Et tu BusinessWeek, Fortune, and Forbes? Et tu?
Long-time readers of this blog are still abuzz over our inaugural post, dishing the dirt that "popular, cool-kids" mutual funds recommended as BUYS(!) by investing magazines actually do worse than their publicity-shy relatives.
"But that’s not such a big deal," you say to yourself, "I read those magazines for the company features and to get insights into what’s going on in other industries. I don’t even buy mutual funds based on those pieces. They’re just veiled ads anyway. I do, though, sometimes buy the stocks of those features companies."
DOH!
New research from Arnold, Earl, and North entitled "Are Cover Stories Effective Contrarian Indicators?" published in the March/April issue of Financial Analysts Journal found something interesting when they looked at the underlying stock performance of public companies featured in the business magazines.
The stocks of the companies the magazines write about in such flowery prose…GO DOWN! For good. Forever. The good news is that the negative profiles mean the stock likely has reached its nadir. Awesome!
Headlines from featured stories in Business Week,
Fortune, and Forbes were collected for a 20-year period to determine
whether positive stories are associated with superior future
performance and negative stories are associated with inferior future
performance for the featured company. "Superior" and "inferior"
were determined in comparison with an index or another company in the
same industry and of the same size.Statistical testing implied that positive stories generally indicate
the end of superior performance and negative news generally indicates
the end of poor performance.
So, for those keeping score at home, we can’t trust:
- Investing Magazines…because the mutual funds they recommend do poorly.
- Business Magazines…because the company features are not good indicators of future performance.
- Investment Chat Rooms…because sock puppets hang out there.
We at Cake think we have a better way to get trusted, quality, and transparent investment guidance. Give it a try and let us know what you think.
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Posted by: Steve Carpenter
December 29th, 2008 at 3:50 pm
[...] however, is that they can be analyzed to see how their respective picks have fared. I wrote a post a year ago about research that showed that stocks and mutual funds favorably covered in investing [...]
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