The biz magazine cover story as contrarian indicator
Mark Hulbert writes on Marketwatch about a study by some University of Virginia professors that assesses whether a company being on the cover of a major business magazine such as BusinessWeek, Forbes or Fortune means that it’s time to sell the stock.
Hulbert wrote, “The professors analyzed those cover stories in Business Week, Fortune and Forbes between 1983 and 2002 that featured a particular company. The professors placed each of these stories into five categories according to the message conveyed by its headline, ranging from very positive to neutral to very negative.
“One of the first things the professors found upon analyzing these categories is that positive cover stories tended to appear following periods of strongly positive performance, while negative stories usually came in the wake of very poor returns. This isn’t that surprising, the professors write, given the ‘disadvantages of weekly and biweekly business news magazines in reporting news in a timely manner.’
“In other words, it’s rare for a cover story in a news magazine to contain significant new information about a company. To put that another way, odds are high that the price of the stock will already reflect whatever information is contained in the cover story.
“No wonder positive cover stories come after rising stock prices and negative features following declining issues.
“How do the stock prices perform after the cover stories appear? Here a different picture emerged.
“The professors found that there was relatively little difference going forward between the returns of stocks that were the subject of positive stories and those for which the message was negative. As a general rule, the professors conclude, ‘positive stories indicate the end of superior performance and negative news generally indicates the end of poor performance.'”
Read more here.