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This morning a friend of mine pointed me to a paper titled Are Cover Stories Effective Contrarian Indicators?. The article is probably best summarized in the abstract:

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.

Interesting right? Good cover stories on BusinessWeek and Forbes imply you won’t be doing well, whereas bad cover stories indicate change is coming! Ok, so lets look at Yahoo & Google.

In May of 2001, BusinessWeek published a story title Inside Yahoo! The untold story of how arrogance, infighting, and management missteps derailed one of the hottest companies on the Web. Clearly, not very positive. What happened to the stock? Stock hit rock bottom a few months after the article and within 2 years was double the price from the date of publication. You can see the carts here.

Ok, so of course that’s purely anecdotal and doesn’t mean much. But considering all the recent turmoil, I wouldn’t be surprised if we saw Yahoo on a cover soon as the “biggest screwup of all time”. You know what? How low can they go? Yahoo has some great assets and great talent. Sure, they’ve had some shitty leadership recently but it’s pretty clear that’s been changed.

In no way would I start buying stock based on this post (hey, there hasn’t been a negative cover story yet!), but I don’t expect Google to stay at the top for very long. When you’re the best it’s difficult to strive for more. And you know what? In April of this year, Google was featured rather positively in a cover story on businessweek titled Is Google Too Powerful? .

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  • Ed K

    Mike, Have you read ‘The Four Pillars of Investing’ by William Bernstein? One of its main tenets supports this article, where he states that (basically) good companies make bad stocks, and bad companies make good stocks. With ‘bad’ companies, investors are assuming greater risk but with much bigger rewards coming (assuming the company doesn’t go out of business [ie, eliminating survivorship bias]). Bertstein says that on average investing in ‘bad’ stocks yields better returns, but that most investors aren’t nervy enough to actually do this (everyone wants to hop on the trendy/good stocks).


  • donnalyn

    Google still leading on SE, they are developing application/s and gadgets, one of this is android.

    Retractable Awning

  • kino

    I choose Google for searching and Yahoo for news