Tim Seymour is one of the traders on CNBC’s aggressive trading show “Fast Money”. This is a fun show and we like to watch it, as do many of our readers. That does not prevent us from writing constructively critical articles about this show.
Our readers seem to approve. This week, one of our articles about Fast Money became the No. 1 article or most popular article on our blog – “CNBC’s Fast Money – Practice what your anchor Dylan Ratigan Preaches” (February 21, 2009 – www.cinemarasik.com/2009/02/21/cnbcs-fast-money–practice-what-your-anchor-dylan-ratigan-preaches.aspx ).
In that article, we bemoaned the lack of transparency about the performance of the trades recommended by the Fast Money Trader Team. Our point was that viewers of Fast Money “…have a right to know details of the performance of the Fast Money trader team. Without such disclosure, how could they decide which trader to follow and which to avoid? It is a well-known fact that traders, like ball players, have their streaks and slumps. The Fast Money viewers have the right to know which Fast Money traders are doing well in their picks and which traders are in a slump either of their own making or because their style is not appropriate for current market conditions.”
Melissa Lee, a bright young anchor has replaced Dylan Ratigan as the anchor of Fast Money but the problem of transparency remains just as acute.
Today, we raise another serious problem with trade ideas thrown around on Fast Money.
- Suppose a trader on Fast Money recommended selling short FCX (Freeport McMoran, a Fast Money favorite stock), and added that he had shorted FCX himself.
- Suppose you liked the trader’s recommendation so much that you went ahead and shorted FCX yourself.
- Suppose the trade worked almost immediately and within a day or so, you had a medium sized profit, not too small and not too big.
This is a big problem for viewers of Fast Money. Last week, it also became a problem for Tim Seymour, a Fast Money trader.
Tim Seymour had recommended the above trade on the Fast Money show. But, a week later, FCX was much higher despite his sell-short recommendation. So, he was “fast-fired” or blamed on the show for recommending a bad trade.
“No, No, No!” Tim Seymour protested. He said he had shorted FCX and then taken profits in a day or so when the stock dropped. He protested that he should not be fast-fired for a winning trade. He argued that it was not his fault that FCX went much higher after he had closed his short. Then, he said on national TV “This is a problem with the show”.
Right on, Mr. Seymour. That is a problem with the Fast Money show. But with all due respect, Mr. Seymour, you only lost face on TV. Some of your viewers might have actually lost real money. We wish you had shown some empathy for them.
We do not want to unduly focus on Mr. Seymour. So, let us look at Karen Finerman, another Fast Money trader. We recall that, earlier this year, Karen Finerman recommended on air that viewers Buy Bank of America Preferreds AND Sell Short Bank of America common stock. We recall her saying on air that it does not matter which Bank of America preferred viewers choose. We do not recall Ms. Finerman ever telling her viewers on air that this trade could, theoretically, create an infinite loss.
If we recall correctly, the Bank of America preferred we track was trading around $9 at that time and the Bank of America common stock was trading around $3. As of Friday May 8, the Bank of America preferred closed around $14, a move of about 50% but the Bank of America common stock closed around $14, a move of about 467%. So any viewer that held on to Karen Finerman’s recommendation until this week got hurt badly. That viewer would be up 50% on the long position and down 467% on the short position. An utter disaster.
We have no doubt whatsoever that Ms. Finerman closed out much of her short position in Bank of America common stock a while ago. Most hedge fund managers have a strict stop-loss discipline. But, did Ms. Finerman or the anchor Ms. Lee tell the viewers to close the short on Bank of America common stock? We do not believe they did. If our belief is correct, then this lack of disclosure is utterly irresponsible.
This is a structural problem with Fast Money and not just a problem with 1-2 individual traders on the show. So, here is our constructive suggestion for the Fast Money team.
- Post every single trade recommended on Fast Money on the Fast Money website.
- Make it every Fast Money trader’s responsibility to close out his/her trades on the website.
- This will enable the viewers to check the website to make sure that they do not overstay trades and help them make real money from the show.
Because this policy would let viewers know how many Fast Money trades work and how many trades do not. This would add transparency and that might be really scary for the Fast Money traders.
So here is a simpler suggestion for Fast Money:
- When a Fast Money Trader recommends a trade, that Trader, at that time, must tell the viewers when to close out that trade. A simple and effective policy that will help viewers with their Real Money.
This past week, Fast Money began a practice of writing “Dear CEO” letters on their show. The first letter was from Karen Finerman to the CEO of DryShips. That CEO actually called CNBC back and gave a response to Ms. Finerman’s public letter. This impressed Karen Finerman and she thanked the CEO on air for responding to her public letter. The Fast Money Anchor Melissa Lee also thanked the CEO for his response.
So, Karen and Melissa (may we call you Karen and Melissa?), are you going to call us and give us a response to this article? Or do you not practice what you preach?
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