Tuesday, 4 May 2010

McKinsey: Professional Equity Analyst Forecasts Chronically Over-optimistic

Maybe it isn't a surprise to read evidence that professional equity analysts almost always predict much higher EPS growth amongst companies on the stock market than actually comes to pass. McKinsey & Company took the trouble to compile the numbers and the ugly truth is revealed in its April 2010 McKinsey Quarterly report Equity analysts: Still too bullish (free registration required to view the brief report but the three graphs are worth at least 1000 words and many more dollars each). Only the odd year does the market actually meet or exceed analyst forecasts. You would think the analysts would learn after 25 years of over-estimating results, or maybe it is just deliberate hype.

Given the amount of salt that would therefore be recommended to consume while reading such analysts reports, maybe the best investment diet strategy would be to avoid ingesting them altogether. Who wants a choice between investment bad taste from over-cooked reports or high blood pressure from too much salt?

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