The Media Is the Message
Woe often awaits investors when a major magazine makes a bold statement on its front page.
The classic example is BusinessWeek’s “Death of Equities” cover story from August 1979. The cover story marked the beginning of a massive, historic bull market. The article pulled together the collective wisdom of another generation’s market pundits as it confronted massive inflation—oil prices had increased by 60 percent, and inflation was on the rise. Housing was identified as the most popular inflation hedge in America. The world was upside down. Before inflation took hold in the 1960s, BusinessWeek reported that the total return on stocks had averaged 9 percent a year for more than 40 years, while nearly riskless AAA bonds rarely paid more than 4 percent. “Today the situation has reversed, with bonds yielding up to 11 percent and stocks averaging a return of less than 3 percent throughout the decade.”16
The cover story seemed sparked by a change in the previous month, to the rules that governed pension funds. The U.S. Department of Labor, which regulated such things, was allowing pension funds to invest in assets other than just listed stocks and high-grade bonds. For the first time, pension funds could invest in the shares of small companies, real estate, commodities futures contract, and even gold and diamonds. BusinessWeek recognized that the change could lead to higher investment returns for pensioners whose accounts had suffered from years of inflation. ...