Wednesday, April 29, 2009

Magazine Covers As A Contrarian Indicator

I wrote recently that when cab drivers and shoeshine men start giving the public stock tips, this is a sure sign of a market top.
Another very reliable—but not perfect (nothing is)—contrarian indicator is using the covers of popular magazines to gauge what is most likely not going to happen.
The link below is to an article describing this phenomenon, with the topic being the probable direction of oil prices. The April 20th Newsweek cover's title is "Cheap Oil Forever".
Need I say more!

It was only one year ago that the majority of the media coverage around the world touted that based upon the unrelenting global demand for oil; prices were headed towards $200 per barrel. Since then prices have plummeted, creating an opportunity over the past several months to pick up high quality petrochemical related stocks, at bargain basement prices, with exceptional yields.

Investing lesson:
Magazine covers are really great at informing the public about what has already taken place, and very poor at proving insight as to the future direction of any given topic. That’s why they call them “reporters” not “forecasters”.

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