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Invest In What You Can Understand

What if you based all your investment decisions on CNBC? I would tell you that you would be disappointed in your results, but that’s exactly what many investors do. They keep coming back to CNBC for investing advice, even when the results of that advice are often underwhelming.

Why do investors follow CNBC, and why should they cut the umbilical cord to this cable channel? In a recent Slate article, author Andrew Fineberg offers some insight.

According to Fineberg, CNBC makes its living by preying on the emotions of investors. By manipulating and capitalizing on investor emotions, CNBC keeps investors coming back, even when it’s bad for them. In his article, Fineberg describes how CNBC does this to investors by keeping them on edge, worried, and confused about what might happen next. Anxiety is CNBC’s friend; viewer hypervigilance is its bread and butter.

In other words, CNBC makes viewers nervous in a very specific way. Nervous that they’re about to lose money in a market downturn. Nervous that they might miss a hot trend or stock. Or uncertain that they’re in the right sectors. Then an “expert” comes on and says, “Hey, you’re in the wrong sectors—it’s time to leave tech for industrials, financials, and health care.” In its sober, rational way, the network creates a sense of urgency. Although its tone is never like that of an infomercial, sometimes the message is similar. Act now!

CNBC is able to capitalize on both optimistic and pessimistic investor sentiment. If the sentiment is pessimistic, CNBC “experts” will urge investors to try other stocks, industries, and sectors. If investor sentiment is optimistic, these same experts will urge investors to load up so as not to miss out.

What investors don’t realize is that CNBC is just one player in a big pool of market manipulators whose sole purpose is to manipulate investor emotion in order to keep them hooked and in the game. As long as investors stay in the game, Wall Street wins, whether investors win or lose.

CNBC is able to manipulate investors because they prey on the unknown and investor lack of knowledge. They create dependence and reliance on so-called “experts” to fill knowledge gaps for investors who often invest in companies, markets, sectors, and industries they know nothing about. They keep investors guessing because if investors ever clued in and knew what they were investing in, they’d be less susceptible to being swayed by CNBC and its pseudo-experts.

Do you want better returns? Invest in what you know. Because when you invest in what you know, nobody can lie to you, manipulate your emotions, or talk you into investing in something you’re not familiar with or comfortable with. Investing in what you know is actually one of the golden rules of investing, according to Warren Buffett.

Once, when Warren Buffett was asked why he doesn’t jump on the bandwagon of hot tech stocks like Facebook, and Snap Chat, he responded that he never invests in a business he cannot understand. He can understand the value of brick-and-mortar companies that sell appealing goods and services, and he can understand the value of commercial real estate, but he can’t grasp the value of some tech stocks that are untested and have yet to establish profitability or value in the real world.

Warren Buffett shying away from businesses he doesn’t understand is not uncommon among sophisticated investors. To them, it’s just speculating. You’re betting that a market will develop or that a company or its goods or services will one day prove to be valuable. Smart investors don’t give in to hype. They are not emotional investors. They don’t speculate on the future. They prefer to stick to what they know and to what has already proven to be successful.

The average investor—the same ones that watch CNBC—invests based on fear and hype. Sophisticated investors base their investment decisions on data, metrics, and track records. They are more interested in long-term value and returns than in chasing unicorns. While everyone else is trying to hit a home run by buying low and selling high, sophisticated investors prefer consistency—consistent income and growth.

If you want to make money, not only should you step away from CNBC, you should step away from Wall Street altogether. While financial media outlets like CNBC and other Wall Street outlets spew investing advice, investors would benefit by ignoring this advice and just sticking to what they know and understand.

Everyone understands real estate and how investing in it makes money through rents and appreciation. By investing in something you know and understand, like real estate, you can avoid the manipulation of players like CNBC and invest based on data and math instead of emotions.

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