There are few things that spook me more than a bull on a magazine cover.
Yesterday morning I almost spilled my crappy Starbucks coffee all over Hudson News when I saw this beauty at the airport newsstand…
A classic contrarian magazine cover! Which means those of us who run "against the herd" should unload all of our stocks immediately…right?
While it's tempting to say "yes, sell everything," there's one thing gnawing at me.
Is It Contrarian If Everyone Thinks It's Contrarian
I read Barron's every week. It's one of my favorite financial news sources - even though, yes, it's mainstream.
The most recent issue of Barron's kicked off discussing, well, what else but the Time Magazine cover:
When you pass by your local newsstand, there are a few things you don't want to see. Consumer Reports giving a lousy rating to the auto you just bought. The quarterback of your fantasy football team on the cover of Sports Illustrated. For investors, however, there is no kiss of death like seeing a bull on the cover of Time.
Also worth noting, this was the first "contrarian" focused story out of three - yes, count 'em, three - in the entire Barron's issue! I wasn't joking on Monday when I mentioned the mainstream media is finally catching on to our theme!
Which brings us to our first "introspective contrarian moment" together. Let me put the question we're all thinking out in the open:
Isn't Barron's harping on Time sort of like the pot calling the kettle "mainstream"?
It's not that I don't enjoy our connection each week, Barron's. It's just that I know you do "get around" a bit…
What Exactly Was Time's Tune Since 2009?
As you probably know, U.S. stock indices bottomed in March 2009. They've been marching nearly straight up in the four-and-a-half years since…with the S&P 500 up over 150%!
It's been one of the great bull markets of our lifetimes - and most investors have unfortunately spent much of it on the sidelines.
To gauge Time's "track record" during the rally, I pulled up every cover story since the market bottom. The rest of '09 was indeed headlined by pessimism - the economy hanging on by a thread…how Americans will need to be frugal forever…chronic unemployment…and so on.
Everyone was pessimistic in 2009, though. Besides, this rally has been going on for so long that even if you didn't "bottom tick it" back then, you still could have made a lot of money. I was more interested in Time's mood from 2010 to present.
A Wall of Worry For Non-Believers
A stroll back in Time (sorry, couldn't resist) revealed that if you'd let each new cover story freak you out, you'd have left this rising market too early.
If bull markets climb a wall of worry, then their cover stories have sent investors more mixed signals than a dyslexic Morse code operator.
When Time named Ben Bernanke their Person Of The Year for 2009, the bears began crowing that the real end was nigh!
(Sadly the reason I recall this is that I was one of them!)
Take a look at this chart I put together. Bullish cover stories are in green, bearish ones in red. This bull certainly scaled its share of economic worry…but it didn't retreat after "feel good headlines", either…
Individual investors lost in Time.
(S&P 500 portion courtesy of Barchart.com)
As you can see, it is quite difficult to call the direction of the stock market - whether intentionally, or unintentionally! Which is why we should instead focus on more targeted opportunities.
We Profit Off Sentiment That's Specific
I also read The Economist every week. As you can see, it's been quite accurate in calling the direction of the U.S. dollar…
…provided you take the opposite position of what it highlights!
Prominent U.S. dollar features in The Economist over the last decade.
This is why we leave the "big picture" magazine covers to others. We instead focus on the sentiment surrounding individual stocks, commodities, and currencies - where we can take the "other side" of an unbalanced trade.
After all, why limit ourselves to being only long or short the entire market? A big part of our contrarian advantage is our ability to locate offbeat investment themes - and trade them profitably.