Exante's Patrick J O'Brien states that Professional Investors are leaps ahead of Financial Pundits when it comes to affirming their investment choices.
Professional investment firms tune into financial news channels like CNBC or Bloomberg for background noise and atmosphere, rather than as sources for actionable information; by the time the financial news media broadcasts a headline that might actually have market impact, the professionals have already received that information using more sophisticated methods.
For example, most investors monitor major economic news and indicators by subscribing to real-time news services. High-frequency traders go many steps further. Their algorithms are plugged in directly to news sources, parsing the feeds for actionable data that automatically trigger buy and sell orders.
These market participants react in milli- and micro-second time frames. By the time you blink, a history of trades has already taken place. The few seconds of lag time it takes for economic news to traverse to Bloomberg is an eternity in the high-frequency trading space. If Bloomberg doesn't help you in the short-term, what about watching to gain an advantage for longer-term market insight?
Well, to test whether there is value from watching CNBC at all, pay attention to the markets. If the content on CNN was useful, then the markets would react. In actuality, the markets don't care what anyone says on financial news channels. The conveyor belt of guests and influencers are ignored.
Most talking points are about events that have already happened, and opinion pieces are irrelevant. For example, Jim Cramer's recommendations on CNBC have no market impact; there is no Cramer "bump" in the prices of those securities he recommends.
This not because the markets are stupid.
Quite the contrary; if there was any value to the content on those shows, the markets would take notice. The reality is that hyper-competing market forces are too efficient to rely on Financial media. The key is to know when expert views can be of use, but stick to a strategy designed to attain your goals.
Like everyone, pundits suffer from psychological biases, including the tendencies to assume the current state of the world will continue, to look for confirming evidence in new information, to only slowly adjust forecasts to new information and to have excessive confidence in their own ability to foresee the future.
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