Friday, March 04, 2011

Inanity on CNBC Wednesday At Noon

Just when I favorably mentioned David Faber's noon CNBC program, it turned inane on Wednesday afternoon.

Gary Kaminsky led off the nonsense purporting to prove that 'slow and steady' wins, by showing a price chart of three companies over 10 or 20 years- McDonalds, Colgate-Palmolive and Dwight & Church. All three had average annual total returns of 13+%, with low betas, which I guess Kaminskly judged acceptable.

He made some derisive remarks about technology stocks, although I didn't see comparable charts, returns or betas. Maybe I missed them. But Kaminsky actually concluded by judging low beta stocks to be preferable to those with high betas.

The problem is, equity selection is just not that simple. And if it really were, tens of billions of hedge fund dollars would have erased any such performance difference.

The truth is, Kaminsky, you or I could choose 3 equities with any one attribute to prove pretty much anything we wished.

For example, I would guess GE has a pretty tame beta, but it's been a complete turkey for a decade.

Moreover, Colgate-Palmolive is a rather special company. Years ago, when I first undertook my proprietary equity performance research, I found Colgate, then run by deservedly-legendary CEO Ruben Mark, to be the longest-running example of a firm whose total return had outperformed the S&P annually. And it is a slow-growth firm. Thus, it's by no means an accidental choice of Kaminsky. But I can assure you that it would be very easy for me to find a handful of similar slow-growth firms whose total returns have under-run the S&P for most of one or two decades.
Further, beta is debatable as the proper measure of volatility.

Given Kaminsky's years as a big-time portfolio manager with Neuberger Berman, you wonder if this really represents how he thinks about and manages equity portfolios. If not, what was this little demonstration for?

You don't present a seemingly-random, or worse, contrived sample of 3 companies' performance as proof of anything. Rather, you state hypotheses, build multi-factor models, construct hold-out samples, then use some data and periods to estimate parameters, and others to test the models.

After that farce, a guest from Evercore Partners appeared to opine on whether another 1990s-style technology issues bubble is building. I don't recall the guy's name, but he was introduced as having been instrumental in four of the largest telecom M&A deals of the past decades, including the sale of MCI to Worldcom.

I'm not making this up. You'd think with an introduction like that, well, Faber would think twice about even having the guy on his program.

If there were ever a case of expedient deal-making without concern for the fundamentals, not to mention the veracity of the financial conditions of the parties involved, this deal would be it.

Once again demonstrating how so much of CNBC's lineup is business and financial entertainment, not solid analysis or useful information.

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