Seven Classic Bad Calls in Business Journalism

This week, Barron's has a cover story entitled, "Bye-Bye Bear." The basic idea is that the bear market is finally over for good and "America's money managers say stocks are cheap and the economy will keep growing."

The magazine may be right, if only because it has history on its side: The stock market has gone up an average of 10.5% in the third year of a presidential term going back to 1833, according to the Stock Trader's Almanac. But in general, newspapers and magazines are horrible predictors of future stock market movements. They're so bad, in fact, that they have been studied as a leading contrary indicator of stock prices.

Paul Montgomery, CEO of Montgomery Capital Management in Newport News, Va., is a stock market aficionado who has studied this pattern. According to Montgomery, within a year of a Time or Newsweek financial cover story appearing on newsstands, the market moves in the opposite direction 80% of the time. "By the time you see Time magazine at the checkout counter of every 7-Eleven store in the country, that story has already gotten though to investors," Montgomery says. "They've already had time to do their buying, so very little market remains to act on that story."

With Newsweek and Time covers, the lead-time can be as long as several weeks, Montgomery says. For business publications like Barron's and BusinessWeek (now Bloomberg Businessweek), the contrary view usually emerges within a week. With headlines in The New York Times, it takes just 48 hours for the opposite reality to emerge, he says.

Here are some classic examples in which the media acted as a contrarian indicator:

1. BusinessWeek'sclassic cover story on "The Death of Equities" on Aug. 13, 1979. Inflation was raging, and 7 million shareholders had fled the marketplace, the magazine reported. The Dow Jones industrial average stood at just 875. As we now know, it climbed to 11,000 within 20 years.

2.Time magazine anointed Amazon CEO Jeff Bezos "Man of the Year" on Dec. 27, 1999. Just a week earlier, Amazon stock hit a high of $113 a share. By Oct. 1, 2001 the stock was trading for $5.51.

3. Timeran a cover story on June 13, 2005, called "Home $weet Home," which explained "why we're going gaga over real estate." If you went out and bought a condo on that news, you could be underwater: Average house prices plummeted 28% in the ensuing five years.. (And TIme's cover this past Sept. 11, "The Case Against Homeownership," may be a signal to buy.)

4. Time has also been behind the curve on the auto industry. Its Nov. 9, 1992, cover was entitled "Can GM Survive in Today's World?" After that piece ran, GM stock rose 60%. This was followed a year later, in December 1993, by "Autos: Back on the Fast Track," when the industry really began to run out of gas.

5. The Economist, ever the highbrow, can still be a contrary indicator. In March 1999, the magazine published a cover story headlined "Drowning in Oil." "The world is awash with the stuff and it is likely to remain so," the Economist predicted. At the time, oil sold for the rock-bottom price of $10 a barrel. It's $83 today.

6. The newsmagazines devote a lot of coverage to the dollar and other currencies, but they rarely seem to get it right. Newsweek International's May 7, 2010, cover was entitled "End of the euro." (No question mark.) The euro traded at $1.27 when the article hit the streets. It has risen more than 10% since then, trading at $1.39 this week.

7. BusinessWeek on Oct. 3, 1982, proclaimed that the war for domination of the personal computer market was over. "And the winner is. . .IBM." We all know how that turned out: IBM (IBM) rival Apple (AAPL) has a market cap $250 billion, and IBM sold its personal computer division to a Chinese company for $1.75 billion.