analysts frequently head in the wrong direction

From a Bloomberg article


10 years of data...suggests that the stocks analysts love the most usually do poorly.


From 1998 through 2007, the four stocks rated highest by brokerage-house analysts at the beginning of the year dropped 1.7 percent, on average, in the ensuing 12 months. The four stocks they rated lowest gained 2.2 percent. Neither group beat the Standard & Poor’s 500 Index, which had an average annual gain of 7.2 percent.
The pattern doesn’t hold true every year, but it is more than coincidence. The problem... is that analysts are drawn to companies with strong and improving operating results. Generally, they aren’t fussy about how expensive a stock is when they recommend it.

Stocks advance when a company exceeds prevailing expectations. The higher the expectations, the more difficult they are to exceed. No wonder that stocks favored by hoards of analysts do badly.

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