What Warren Buffet Wrote and How CNBC “Spun” It?

Editor’s Note: It is our belief that all financial networks share the biases we describe in this article. We mention CNBC specifically because it is the leader in market coverage, because we have watched CNBC for years and watch it every day. We do switch channels from time to time to watch Fox Business and view the interviews on Bloomberg.com.  As far as we can tell, these two networks share the same coverage characteristics we attribute to CNBC in this article .

Warren Buffet, the great investor who is called the “Oracle of Omaha” wrote an important opinion article* in the New York Times on Friday, October 17, 2008.

In this article, Mr. Buffet disclosed that he has been buying American Stocks during this awful decline for his personal account. He also disclosed that he only owned United States government bonds in his personal account until he started buying American stocks in this decline.  Then he wrote,  “If prices keep looking attractive,  my non-Berkshire net worth will be  100% in United States equities. ”
(emphasis ours)

We emphasized the conditional clause “If prices keep looking attractive” because that is the one of the two most significant clauses of this article.  Rebecca Quick of CNBC, to her credit, pointed out several times on Friday that Mr. Buffet bought stocks during the decline on Thursday, October 16, but stopped buying when stock prices rallied Thursday afternoon.

In other words, Mr. Buffet, in his own words, seems to be stating clearly that he is a buyer only if stocks keep declining or stay at the levels they were on Thursday morning. The explanation by Ms. Quick seems to be a clear admonition to CNBC viewers to NOT chase stocks as they run higher.

Unfortunately, Ms. Quick was among the very few at CNBC who stated what Mr. Buffet meant. CNBC as a network  seemed to proclaim Mr. Buffet’s article as a sign that stocks should be bought.

The other significant sentence in Mr. Buffet’s article is the statement that until recently, he did NOT own any stocks in his personal account, only US Govt. Bonds. In other words, Mr. Buffet totally avoided this year horrific decline of 40% in the US market.

This is very different from the condition of the average investor. Most investors, we suspect, have invested a significant portion of their net worth in the stock market. The pain suffered by these investors has to be massive and heart-breaking. Mr. Buffet, in our opinion, is not suggesting that these investors double-up on their equity holdings.  If the markets go up, then these investors will benefit because their losses will be reduced. But, if these investors add to their stock holdings and as Mr. Buffet warns, he proves to be wrong in the near-term, then stock markets would go down further and these investors would lose even more money than they have already lost.

As we wrote earlier, CNBC, as a network, promoted the Buffet article as a signal that stocks were cheap and should be bought. In our opinion, CNBC’s Power Lunch show (noon to 2:00 pm) behaved in the most egregious manner. This show hyped the Buffet letter and made it the cornerstone of their campaign to urge their viewers to buy stocks.

While we dislike such behavior, we feel that frankly, viewers need to exercise caution when they watch CNBC or other financial networks.  

The primary mission of a television network as a business is to make money. It does so by a single minded devotion to keeping its ratings high by ensuring its viewers continue to watch the network.

Every financial network understands that when people get out of stocks, they stop watching financial shows. This is why financial networks preach the gospel of being a long term investor in stocks**. This is why they trot out their contingent of large equity managers who keep advising viewers to stay fully invested in stocks.

This is why CNBC only trumpeted the portion of Buffet’s article that announces that he has been buying US stocks.

If this does not suggest, “Caveat Viewer”, what will?

* You can read the article by Warren Buffet at http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&ref=opinion&oref=slogin

** This is why we give kudos to Jim Cramer for suggesting to viewers that they take a portion of their money out of the stock market. This was a courageous act and such acts are very rarely seen on Television.

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