“Contradiction is not a sign of falsity, nor the lack of contradiction a sign of truth.” – Blaise Pascal

Is it possible to use Time magazine (or any other major mainstream magazine) as a guide when you’re looking for investment guidance? It’s not only possible but actually makes good sense, according to Dr. Steve Sjuggerud, ETR’s resident investment guru.

In a recent issue of True Wealth,  Steve said that magazine covers give investment guidance that’s so strong you simply must consider it before making a decision to buy or sell.

The trick is to know how to interpret the signals.

Why? Because cover stories about the market tend to occur at points near the market’s top or bottom. By the time magazines are featuring “bullish” covers, the market is set to top out. Conversely, by the time you see magazine covers featuring scary pictures of bears, the market is almost certainly at or near a bottom.

A study of 80 years of Time covers shows that bearish covers usually ran 30 days before the market turned higher. Bullish covers ran about the same length of time before the market turned south. In real terms, that means it’s a good idea to act contrary to the magazine covers but not to do so immediately. Wait about one month — and then move.

In the words of stock-market guru Ned Davis, “By acting contrary to the magazine covers after 30 days, you would have beaten the equivalent buy-and-hold return by about five times over the next 11 months.”

And Time magazine isn’t alone. Newsweek and Business Week have the same track record.

In late 1974, near the end of the 1973-1974 bear market (the worst since the Great Depression), Newsweek ran a cover story titled “The Big Bad Bear.” The cover depicted an angry bear with NYSE pillars crumbling on each side of him and a sign showing Wall Street as a one-way street heading straight down. What happened? Stocks shot up — about 50% in two-years’ time.

In late 1979, BusinessWeek ran its now famous “Death of Equities” cover, practically predicting the end of Wall Street as we knew it. But an investor who spent the ensuing 20 years doing the exact opposite of what that cover suggested would have gotten rich.

For savvy investors, this phenomenon is not news. It’s pretty much accepted — not only in stocks but also in bonds and real estate and every other investment field — that by the time everybody’s talking about an investment, it’s time to be a seller. That when everybody else is bearish, it’s time to buy.

One of Wall Street’s most famous stories has it that Joe Kennedy got out of the market just before the crash of 1929 — not because he had inside information but because a shoeshine boy gave him a “hot tip.” When even shoeshine boys are touting stocks, Kennedy rightly thought, it’s time to head for the hills.

Bernie Schaeffer, another market guru, also took a look at what you might call the “magazine-cover indicator.” Studying magazines for just the last five years, he found that when a cover story was bearish about a stock, the stocks were up an average of 5% three months later. And that when a cover story was bullish, the stock was down an average of 7% three months later.

How can you use this information? Well, at the very least, the next time you’re thinking about making an investment, visit your local newsstand. Scan the financial magazine covers. If there’s a consensus — either bullish or bearish — chances are excellent that the market’s about to head in the opposite direction.