Business Week’s cover: the kiss of death
Monday, April 25th, 2005
Yesterday a friend who runs a hedge fund reminded me of the Wall Street maxim — “sell when Business Week’s cover says buy.”
I’m pretty sure Business Week is right about blogging but wrong about its own role in the game. More thoughts in the blog post below.
But first, its kinda fun to look at the tortured history of Business Week covers. The most famous example of this, of course, is the 1979 Business Week cover “The Death of Equities.” Paul Kedrosky has that cover and a great graph of the next 20 years bull market. Some facts from the article: Baby boomers won’t save. Gold is a safe long term bet.
How could Business Week be so wrong? Precisely because the publication’s staff does a wonderful job. Each cover is a finely tuned encapsulation of conventional wisdom. The magazine’s editors and staff cannot afford to go out on a limb and highlight truly revolutionary ideas or un-heralded companies — they might be wrong and look idiotic. They are not paid to be visionaries or speculators, they are paid to report. Covers can be done only if enough of the “right” people agree on something and are willing to be quoted.
So, for the savvy patient investor, Business Week covers can be a contrarian gold mine. As the few examples below show, Business Week often jumps on the bandwagon just as it goes off the cliff. Though every article contains a few qualifiers, bold declarations on Business Week’s cover are a good sign that the opposite will soon happen.
(So what should blogging entrepreneurs think about Business Week’s cover story: “Blogs Will Change Your Business: Look past the yakkers, hobbyists, and political mobs. Your customers and rivals are figuring blogs out. Our advice: Catch up…or catch you later.” Is blogging over? Or is it is possible that this article is actually ahead of its time, since it clearly represents the first hand discussions and biases of editors, journalists and managers within Business Week, rather than just third hand ideas gummed to death by experts and conventional wisdom. Again, more thoughts below.)
Only time will tell. Anyway, this morning I spent an hour combing the index of Business Week covers looking for wrongheaded calls. Here are some classics:
October 1997: “NETSPEED AT NETSCAPE How the hottest software startup in history plans to outrun Microsoft and remain master of the Web.” (You remember Netscape, right?)
November 1997: “THE NEW ECONOMICS OF OIL: With technology dragging down the cost of finding and producing the precious stuff, prices won’t rise–even as demand soars.” (Here’s nice chart of the subsequent steady rise in oil prices.)
December 1997: “Now that you know there’s limited upside potential for stocks, what to do?” (See graph at bottom.)
December 1998: “So investors shouldn’t count on being carried aloft by a sharply rising market. Instead, they’ll have to be highly selective to make money. First, they should survey the landscape–check out what economists are forecasting, what the pros are doing, who’s shorting what, and the latest from BUSINESS WEEK’s fearless forecasters.” (See graph below.)
October 1999: “The Internet Age.” Sample headline: “A New Era of Bright Hopes and Terrible Fears
Companies that can ‘blast you out of your place’ abound.”
“Internet mania paid off big time for investors in 1999, and incredibly, the dot.coms have more room to run in 2000. Despite a prolonged midyear sell-off that ran from April to August, Internet stocks are up an incredible 154% this year through Dec. 10, as measured by the Dow Jones Internet Composite Index of 40 stocks. Investment pros doubt that Net stocks can repeat this kind of performance next year. Still, they see huge growth ahead for the Internet and believe that Net stocks will continue their drive north.”
February 2000: “Special Report: After 107 months, the American economic juggernaut is still going strong. What went right?”
Here’s a graph of NASDAQ before and after the “boom” cover: