Barron's super bullish cover story this weekend raised some eyebrows in the investment world. According to popular legend, mass market magazines in the past have had a tendency to feature investment areas right at their peaks. The alleged power of cover stories to signal tops in markets has even resulted in the "magazine cover indicator."
Perhaps the most famous example of the "magazine cover indicator" was Business Week's "Death of Equities" cover story in 1979 just prior to the beginning of the biggest and longest bull market in history. The theory is that by the time a trend makes it to the front pages, the smart money has already gotten in and there is little to be gained by following the herd at that point. Life is not that simple, however, and the "magazine cover indicator" doesn't always work. After making a really bad call on stocks in 1979, Business Week warned investors in January 2008 that the worst was yet to come for housing with the cover story "Meltdown - For Housing the Worst Is Yet To Come."
So what is an investor supposed to think of Barron's super bullish cover story on stocks?
Josh Brown of the Reformed Broker notes that Barron's has frequently been right with its cover stories and that knee jerk reactions by websites trying to hype the story to increase clicks wind up doing their readers more harm than good. Hard to argue with Brown's common sense and balanced advice:
Welcome to the stock market circa 2013, where everyone is a contrarian mastermind and every piece of optimism is an automatic sell signal.
Everyone's soooo clever with their magazine cover indicators. They saw the Barron's cover from this Saturday and couldn't wait to mock it, it's almost like a reflex at this point. Anyway, here's the "Kiss of Death" everyone's carrying on about this weekend:
So here's the deal, maybe this is the market top. Maybe we don't quite make that new high above 14,165 on the Dow or worse - maybe we hit it and then crater. Who knows?
But I do know this…if it falls apart, it will have nothing to do with a Barron's cover. After all, how would you have liked being short any of the below?
How about fading that 9/3/2012 cover below with the Bull bouncing a cannonball off his chest, everyone thought that one was laughably bullish…what are we up, 20% plus from there? More?
Or what about the now-infamous "Bye Bye Bear" cover from November 2010, how'd the other side of that trade work out for you?
Or what about the Buy Goldman cover from last October? That was hilarious too, hope you didn't automatically bet against it!
Or how about the "Time To Buy" Banks cover from the end of 2011? Seemed ridiculous with BofA and Morgan Stanley moments from succumbing to mortgage litigation and Euro exposure. God help you if you shorted that cover, most of the large cap banks mentioned went on to double over the next year while the sector itself went on to beat every other in the S&P with a 27% gain. They'd be scraping your too-clever ass off the sidewalk right about now.
At the other extreme, we get the hysterical conclusion from Global Economic Analysis that Barron's has managed to mark the exact top of the bull market. After some snarky commentary on Barron's "faulty" use of the term money flow in explaining how investors are moving from bonds to stocks, the conclusion is made that it's time to ditch stocks.
Third let me ask "Does it get any more extreme than someone calling this the first inning after stocks have had more than a 100% rally in a few years?
Supposedly we are only in "the first inning" of a rally. Hmm. Are stocks supposed to rise 900% more? This may not be "the top" but it's close enough for me. I'm calling it.
So there you have it - this is a market top or maybe it's not a market top. The only conclusion one should draw from this is that anyone making investment decisions based on magazine covers should not be investing and deserves to lose money. Instead of worrying about magazine covers, a sophisticated long term investor would be much better off reading the annual letter to shareholders from Warren Buffett.