Analysts' Profit Forecasts: Worse Than Ever!

Friday, August 22, 2008 | 08:45 AM

Analysts_2
 
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"At the start of the year, profits at banks, brokers and insurance companies were projected to rise 22 percent in 2008, according to the average estimate of analysts surveyed by Bloomberg. They're now expected to decline 48 percent."

-Bloomberg's Chart of Day

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How bad are fundie analysts as a group? Well, as the chart up top shows, the earnings forecasts of Wall Street Analysts "missed the mark by the biggest margin in at least 16 years last quarter," according to Bloomberg data.

How often did the Street get it right? Try 6.7% for the companies in the S&P500 Index in Q2. That's the  worst showing since Bloomberg began tracking this data way back in 1992.

While some blame the credit crunch, Oil, and Housing as the problem, a more likely source of error is Reg FD. Analysts have been increasingly wrong since the adoption in October 2000 of Regulation Fair Disclosure. The regulations barred CEOs and CFOs from giving the inside dope to the outside dopes. No more whisper numbers to favored bankerd or their pet analysts.

What does this mean to investors? Well, traditional Wall Street Research seems to be of minimum value to investors. Its no surprise that the fastest growing form of analytics  (yes, I am talking my own book here)  is quantititive -- no C-level execs needed. 

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Previously:
Follow Analysts at Your Own Financial Risk (June 2008)
http://bigpicture.typepad.com/comments/2008/06/follow-analysts.html

Schwab: We Don't Need Your Stinkin' Analysts (April 2008)
http://bigpicture.typepad.com/comments/2008/04/schwab-we-dont.html

Source:
Analysts' Profit Forecasts Missing More Than Ever: Chart of Day
Lynn Thomasson
Bloomberg, Aug. 20 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ar9FYyyXfzdo

Friday, August 22, 2008 | 08:45 AM | Permalink | Comments (36) | TrackBack (0)
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Comments

as an institutional investor, sell side research is very useful for some things, very useless for others. on the useless side of the ledger: earnings estimates, buy/sell calls, target prices. on the useful side: industry and company overview particularly in unique or complex sectors, comparative analysis to other companies in the same sector, street chatter.

Posted by: joe | Aug 22, 2008 9:20:05 AM

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