Back to the Future: Mag Covers (Part II)
In my most recent article, I went Back to the Future to examine the role magazine covers play as a contrarian indicator in fear-driven markets like we experienced in the 1970s (see previous story). Investing is both an art and science. While measuring the scientific aspects of the market can be more straight-forward, the behavioral and emotional sides to investing are more subjective. Magazines act as sentiment sensors to gauge the fear and froth pulses of the general investing public. Since last time we explored fear, let’s check out some froth from the 1990s technology boom.
How to Invest in the Hottest Market Ever
Seeing the forest from the trees can be difficult when you’re trapped in the thick of it, but the March 2000 issue of Money magazine’s “How to Invest in the Hottest Market Ever” is a classic example of the mentality that reigned supreme in the late 1990s technology bubble. Objective, fact-filled articles that challenge the status quo are not necessary to generate sales, but articles and magazine covers that pander to the raw emotions of fear and greed keep the cash register ringing. If you don’t believe me, just read the sensational headlines at your local grocery store explaining how swine flu will kill us all and how there are millions to be made in melting gold coins and jewelry (read gold article).
I love some of the quotes from the article, especially from Pam, the 51 year old divorced New York City art museum volunteer who bought AOL, Microsoft, and Qualcomm (which rose +2,621% in 1999) who dismisses diversification: “I feel pretty safe now. I think we are in a new paradigm now.” Yeah, a “new economy” that catapulted Yahoo to a Price/Earnings ratio of 400x’s earnings; Cisco 109x’s earnings; and Sun Microsystems practically a bargain basement steal at 88x’s earnings. For reference purposes, the S&P 500 index currently trades for about 14.6x’s estimated 2010 earnings and 19.5x on 2009 estimates.
Another landmark masterpiece I love is the September 1999 Time cover, “GetRich.com.” Never mind the unabated technology boom (excluding a brief hiccup in 1998) that inflated the bubble for a decade – Time still managed to unearth the “Secrets of the New Silicon Valley.” The article goes onto to express the get-rich formula:
“Can’t program a computer? Not a techno savvy? Not a problem. If you’ve got a hot Internet business idea, Silicon Valley’s astonishing start-up machine will do the rest.”
Like a drug dealer pushing heroin on an addict, the article goes on to entice its readers to question “Why have a boss when you and three buddies can build your own publicly traded company in two years? Windows this big don’t open very often.”
A Few More Favorites
As we saw during the technology boom, media outlets have no shame in shoveling greed inducing slop to the hungry general public. Like all historical events that end tragically, valuable lessons can be learned from our mistakes. Developing a discerning palette for the news we digest is a critical quality to generating an informed investment decision process. With the 1970s and 1990s behind us, as the last of my three part series, we’ll use time travel to another period to see if modern magazine editors fare any better in market timing as compared to their predecessors. Please excuse me while I jump in my time machine.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
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