Cover Indicator Update
Conventional wisdom holds that magazine cover stories are contrarian indicators - by the time a company’s success or failure reaches the cover page of a major publication the story is so well known as to be completely reflected in the stock price. Therefore, all good news is priced in and the stock can only underperform or all bad news is priced in and the stock can only outperform.
While simplistic, the magazine cover indicator now has the support of recent academic research. This research did find that cover story headlines on Business Week, Fortune and Forbes tended to indicate that the mood (bullish or bearish) of the story was about to change in the market.
As a result of this research, we have decided to develop a portfolio of stocks based on using those three magazine’s covers as a contrary indicator. We also track this portfolio on StockPickr. This week’s results:
International Business News : Business News, Technology Industry News
The Real Cost Of Offshoring
U.S. data show that moving jobs overseas hasn’t hurt the economy. Here’s why those stats are wrong
Contrary Pick: Hmm. Is this headline negative about offshoring or the US economy? I’m going with offshoring and saying the contrary pick is to buy the offshore firms like Cognizant (CTSH), Infosys (INFY) and Wipro (WIT).
Forbes and Fortune, being bi-weeklies, were not updated this week.
