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As investors await today's start of earnings season, they should remember that Wall Street's equity analysts blew it in the fourth quarter, overestimating profit by 33.5 percentage points, the biggest miss ever, according to Bloomberg News."Merrill Lynch & Co.(NYSE: MER), Bank of America Corp. (NYSE: BAC) and the rest of the securities industry aren't losing credibility because of anything sinister," the story says. "The problem is they didn't get their math right after credit markets froze nine months ago."
I am not terribly optimistic that analysts have improved much in the first quarter. Earnings estimates are probably still way too high. Many, many companies are going to miss their earnings estimates. This will erode Wall Street's credibility even further.
Richard Weiss of City National Bank told Bloomberg that first quarter results will be a "big wake-up" call for some analysts. Some may lose their six- and seven-figure jobs because of it.
The lesson here is for investors to do their own homework. Anyone who doesn't have the time or motivation to do it should either hire an adviser or buy index funds.
These days, you can't take Wall Street's word for anything.
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Reader Comments (Page 1 of 1)
4-07-2008 @ 5:07PM
tim said...
FYI you spelled "analysts" wrong, it should be ANALysts, saying it outloud helps :)
Tim
http://www.timothysykes.com
4-07-2008 @ 5:27PM
william lindblad said...
I never put too much faith in them as they crunch data and guess - like the rest of world. I have seen some say some pretty silly things. Enron's a good buy, adelphia's ok, The FCC is going to approve ( a merger that they already rejected) and the list goes on an on. As a group they have a decent track record and are usually well in the ball park, but they guess just the same and therefore, are going to make mistakes. Remember "weapons of mass destruction"? Guess how much analysis went into that? Big difference between the two bodies is that on wall street you probably will lose your job.
4-08-2008 @ 10:41AM
B. Harrison said...
The ANALyst are not much more than hype-men; they're used by the "Big Guys" to drive the stock up and down so that they can shear the sheep as they run to and fro out of panic and greed. So much of it is nothing more than a manipulated con-game at time.
There isn't much difference between them and economists or weathermen. eighty to ninety per cent of these analyst are just glorified hucksters. If they were that good, they would be retired like Jim Cramer. At least Cramer admits to manipulating the market back when it was "legal"; and he points out how it is still being done, just with new variations . . . the ANALyst are just after those fees like any salesman, regardless of how good or bad the product may be.
4-08-2008 @ 8:54AM
Chris said...
If someone whose full time job is to analyze/value companies can't get it right, what makes you think an individual investor will do even better? And the same for an "adivser"? There is a ton of assumptions that go into modellng future earnings of a company and I expect very few individual investors or financial advisers will make substantially better assumptions. *Maybe* for one company that they know very, very well.
Unfortunately, unless you have inside information, I think about the best you can do is to look at the consensus numbers.
Chris