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Magazine Covers: The #1 Contrarian Indicator?

Jun. 15, 2007 4:46 AM ET3 Comments
Nicholas Vardy profile picture
Nicholas Vardy

Just when things were going so well for Steve Jobs & Co, last week's Economist magazine had to feature Apple Inc. (AAPL) on its cover. If history is any guide, that's bad news for both Apple and its shareholders. Call it the "curse of the magazine cover indicator." Whenever a company makes the cover of a general business publication, its bull run is over. As Princeton economist Paul Krugman wryly noted, "Whom the Gods would destroy, they first put on the cover of Business Week."

Although Krugman cited Business Week, the Economist has had its own share of flops -- including a cover story in the late 1990s that seriously analyzed the possibility of oil for $5 a barrel. But it's Business Week's famous 1979 cover, "The Death of Equities," that is a textbook case of the media getting it wrong. The Dow Jones Industrial Average was at 800 back then. Yesterday, it closed at over 13,553. But it's hard to beat Time magazine for getting it right (or wrong). Time anointed Amazon (AMZN) CEO Jeff Bezos as its "Man of the Year" at the end of 1999. The Internet bubble was at its peak and Amazon's stock was near its high of $113. Within 12 months, Amazon closed 2000 under $16 -- an 86% drop.

The #1 Contrarian Indicator: Tested and True

Here's the theory behind the magazine cover indicator. By the time a company's success or failure reaches the cover page of a major publication, the company is so well known that it is reflected fully in the stock price. Once all the good news is out, the stock is destined to underperform. The reverse holds for negative stories.

A recent academic study by three finance professors at the University of Richmond put the magazine cover story indicator

This article was written by

Nicholas Vardy profile picture
Nicholas Vardy is a widely recognized expert on global investing, financial history, and trading psychology. A former global emerging markets portfolio manager for Janus Henderson, Mr. Vardy is currently portfolio manager at VFO asset management, a family office. He is the editor of the 2x weekly newsletter The Global Guru. He has been a regular commentator on CNN International and Fox Business Network. Mr. Vardy has been an invited speaker to Cambridge University's Judge Business School, the University of Chicago's Booth Graduate School of Business, NYU Stern Business School, and the Corvinus Business School in Budapest, Hungary. He is currently completing a forthcoming book: " Mania to Meltdown: A Narrative History of Booms, Bubbles and Busts."Vardy is a graduate of Stanford and Harvard Law School, and a former CFA and Fulbright scholar

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Comments (3)

How could you not love it !? The unintentional peek at reality - LOL
Daniel  Su profile picture
Great article, Thank you for sharing.
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