviving online reference to his performance prior to him bowing out, I’m guessing he wasn’t in the running for trader of the year…

And of course, for reference, the S&P 500 is up 8.0% overall this year.

I didn’t write this post to make a point about which analysts on CNBC are reliable and which ones aren’t. Sorry Joe Terranova, but it will take more than nine months of out-performance to impress me. And I’m not trying to sell the Najarians’ book on options trading. In fact, last time I saw, they weren’t selling it either, they were giving it away absolutely free if you just pay the $49.99 for shipping.

The point of this post is to address the reliability of TV “experts” as a whole. I think many viewers might have assumed back at the beginning of the year that each of the eight professional CNBC stock traders would outperform the overall market, and the title of “trader of the year” would go to the one whose gains were most astronomical. However, the actual results paint a totally different picture.

Four out of the eight traders have impressively outperformed the market as a whole. Josh Brown is only outpacing the market by a whopping 1%. And three of the eight traders (including Simon Baker, I assume…) have under-performed the market.

I’m not one to talk, as my portfolio is only up 3.3% this year. However, I’m fine with slight positive under-performance so far this year after major out-performance the past two years.  My portfolio was actually down 3% in 2011 before surging 96% in 2012. Investing is a marathon, not a sprint.

Also, I’m not a professional stock analyst for a major cable network. So there’s that.

I can’t judge any of these CNBC traders based on nine months of results. The sample size is just too small. However, as I have said before, just because someone is on TV with a box under his or her flapping pie hole that reads “CNBC Financial Sector Analyst” does not necessarily mean they have any talent whatsoever when it comes to predicting stock price movements.

In a nutshell, the opinions of analysts, professional traders, and other TV “experts” can be useful if you understand the many caveats that come attached to them. But blindly following any of their advice can lead to some major disappointment.

In my book, I talk about why my portfolio has vastly outperformed Jim Cramer’s charitable trust over the past five-plus years. Here’s a hint: I play by a different set of rules than anyone talking on CNBC plays with, and it opens up a world of opportunity for me that none of them have access to. And even if you don’t care about why I’ve bested Cramer, maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common SenseI don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!