Equity analysts: Still too bullish |

Equity analysts: Still too bullish

As earnings season is under way, McKinsey put out an interesting study. The information isn’t new and we’ve even discussed it here before, but I thought the presentation was really compelling and it reinforced some tenets of investing: don’t trust analyst estimates.

…This pattern confirms our earlier findings that analysts typically lag behind events in revising their forecasts to reflect new economic conditions. When economic growth accelerates, the size of the forecast error declines; when economic growth slows, it increases.³ So as economic growth cycles up and down, the actual earnings S&P 500 companies report occasionally coincide with the analysts’ forecasts, as they did, for example, in 1988, from 1994 to 1997, and from 2003 to 2006.

The article continues to show how analysts have been consistently overoptimistic in their estimates for the past 25 years (with only a couple of exceptions). And the news doesn’t suggest that this time it’s different.

To read the complete article, click here.

this is

Last 5 posts by Yaron Sadan

That sinking feeling - May 18th, 2012
Opportunity on the horizon - May 18th, 2012
Early can hurt - May 16th, 2012
Diversify your Diversification - May 15th, 2012
Losing Money Isn't a Crime - May 15th, 2012