Previously, I discussed the fact that what Warren Buffett invests in doesn’t matter to you. Then I followed up by explaining how the media uses Buffett to make money. Here, I complete the lesson by showing you how Buffett uses the media to cash in.
Similar to Britney Spears and other “celebrities,” Buffett also benefits from Hollywood antics. You see, Buffett has been made into a financial celebrity, just as Alan Greenspan and many others have. Media exposure is just as good for Britney’s record sales as it is for shares of Berkshire Hathaway (NYSE:BRK.A). It’s a two-way street of profits. The media creates big name financial celebrities in order to draw a big audience. A big audience drives big ad revenues. And financial celebrities like Buffett benefit because investors will invest in Berkshire. Others will buy stocks he likes. That provides an added benefit to corporations because their stock price goes up. Corporations are happy, so they love spending huge amounts of money advertising with these networks. Think of it as soft dollar payments.
Buffett uses the media to help his investments in other ways. For example, on the October 1, 2008 edition of the Charlie Rose Show, Buffett said the nation has been hit with an “economic Pearl Harbor,” and “the government must respond quickly.” Most likely, the show was taped a few days earlier. But during a live interview on CNBC the same day, Buffett said “if Congress doesn’t approve the bailout plan soon, I will have done some dumb things.” He is basically saying he needs the bailout to rescue his investments (recall Buffett had recently bought large stakes in Goldman Sachs (NYSE:GS) and General Electric (NYSE:GE)).
The media should never interview anyone about policies affecting the capital markets if they have a large financial interest at stake. Many viewers might change their opinion about the need for a bailout after hearing Buffett’s “expert opinion,” when in fact he stands to lose if the bailout is not passed. So who is the bailout really for? America or Buffett?
The same situation applies to others who stood to get wiped out if the bailout wasn’t approved like Bill Gross, who manages the world’s largest mutual fund at PIMCO. As you might realize, it’s a bond fund. Gross’ huge investment in Fannie Mae (FNM) and Freddie Mac (FRE) bonds was foolish unless he realized his clout would ultimately help fuel a bailout for these government agencies (most likely the case). Regardless, in my opinion, Gross was still foolish for buying these bonds in the spring of 2008, prior to their collapse. You won’t hear the Wall Street hacks on television criticize this blunder because PIMCO spends a lot of money advertising with these networks.
Ask yourself if you see a problem with Boone Pickens being interviewed on television about oil. Ask yourself if you see problem when analysts or mutual fund managers are asked about the stock market or specific stocks. The conflict of interest and media bias are clear.
All of these examples I’ve described could be characterized as market manipulation by the financial media. There should be laws against this kind of manipulation; perhaps laws from the SEC. Media companies engaging in commentary that impacts the capital markets should be held to securities laws because they are receiving payments (via ad revenues) to allow guests to disseminate financial opinions that affect the markets. So they should be regulated as investment advisers. But that will never happen because the SEC exists to protect Wall Street, not investors.
Ultimately, the only person you should rely on is yourself. But if you don’t truly know what you’re doing, you’re better off staying out of the capital markets. Otherwise, you’re likely to succumb to the agenda-filled deception and lies from Wall Street and their partner in crime, the financial media.