Why would anyone think, for even a millisecond, that when David shares a stock tip with his guest, only three people are now in the know: David Faber, the guest, and the person watching. What about the millions of other people glued to their sets? Most of whom also believe David is giving them the stock tip. Ah, the intimacy of television combined with our ability to suspend our disbelief. Don’t laugh.
We can only assume that everyone gets this great tip, calls their broker and buys? Actually this does happen. The market moves regularly when Faber speaks. However, the movement is always short term. Watching CNBC news in order to get the information needed to market decisions is problematic. But since trading is a zero-sum game, we selfishly hope millions continue to watch. Their trading losses from useless tips go directly to the winners who trade systems. David is not alone, others of course do the same thing.
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What the Faber Effect Documents
The Faber effect is documented and real: markets move when prominent financial television personalities report on specific securities. The movement confirms that retail investors act on television tips in real time. What the movement also confirms is that the information was already known to institutional participants before it appeared on television. The price move that television viewers observe when they watch the segment is the market catching up to information that was already priced into informed participants’ positions before the segment aired.
The intimacy of television that the page describes is a documented psychological phenomenon. Television creates parasocial relationships: viewers feel they are receiving personal communication from the presenter rather than a broadcast to millions of simultaneous recipients. The viewer who watches Faber discuss a stock with a corporate executive feels that they are part of a private conversation. They are not. They are one of potentially millions of simultaneous viewers, all receiving the same information at the same moment, all facing the same price impact from acting on it simultaneously.
The Christensen observation, documented elsewhere on TurtleTrader in the Innovators Dilemma context, applies directly: Wall Street analysts are theory-free investors who react to historical numbers. Television financial commentary is the broadcast version of the same reaction: it reports on what has happened, analyzes what it means, and implies what should be done. By the time the analysis appears on screen, the price has already incorporated the information that informed the analysis.
The zero-sum framing is the correct one. Every trade has a counterparty. The retail investor who acts on a television tip and buys at the post-tip elevated price is buying from someone who sold at that price. The seller is either the institutional participant who was already positioned before the tip, or the trend following system that entered when the price signal fired and is now exiting at the tip-driven price. The tip-follower’s loss of the spread between the tip price and the subsequent reversion funds someone else’s gain. The winners who trade systems are positioned before the television tip fires, capturing the move that the tip-followers chase after it has already substantially occurred.
Frequently Asked Questions
Why does the market move when CNBC personalities discuss stocks?
Because a large number of retail investors act simultaneously on the broadcast information. When millions of viewers receive the same tip at the same moment and act on it, the aggregate buying pressure moves the price. The movement is short-term because the information was already known to institutional participants before it appeared on television, meaning the tip accelerates retail investors’ recognition of already-priced information rather than introducing genuinely new information to the market.
Why is watching CNBC for trading information problematic?
Because financial television reports on information that is already incorporated into prices by the time it reaches the broadcast. The price move that accompanies a CNBC report is the result of retail investors acting simultaneously on information that institutional and systematic participants were already positioned around. The viewer who acts on the report is buying into a move that is already underway, at prices that reflect the information rather than prices that will benefit from it.
How does financial television commentary create trend following opportunity?
By producing the short-term price moves that follow retail information reactions. A trend following system that entered a position when the price signal fired is already positioned before the television tip accelerates retail buying. The tip-driven price move either extends the existing trend, producing additional profit for already-positioned systematic traders, or produces a short-term spike followed by a reversion that the systematic exit rules capture by exiting into the spike’s elevated prices. Either way, the retail investor acting on the tip provides the exit liquidity that the systematic trader collects.
Trend Following Systems
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