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In honor of this eighth night of Hanukkah, let's look at two ways the business media misinterpreted online retailing before getting it right on the third try, when they always do. When it comes to patterns of business-media thought, the third time -- as you will see with online retailing, in-ground oil and video on demand -- is always the charm.
That's why the smart investor like you will be wary as a weasel, in the future, of those first two times.
Nothing but Net?
Take the initial coverage of online retailing ... puh-lease. In the late 1990s, it was portrayed as something that could literally, figuratively and rapidly put malls out of business. As prices of mall real estate investment trusts plummeted, the business media lost their collective head: The revolution was being written about! In
magazine's 1999 issue that pegged
Jeff Bezos as Man of the Year, there was even a
hyperventilating article about how refrigerators would order milk.
Not so fast. Half the time, when The Business Press Maven tried to order online in pre-broadband days, I was logged off the site I was on. This was akin to waiting at the cash register in a store and having a bouncer toss me to the curb, I thought, realizing that online retailing was a little raw to be a replacement.
In one of my better investment moves, I bought some of the mall REITs, such as
Simon Property Group
General Growth Properties
in the midst of this. As I remember, I was getting paid dividends in the high single digits to wait around for malls
to die. Plus, the stocks soon rocketed. It was good work if you could get it.
Sure enough, within a year or two, it became apparent that online retailing would not take over the world in 7 seconds flat, and we were getting headlines like this one from the
The mall: Its death has been greatly exaggerated."
At that point, the second round of collective wisdom started getting bandied about by the business media -- namely, that the prospects for online retailing were extremely limited. We heard at that point that online retailing wasn't all it was once cracked up to be. Turned out that sometimes you were effectively thrown out of the store -- what kind of way was that to shop?
If they were lucky, many wrote, retailers could do a frequently mentioned 10% of their business online, something on the order of a catalog, a nice sideline, but nothing too great.
And that was when broadband began to take hold. Improved technology was the required base, the ante that online retailing had to put up to truly get into the game in a meaningful way.
Look around you this morning: The only truly radiant heat coming out of the retail section this Christmas is from online retailing, showing an increase in sales from 30% to 40%. And all around us, from
The Wall Street Journal
Women's Wear Daily
, the business media finally have it right: Online retailing is officially a significant presence.
The once-overestimated, then underestimated, sector has finally grown up and taken form, from having conspicuously good growth rates to taking on normal retail practices in addition to innovative new ones, from wrapping gifts by doing something more then sending along a collapsible box to offering shopping-comparison capabilities that are changing the nature of retailing.
As a savvy investor who understands the way business is covered and mis-covered, warping perceptions and losing people money until reality finally takes shape, you need to understand this three-step process.
Proof Is in the Ground
Look at oil supply for further proof. Soon after the collapse of the Soviet Union, it was taken as a near-given that Russia and others could produce oil with such effortlessness that OPEC was as good as gone. It didn't work out that way, and then received wisdom became the dark corollary: Russia could sooner get blood from a rock than a decent amount of oil from its ground. Well, guess where the future has settled?
Once again, behind perception No. 3.
There are challenges to Russia's oil business -- just ask
Royal Dutch Shell
this morning -- but production looks sizable.
Video on demand is also conforming to the three-stage coverage rule. First, it was going to put the video rentals out of business immediately. Then it was said to be a non-factor. Now, finally, the real future is good.
First perfection, then destruction -- followed by the decently good eventual reality.
Such is the evolution of many a story line about emerging businesses. If you take only one thing The Business Press Maven says this morning as absolute gospel, let it be this: Get out in front of these story lines, oh wise investor.
Speaking of getting out in front of what is happening, I need to perform a bit of rough justice on the business media's confidence in "lagging indicators." The Business Press Maven had a premonition that he was in for something good when he saw a recent
article about what the relationship between the number of fighter jets and private jets sold means for the economy.
It seemed just the sort of quirky slice of a statistic that holds basic truths. The conclusion, however, was that the relationship was a "lagging indicator" to how the economy did. In other words, it told us what we needed to know after the fact.
The business media throw around this term "lagging indicator" because it sounds like something a good economist should pay attention to -- and maybe that's true. And though larger patterns of history (see: everything from online retailing to in-ground oil) can inform us what the future will look like, please understand this as an investor:
A simple lagging indicator will do you as much direct good as investment advice from a plastic lawn caroler. The lower stock prices in my morning newspaper (pretending, of course, that newspapers still ran stock prices) are a "lagging indicator" that the stock market was weak yesterday.
But that does all of us about as much good as getting named
Person of the Year for 2006.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.