Magazine covers as an investment signal

Barry Ritholtz writes for Bloomberg View about how magazine covers are often a signal for investors.

Ritholtz writes, “As an example, consider the past 30 years of Time magazine covers as they relate to the stock market. When Time named Amazon.com chief Jeff Bezos as Person of the Year in December 1999 it marked the near top of the dot-com bubble. Nor did it do Mark Zuckerberg — or Facebook shareholders — any favors either by bestowing the same honorific on him in 2010. Back in 2005, Time gave top billing to housing. We know what followed.

“And, it isn’t just Time magazine, but any non-business publication. The thinking is that by the time editors at general news publications notice that an asset class has become hot, there are few suckers left to come in to drive prices higher. Consider this New York Times Magazine cover on gold in 2011 as yet another example.

“And before you start selling shares of companies that end up on covers, you should know that the indicator isn’t really applicable to individual companies, as Apple will attest. Bezos and Zuckerberg were emblematic of their respective sectors — dot-coms and social-media networks — not necessarily their individual companies.

“These covers identify the psychology of when something has become ‘overbought’ in societal terms. When an investing theme has become so widespread it has even reached the editorial committee of Time or Newsweek, it is usually at the end, not the beginning of its run. The goal is to identify when a fad hits its peak, and is about to reverse.”

Read more here.