Seven Classic Bad Calls in Business Journalism

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This week, Barron's has a cover story entitled, "Bye-Bye Bear." The basic idea is that the bear market is finally over for good and "America's money managers say stocks are cheap and the economy will keep growing."

The magazine may be right, if only because it has history on its side: The stock market has gone up an average of 10.5% in the third year of a presidential term going back to 1833, according to the Stock Trader's Almanac. But in general, newspapers and magazines are horrible predictors of future stock market movements. They're so bad, in fact, that they have been studied as a leading contrary indicator of stock prices.

Paul Montgomery, CEO of Montgomery Capital Management in Newport News, Va., is a stock market aficionado who has studied this pattern. According to Montgomery, within a year of a Time or Newsweek financial cover story appearing on newsstands, the market moves in the opposite direction 80% of the time. "By the time you see Time magazine at the checkout counter of every 7-Eleven store in the country, that story has already gotten though to investors," Montgomery says. "They've already had time to do their buying, so very little market remains to act on that story."

With Newsweek and Time covers, the lead-time can be as long as several weeks, Montgomery says. For business publications like Barron's and BusinessWeek (now Bloomberg Businessweek), the contrary view usually emerges within a week. With headlines in The New York Times, it takes just 48 hours for the opposite reality to emerge, he says.

Here are some classic examples in which the media acted as a contrarian indicator:

1. BusinessWeek's classic cover story on "The Death of Equities" on Aug. 13, 1979. Inflation was raging, and 7 million shareholders had fled the marketplace, the magazine reported. The Dow Jones industrial average stood at just 875. As we now know, it climbed to 11,000 within 20 years.

2.Time magazine anointed Amazon CEO Jeff Bezos "Man of the Year" on Dec. 27, 1999. Just a week earlier, Amazon stock hit a high of $113 a share. By Oct. 1, 2001 the stock was trading for $5.51.

3. Time
ran a cover story on June 13, 2005, called "Home $weet Home," which explained "why we're going gaga over real estate." If you went out and bought a condo on that news, you could be underwater: Average house prices plummeted 28% in the ensuing five years.. (And TIme's cover this past Sept. 11, "The Case Against Homeownership," may be a signal to buy.)

4. Time has also been behind the curve on the auto industry. Its Nov. 9, 1992, cover was entitled "Can GM Survive in Today's World?" After that piece ran, GM stock rose 60%. This was followed a year later, in December 1993, by "Autos: Back on the Fast Track," when the industry really began to run out of gas.

5. The Economist, ever the highbrow, can still be a contrary indicator. In March 1999, the magazine published a cover story headlined "Drowning in Oil." "The world is awash with the stuff and it is likely to remain so," the Economist predicted. At the time, oil sold for the rock-bottom price of $10 a barrel. It's $83 today.

6. The newsmagazines devote a lot of coverage to the dollar and other currencies, but they rarely seem to get it right. Newsweek International's May 7, 2010, cover was entitled "End of the euro." (No question mark.) The euro traded at $1.27 when the article hit the streets. It has risen more than 10% since then, trading at $1.39 this week.

7. BusinessWeek
on Oct. 3, 1982, proclaimed that the war for domination of the personal computer market was over. "And the winner is. . .IBM." We all know how that turned out: IBM (IBM) rival Apple (AAPL) has a market cap $250 billion, and IBM sold its personal computer division to a Chinese company for $1.75 billion.

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22 Comments

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cutterman

It's really not fair to list the Jeff Bezos Time article, considering they picked Oct 1, 2001 as the low point for the stock - which was just after 9/11 and the entire NASDAQ tanked. Also, considering Amazon is now selling around $170 a share, if you bought on the day of the article and have held on since then, you're up about 50 percent...not my idea of a "bad call."

November 07 2010 at 8:41 PM Report abuse rate up rate down Reply
tandlarr

a liberal rag like AOL is giving business tips of journalism? LOL

November 07 2010 at 8:16 PM Report abuse rate up rate down Reply
2 replies to tandlarr's comment
cutterman

tandlarr, if you think AOL is liberal, you should edit the newsletter for the John Birch Society.

November 07 2010 at 8:45 PM Report abuse rate up rate down Reply
bansijeff

what cutterman said

November 07 2010 at 9:44 PM Report abuse rate up rate down Reply
boatsaver

Great political victory, but see no reason to give stock market wings, it's been flying pretty high since Aug in anticipation. Government needs to stop giving so much hope to homeowners and banks doing and saying the opposite on foreclosures! Seniors having their economic world in total confusion!

November 07 2010 at 4:01 PM Report abuse rate up rate down Reply
chase5300

The Magazines were right. Each time. The real story here is that Markets are completely unpredictable. RANDOM events that we try to ascribe meaning to. The facts and trends are solid in the media. But the markets can stay irrational longer than one can stay solvent. Anyone who thinks the economy is getting back to where it was in say, 2006 is dreaming; it was all based on increase in the money supply. Blame the Fed!

November 07 2010 at 3:42 PM Report abuse rate up rate down Reply
mensrea

Engineherder, You're preaching to the choir. Working an average of ninety hours a week nowadays makes one a target demonized and vilified by the left; the once-honored work ethic has been replaced by a celebration of the victim, and the victim usually achieves that hallowed status by squandering opportunities, achieving instantaneous gratification by taking on unnecessary debt, failing to adapt to a changing job market, giving birth to more children than they can afford to raise, and doing as little as possible to hang on to a job (or demanding more and more so-called entitlements "earned" by not working at all). Few go the extra mile, and when they do, they are chastised for failing to pay their "fair share." We are spoon-fed the lie that the purpose of a job is to feed and clothe the employee, when in fact its purpose is to produce goods and services, with the employee's prosperity being achieved as a function of the business succeeding in a competitive market. Nowadays it takes twice as much money to pay the salary and benefits for a federal worker, compared with the compensation of his or her private enterprise counterpart, and the guy in the public sector often works as little as possible, with the support of his or her union, which holds the economy hostage. The Republicans and Democrats have let everyone down, and the real sea change has been the development (and celebration) of a general philosophy of believing one is entitled to far more than he or she ever contributes.

November 07 2010 at 2:45 PM Report abuse rate up rate down Reply
Ed Perkins

Good idea but unfortunately Times and Newsweek are not financial magazines. How about stories on how the Economist got it wrong consistently over the last five years. I ended my subscription when I realized that these "experts" had done little to warn me about the probable upcoming downturn linked to subprime mortgages. We do not need stories about mistaken news decades ago, but about misleading info from magazines, newspapers, and KNBC over the last half decade. Those are the guys you need to pick on --- but then, again, I guess those are the existing news outlets that you depend on today to make a living.

November 07 2010 at 2:33 PM Report abuse rate up rate down Reply
piscesbaby36

Worse screw up of media... hundreds of magazine covers of Obama, selling us the worst president in history!

November 07 2010 at 2:24 PM Report abuse rate up rate down Reply
engineherder

Deano's I am one of the so called rich 2%. I do this by working 60 hours a week, my husband works about 100. I also farm, this adds another 40 hours a week to our total. I already pay more taxes then 49% of the people. We are minority people who started out with nothing. We have almost nothing to write off, except charitable deductions, which if I donate 10000., my write off is 1/3 of that, so don't try to tell me that charity benefits me in any way financially. It benefits me because it helps people and that makes me feel good. When you leave the house at 0500 in the morning and get into your bed at 0100, then you can tell me that I am not paying my fair share of taxes. My small farm puts people to work both here and at other business's. I bought it with my own money. The everyone who votes should pay taxes. My husband and I started out doing manual labor. We were born American citizens, our Dad's were in the US.military as enlisted personel. His Dad was from Puerto Rico. For those of you who are ignorant, that is a U S territory. We graduated from high school and together went out to build the American Dream. Raising kids, traveling from job location to job location, doing what it takes to build a life. We have been married for 32 years, most of that happily. Why should I pay a higher tax rate than someone who will probably use more services from the government than I ever have. 49% of Americans pay no taxes, by the time they figure in government benefits such as EIC. Even the hidden taxes are refunded to them. Why should they get to vote on how my money is spent? Most of the so called rich are people like me, making about 250000 through work and small business. If we are willing to work extra hours to get ahead, why should I give it to you? Everyone can work extra. You can get convenience store jobs,deliver pizza, that is how I paid for my farm, while working my other more than full time job. So people, instead of sitting on your rears, playing the poor little me, class warfare game, go out and work. It maynot be the job you want, but there is no job that will not raise your self esteem more than whining about how someone else owes you a living.

November 07 2010 at 1:07 PM Report abuse +1 rate up rate down Reply
1 reply to engineherder's comment
piscesbaby36

Engine.. Although I am not minority, my husband and I share your story.. We also started out with nothing...No one told us that the dream of starting our own business was beyond our reach, so we reached... And now 40 years later, we finally arrived where our aspirations took us.. And now Obama tells us that we are rich and greedy because we don't want to support all those whose dream never went beyond receiving government handouts.. Sorry... The American dream is not based on color or creed, it is based on hard work , and success comes only after many trials and failures along the way.. but you don't give up and no Obama is going to destroy this dream for our kids if WE THE PEOPLE have any say about it.

November 07 2010 at 2:21 PM Report abuse rate up rate down Reply
Bill

I think AOL makes some pretty serious mistakes too. A big one I noticed recently was when they declared the Gulf cleaned up when the reality was that the chemicals used just sunk the crude.

November 07 2010 at 12:56 PM Report abuse rate up rate down Reply
Fred

If only the political commentators could see that they too, are way off.

November 07 2010 at 12:51 PM Report abuse +1 rate up rate down Reply