A somewhat empirical look at The Magazine Cover Indicator

The Magazine Cover Indicator

Today I look at the empirical evidence in support of The Magazine Cover Indicator. With Elon Musk gracing Time’s cover as the 2021 Person of the Year, it seems like a good time to revisit this topic.

Anecdotes can be useful indicators

You will notice that market prognosticators and the financial media will often point to a particular piece of anecdotal evidence as bullish or bearish. Quite often, the evidence is intuitively appealing as a contrarian indicator. Examples include celebrities endorsing an asset class (like Gisele asking to get paid in euros instead of dollars in 2007), your “never traded before” uncle asking about day trading at the Thanksgiving dinner table, or a magazine cover like this one blaring a strong view on a particular asset:

Oil price, 2003 to 2006

An example of a contrarian cover story from The Economist

Anecdotes can be unreliable

The problem with anecdotes is that they are prone to sample size issues, confirmation bias, and cherry-picking. If you’re always bearish stocks, for example, you will see anecdotal evidence of a top almost every day. If you think tech is a bubble, you will see anecdotal signs of overconfidence and tech hype all over the place. If you’re a crypto hater, you will find plenty of anecdotal reasons to get short crypto. Etc.