Monday, July 19, 2010

Should You Believe Equity Analysts' Forecasts?

Analysis from McKinsey indicates analysts (like almost everyone else) tend to be overoptimistic:
Moreover, analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year, compared with actual earnings growth of 6 percent. Over this time frame, actual earnings growth surpassed forecasts in only two instances, both during the earnings recovery following a recession (Exhibit 2). On average, analysts’ forecasts have been almost 100 percent too high.

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