Headlines frequently call the bottom

One of the amusing things I’ve learned as an investor is how the popular press almost always gets it wrong, especially when it comes to investing or the economy.

One popular magazine called the bottom with their headline about the death of equities in the early 1980’s. Doing the opposite of what this headline seems to suggest–by investing in equities–would have been very profitable.

If you were awake during the late 1990’s, you were inundated with headlines about the telecom, internet and technology companies that were going to grow forever. Once again, doing the opposite–by shorting telecom, technology or internet businesses, or investing in brick and mortar companies–was quite profitable.

More recently, the craze for flipping homes or condos as investments made headlines in the popular press during 2005 and early 2006. Want to guess how thats turning out?

Why does the popular press get it wrong? They don’t tend to ferret out breaking news, they tend to report what is happening. In fact, they only tend to report such news once everyone already knows about it. In other words, they reflect popular sentiment more than anything else.

If everyone believes something is a great deal, they tend to buy it for themselves before they tell everyone how great it is. If everyone knows something is great, then price will already reflect that enthusiasm. If you wait for that enthusiasm to be obvious everywhere, then everyone will have already bought. And, when everyone has already bought, prices almost have to go down from there.

The bust in the housing market and home loans seems to be making the news a lot lately. But, I’m not sure it’s hit page one of a popular weekly magazine, yet, so perhaps it’s not quite time to act on this one.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.