Stock Investing: Beware of TV Talking Heads

Talking heads, we’ve seen them all, they are the “investment experts” that fill a lot of TV time slots with their opinions and commentary on the market in general and stocks in particular. They are investment professionals such as portfolio managers, financial advisors and investment strategists hosted by business journalists on business channels. They appear on TV, fire a set of “likes” and “don’t likes” with a brief explanation when lo and behold every stock that was mentioned reacts by moving in the direction implied by the guests’ verdict. If the interview is live during the day, the stocks will react instantly while if the opinions were given after market close, the next morning will see the mentioned stocks react.

The fact that these stocks react to the expert’s opinion from TV indicates a sheepish behavior on the part of the investors buying or selling them. Maybe “TV investors” should question the level of trust they put in these people by reviewing the following points:

How much did you learn: The TV pundit shared some exciting information about a number of companies, you just got to know what the expert knows but what about the information he doesn’t know about the company? There is a lot of information you still ignore either because your TV expert wasn’t transparent enough with providing everything he knows or because he simply ignores that information to start with.

How much skin is in the game: What does “I like this stock” mean? Does the expert own this stock to start with? If yes, how many shares does he hold? What percentage of his portfolio is invested in this particular stock? Simply stating an opinion is useless if the guy doesn’t follow up by disclosing his personal or his fund’s holdings in that company.

How much of it is “book talking”: Don’t you wonder sometimes if the fund manager has a conflict of interest when he fires off his ratings? For all you know the fund might be accumulating a stock he “doesn’t like”. Maybe a stock he shorted needs to be talked down to give his trade some traction. Could he be looking to ease the fund’s exit of a major position in a company by spurring demand with a “top pick” label?

Even-though several variables might turn some of these picks into profit, one fact remains: You are at a disadvantage when you buy based on someone else’s recommendation because you do not know if there are hidden motives behind these ratings.

I am not here to shoot down every analyst that shows up on TV. I simply wish to shed some light on what might be lurking behind those opinions. My advice is not to act on anyone’s recommendations when it comes to stocks, always take the time to do your own due diligence. This also applies to my blog where I don’t recommend stocks to start with; I simply share my trading journal.

Have you ever invested based on a recommendation from TV? What do you think?