, Columnist
Investment Signals in a Magazine Cover
The magazine cover story for a general news magazine can serve as a contrary investment indicator.
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One of the more infamous and misunderstood market signals is the magazine-cover indicator. Created by Paul Macrae Montgomery, this contrary indicator essentially tells us when some investment theme or fad has reached a crescendo. The thinking goes that by the time the editors of Time find out about some hot investing trend, it is all over but the crying.
As Montgomery described it, there are three primary rules for the classic magazine-cover indicator. First, it must be a mainstream -- not business -- publication that put a specific object on its cover. Second, we are looking for a well-understood concept that is reaching a climax. And third, there must have been significant asset-price gains leading up to the cover.