The Biggest Lesson From the Rick Santelli Rant Rebuttal

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Even if you know CNBC only as an occasional stop while channel surfing, you've probably heard of Rick Santelli. Reporting from the Chicago Board of Trade, Santelli covers the not-too-exciting world of U.S. Treasuries price and rate movements. But Santelli's fame has exploded over the past five years along with his ever-vigilant drum beating over inflation fears due to our debt and deficit. His 2009 rant against "subsidizing loser's mortgages" has been credited with starting the Tea Party.

There's just one problem: He's been consistently wrong for nearly half a decade.

Constantly musing over each basis point movement and economic data point that "proves" his version of events and downplaying those that don't jibe with his thesis, Santelli falls into a dangerous form of bias we 're all prone to.

'Is some of your anger confirmation bias?'
On July 14, all that came to a head in an amazing minute of television. In a panel discussion on CNBC that included ReformedBroker.com's Josh Brown, Santelli, and fellow CNBC reporter Steve Liesman, Brown posed a rather simple question: "Is some of your anger confirmation bias?" Santelli yelled, "I was right," and that's when Liesman stepped in:

It's impossible for you to have been more wrong, Rick. Your call for inflation, the destruction of the dollar, the failure of the U.S. economy to rebound. Rick, it's impossible for you to have been more wrong. Every single bit of advice you gave would have lost people money, Rick. Lost people money, Rick. Every single bit of advice. There is no piece of advice that you've given that's worked, Rick. There is no piece of advice that you've given that's worked, Rick. Not a single one. Not a single one, Rick. The higher interest rates never came, the inability of the U.S. to sell bonds never happened, the dollar never crashed, Rick. There isn't a single one that's worked for you.

They both can't be right, can they?
A little history here -- this isn't Santelli's first rant. As previously mentioned, his epic 2009 rant is the stuff of legend. He followed that up with - as Mr. Liesman addressed - constant warnings of rapid inflation, devaluation of the dollar, and higher interest rates. Rarely a week goes by for Santelli without warnings laced with inflation buzzwords - Weimar Republic, Argentina, and various banana republics are a few that come to mind.

This steers investors toward gold, perhaps through the SPDR Gold Shares , and a short treasury fund, like the ProShares Short 20+ Year Treasury, versus the market return one would have gotten by investing in the S&P 500 through the SPDR S&P 500 Fund . For a starting point, we can use the date of Santelli's Feb. 19, 2009 rant.

Investment S&P 500* ProShares
Short 20+Treasury
SPDR Gold Shares
Price: Feb. 19, 2009 $65.95 $49.59 $92.63
Price: July 28, 2014 $197.80 $28.18 $125.58
Pct. Gain (Loss) 200% (43.2%) 35.6%
Value of $10,000 investment $29,992 $5,683 $13,557

*Adjusted close includes dividends

So if you chose investing in gold over shorting the U.S. Treasury, congrats - or something like that. You actually ended up making money. You've made nearly 36%, or roughly 6.3% a year - but you are trailing the market in this case by a whopping 164 percentage points.

Shorting Treasuries appears to be one of the worst things you could have done during this five-year period - not only would you have lost nearly half your portfolio, you would have missed out on nearly tripling your money. What's good for TV may not be good for your portfolio.

About that confirmation bias
This is not an indictment of Santelli nor an article telling you he doesn't know what he's doing. He's quite accomplished and has spent his entire career understanding the markets. So, I hope it's safe to say we're all in agreement that he knows what he's talking about.

And that's how insidious confirmation bias is. Start with a strong emotion or feeling - many times politically biased. Add in a social media environment that only confirms your views. Then, surround yourself with colleagues who believe in only what you believe -- in the video, you can hear Santelli's colleagues cheering him on. With that, you have the makings of confirmation bias.

And it can cost you -- as shown in the example above, inflation scaremongering and confirmation bias would have made investors miss out on the best bull market in decades. And, in this particular example, it would cost investors anywhere from $16,400 to $24,300 on a $10,000 investment.

So the lesson for investors is rather simple: Be objective; don't be like Rick!

More from The Motley Fool: Warren Buffett Tells You How to Turn $40 into $10 Million

The article The Biggest Lesson From the Rick Santelli Rant Rebuttal originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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