Monday, March 05, 2007

When Magazines Forecast the Market

One of the things that I absolutely hated -- hated! -- about my job at BusinessWeek was the rare occasions when I was called upon to make a forecast on the stock market. Even though I had two excellent editors, both doctors of economics, to guide my prose, I simply felt that I was not qualified to make such a judgment. I felt that forecasting the market was as much luck as data analysis.

Another thing that weighed upon me is what has come to be known as the "cover story indicator," which is that a cover story in a large magazine, including Business Week, is a contrary indicator. The famous "Death of Equities" cover of the late 1970s is frequently an example, as was the gloomy "How Bad" cover story right after the 1987 crash (which turned out to be the best time in recent history to buy stocks).

On the other hand, the "cover story indicator" ignores the fact that BW's generally bullish coverage throughout the 1990s proved to be right on the money.

So I had mixed feelings over the fact that both Business Week and Barron's had essentially bullish cover stories on the market, with Barron's more bullish than BW.

BW, which went to press before the March 2 selloff, said that despite some negative indicators, a"stronger case can be made that Feb. 27 will turn out to be more of a tremor than an earthquake."

Barron's, which was published late Friday night, said "the global economy still looks healthy, equity-market valuations are reasonable in most major markets and the demand for stocks from corporations and private-equity firms remains robust."*

It's easier to criticize such coverage on various grounds, but market coverage remains a crapshoot. No matter what data is used to support a market story, there is always a 50% chance that it will prove to be right and a 50% chance that it will be wrong.

The only solution I can come up with for this problem is that someone other than myself write these stories.

*The Barron's story suggested purchase of Berkshire Hathaway. I cannot comment on that recommendation because of the conflicts of interest I outlined here.

© 2007 Gary Weiss. All rights reserved.
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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

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