McKinsey & Company, the global management consulting firm, recently investigated the biases exhibited by equity analysts. McKinsey was testing for undue optimism or pessimism, and found that
Analysts, we found, were typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined.
The graph below shows the extent of the situation (Click for full size), showing analysts’ forecasts throughout the year vs the ultimately realized EPS for the year.
Read the full report here.
Talk to Frank about Equity Analysts.
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