Call it the curse of the magazine indicator. Paul Krugman’s quote on the subject is infamous: “Whom the Gods would destroy, they first put on the cover of Business Week.”
To be fair, most of the work I’ve done on the magazine cover indicator focuses on macro or sector issues: Bull or Bear Markets, specific sectors, Energy/oil, low carb/Atkins, etc. It works better with mainstream publications than with Business mags.
The ultimate example of mag cover timing was Time’s Man of the Year: Amazon CEO Jeff Bezos towards the end of 1999. I noted this in a column on contrary indicators for TheStreet.com in 2001. Time’s timing was flawless; When they bestowed that honorific on Bezos, Amazon’s stock was near its high of $113. It closed 2000 as a teen-ager — under $16. That’s an 86% decrease.
But the best interpretation of that cover was less in nailing the top in Amazon (which it did), but rather, in calling the top for the entire internet bubble — which Time did within a few months of the penultimate peak. That’s damn good timing. BTW, you can have some fun with this by reviewing the entire history of Time’s Person of the Year. Does the complete list (1927-2004) reveal a greater tendency to catch the early parts of a trend — or the opposite, namely, the tail end?
Caveat: I cannot say with confidence that it works as well for individual companies. Sure, you can find Cisco, Dell or EMC on many covers in 1999 and 2000. But these same companies, along with Intel, Micorsoft, Sun, Oracle and dozens more, were on many covers for many years — and hundreds of points — prior.
Lastly, Ed Seykota makes the astute observation that the Magazine Cover Indicator works best with "very emotionally evocative covers." Enough said . . .
UPDATE: February 16, 2005 9:31pm
What did Carly on magizne covers signify?
NYT: "No magazine loved her more than Fortune, but its embrace was fickle. "There is no question that Fortune put her on the map" with a 1998 cover article, Carol J. Loomis, Fortune’s editor at large, told CNBC on Wednesday, when Ms. Fiorina was ousted. Asked if the cover article in the current issue, which pronounced H-P’s Compaq deal a blunder, played a role in the ouster, Ms. Loomis said "I suspect that the article helped," though H-P directors said it did not."
How Big Can Apple Get?
"Back from near oblivion, Apple is setting the pace in a new digital universe where computing and entertainment merge. We asked Steve Jobs how he did it (hint: It’s the software, stupid) and what’s next."
Carly’s Nemesis: Fate or Fortune?
Katharine Q. Seelye
NYT, February 13, 2005
Joe Granville is a
very well regarded technician (now in his 80s) who has had some terrific calls in his career, and a few duds as well. On Bloomberg, there was a story on his most recent commentary, but I cannot seem to find it now; It more likely got moved than disappeared for nefarious reasons.
Anyway, Joe just got Bearish big time. Here’s an excerpt:
"Joseph Granville, who accurately forecast in 2000 that U.S. stocks’ bull market would end, is at it again. He expects the Dow Jones Industrial Average to suffer its biggest annual loss this year since the Great Depression.
“We’re in the critical portion of a coming collapse and the market’s screaming to get out,” said Granville in an interview from Kansas City, Missouri. “Everyone’s bullish. There’s going to be a tremendous surprise and it’s going to be to the downside.”
"Granville, publisher of the Granville Market Letter since 1963 and a technical analyst for almost 50 years, also foretold a stock-market decline in 1976. He misfired in 1982 and 1995 by calling for losses before share prices surged.
The 81-year-old analyst expects the Dow average to retreat to at least 7400 by year-end. The forecast amounts to a plunge of 31 percent. The last year in which the benchmark fell that much was 1937, when it lost 33 percent.
As a technical analyst, Granville predicts the market’s direction by using criteria such as trading and price patterns, rather than earnings and economic growth. He started developing his stock market theory at what was then E.F. Hutton & Co., a New York-based brokerage, from 1957 to 1963."
That bodes well for my 2005 forecast, as Joe tends to be early. I’m still looking for one last strong move up — Dow 11,700, Nasdaq 2600 — before it all heads south. Note that also gives me the opportunity to stay long if the uptrend remains in tact.
One of the key mistakes to avoid – call it the peril of predictions — is to never marry a forecast, especially your own. People wrap up too much ego in what is essentially educated guesswork. If you start with the assumption that your prediction is going to be wrong, its real easy to reverse yourself when necessary . . .
If you are interested in learning more about Granville,start with this article — Just Like Old Times as Joe Granville Yells `Sell’ — it gives some background on him if you are unfamiliar with his work.
Some more background on Granville:
Timing the Market
Joe Granville, father of the On Balance Volume (OBV) and its analysis
Bibliography of Published Books
UPDATE: March 18, 2005 7:09 am
Mark Hulbert provides the details on Granville’s track record. Not impressive (unless you are a fan of the Black Swan event . . .)
UPDATE: I still cannot find this anywhere, but a friend captured the text. Here it is for your enjoyment: