Analysts and Experts

"The out-of-touch expert is part of a growing crowd on Wall Street. Analysts spend more and more time selling and defending ideas to their superiors and/or clients, and less and less researching ideas. It's unusual to find an analyst who calls several companies each day, and even rarer to find one who gets out and visits them" Peter Lynch

"Analysts are competent gatherers of facts and figures, but few can be relied on for much more" Ralph Wanger

"I'd prefer not to know what the analysts think .. it clouds one's judgement - I'd rather be dispassionate" Peter Cundill

“Analysts permit ‘earnings guidance’, which is controlled by the corporations to influence their decisions, and they don’t take the long view” Leon Levy

Philip Tetlock, PhD, enjoys the paradoxical distinction of being the leading expert on expert failure. After a 20-year study of the accuracy of thousands of forecasts from hundreds of academics, analysts, and pundits, the academic by-product, Expert Political Judgment (2005), found the average expert’s opinion to be little better than a random guess. Frank Martin

“When buying stocks, insurance, or any other service, financial or otherwise, always remember the self-interest of the broker and the seller. A surgeon performs surgery. A lawyer bills every hour. A stockbroker lives on commissions.” Mark Tobak

"There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities." Warren Buffett

“It’s like they say.. in a bear market you don’t want an analyst, in a bull market you don’t need one”  Arnold Van Den Berg
 “Charlie & I, we don’t read anything about what business is going to be — the economy is going to do, or the market’s going to do. Anytime I see some article that says, you know, these analysts say this or that about some business, it just — it doesn’t mean anything to us. You cannot get rich with a weather vane.” Warren Buffett

"The greatest folly is to accept expert statements uncritically" Garrett Hardin

‘Gibson’s law: “For every PhD there is an equal and opposite PhD.” In law and public policy, the observation that equally qualified expert witnesses can come to opposite conclusions.” Morgan Housel

“The reason that the brokerage houses need such big compliance departments is that, without them, the salesman who needs the commission to live, maintain status, to pay the bills and so forth, if it gets to the end of the month, he would sell a blind man any goddamn thing to get the gross.”Charlie Munger

"Too many sell-side analysts whisper in each other's ears, and few want to stick his or her neck out too far. There's not much of a reason to be a hero if being wrong can cost you your job" John Neff

‘The team maintains strict independence; we read virtually no sell-side research for the long book and do not actively reach out to other managers, enabling us to identify unique investment opportunities relative to the broader Wall Street herd and to take a contrarian long- term view of those companies at what we believe are opportune moments.’ Chad clark

"Benj. Graham was studied with respect by generations of analysts, but not with respect. What was one to do all day, if the market was to be ignored"  Adam Smith


“The people who annoy me the most are market strategists who work for brokers. They will recommend being aggressively overweight or being net short, and then they are wrong for two or three years. They are total bulls or total bears. And if they worked for a hedge fund, they would have had their capital wiped out many times over” Martin Taylor

"A lot of research I wouldn't call research.  It's sort of like guys at the track following the horses reporting which horse has come in on this race. Which horse won race 1, race 2 etc.  Research is trying to figure out where the world is going to be in three years time"  Glenn Greenberg

“When an analyst first makes a forecast for a company’s earnings two years prior to the actual event, they are on average wrong by a staggering 94%.  Even at a 12 month time horizon, they are wrong by around 45%!.  To put it mildly, analysts don’t have a clue about future earnings.” James Montier
“The sheer size of analytical reports means little in reaching a conclusion that pays” Gerald Loeb
“Bad opinions can be very costly.  Most people come up with opinions and there’s no cost to them.  Not so in the market.  This is why I have learned to be cautious.  No matter how hard I work, I really can’t be sure”  Ray Dalio
“When it comes to projecting earnings, the track record of analysts is spotty at best and highly inaccurate at worst”   Christopher Browne
“analysts don’t help you at all at a market turn” Barton Biggs
 "We wrongly tend to look at other people as experts. If you ask a currency expert where an exchange rate is going, they are just as likely to be wrong as some average guy on the street" Jim Leitner
Wall Street analysts are unlikely to issue sell recommendations
due to an understandable reluctance to say negative
things, however truthful they may be, about the
companies they follow. This is especially true when these companies
are corporate-finance clients of the firm.  Seth Klarman

“There’s a great quote from Greg Northcraft, a psychologist who says ‘The distinction between experience and expertise – Experience means you’ve been doing something for a long time. Expertise means you have a predictive model that works. Especially in the context of markets, do we know lots of people who have predictive models that work? We have a lot of people with experience bvuy many fewer with expertise.” Michael Mauboussin

“We never look at any analyst reports. If I read one it was because the funny papers weren’t available. I don’t understand why people do it.” Warren Buffett

  "we don’t read brokerage reports of anything of the sort" Buffett
“Most analysts cover only one industry group. You have chemical analysts, bank analysts, and retail analysts who knbow little about the comparative investment merits of stocks in other industries. So when a chewmical analyst says “Buy” a stock in his industry, he has not compared its investment prospects against stocks in any of  fifty other industry groups. A neighbourhood in downtown Cleveland may look great next to one three blocks over, but not when compared to Beverly Hills” Joel Greenblatt
“Specialist analysts operate in a cocoon, in which they are overexposed to company management and peer analysts and underexposed to what is going on in the rest of the world.  Herding instincts may tend to reinforce similar opinions among peer analysts”  Marathon Asset Management

"Analysts with highly specialised knowledge of an industry are prone to adopting the inside view. They assume their own case is unique" Marathon Asset Management

“I have repeatedly found that analysts tend to peg their target prices in the vicinity of the current stock price” Mohnish Pabrai
“Rarely does one find a brokerage-house study that points out, with a convincing array of facts, that a popular industry is heading for a fall or that an unpopular one is due to prosper.  Wall Street's view of the longer future is notoriously fallible, and this necessarily applies to that important part of its investigations which is directed toward the forecasting of the course of profits in various industries.” Benjamin Graham

“What is the role of brokers in your security section? Non” Jeffrey Ubben

“Wall Street has a couple habits. One habit is that present circumstances are projected to infinity.  It tends to believe that whatever is going on today is the way the world will be forever”  Mohnish Pabrai

“Invariably, analysts do not see changes coming – they tend to do what I call “rear-view mirror analysis” by projecting along a straight line from the most recent past and therefore oftentimes miss some big moves.” Jim Tisch


“I’ve said in the past that the greatest quality of financial analysts is their ability to extrapolate.” Francois Rochon

 “I don’t read analyst reports.  All in all, I prefer to read “raw” financial reports and talk to industry representatives.”  Warren Buffett

"Analysts write long research reports when they don't have time to write short ones" Gary Helms

"You can’t read Wall Street reports and get anything out of them. You have to do it yourself and get your arms around it. I don’t think we’ve ever gotten an idea, you know, in 40 years from a Wall Street report. But we’ve gotten a lot of ideas from annual reports." Warren Buffett


"I focussed my analysis on seeking to identify the factors that were strongly correlated to a stock's price movement as opposed to looking at all the fundamentals.  Frankly, even today, many analysts still don't know what makes their particular stocks go up and down"  Stanley Druckenmiller

If you choose to delude yourself by accepting extreme predictions, however, you will do well to remain aware of your self-indulgence. “ Daniel kahneman

Anyone who relies on price targets clearly has an insensitivity to base rates. MastersInvest


“Organizations that take the word of overconfident experts can expect costly consequences … however, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers” Daniel Kahneman

Experts will step in when even fools fear to tread”  Bernard Baruch


“As for ex ante warnings, sometimes of catastrophic risks, where the uncertainty is resolved only during the course of events, the track record of the economics profession and so-called financial experts has been abysmal” Frank Martin

“I’m almost always assuming or forcing myself to assume that the world is managed poorly and that the experts - including the experts that I hire that give me advice - don’t really know what’s going on and I have to take all of their advice with grains and grains of salt.”  Paul Singer

Investment experts continue to be convinced that their major problems could have been handled if only those extra few necessary facts had been available.  They thus tend to overload themselves with information, which usually does not improve their decision making but only makes them more confident and more vulnerable to serious errors”   David Dreman

“Your investor’s edge is not something you get from Wall Street experts.  It’s something you already have.  You can outperform the experts if you use your edge by investing in companies or industries you already understand”  Peter Lynch

“To me Wall Street is a distribution machine. I don’t rely on Wall Street” Leon Cooperman

“I was recently on a panel that was asked what gave our firms their edge.  One panellist responded “we have 160 analysts around the world”.  To me, that response demonstrated a total lack of insight. Unless those 160 analysts are more astute than the average investor, they’ll contribute nothing.  Certainly another 160 wouldn’t double the managers ability to add value (if they could everyone would be an analyst)” Howard Marks

“You read in newspapers of managers visiting 400 or 500 companies, but I think that’s unadulterated nonsense.   What’s important is following up with the stocks you own, rather than seeking out new ones”  Hideo Shiozumi

"A final irony of the bubble market appeared in a recent study by Risk Metrics of 89,000 stock reports issued at Wall Street's largest firms since September 1998.  The study revealed that investors would have done better by ignoring analysts recommendations and buying those stocks that were least favoured.    Stocks rated "hold" [Wall Street's polite code for "sell immediately" or, perhaps, more accurately, "we sold last week"] outperformed those with "strong buy” recommendations.  In other words, the best strategy was to do the opposite of what highly paid stock gurus suggested." Leon Levy

“For the most part, I don’t think they’re [analysts] independent thinkers. Their stocks at $15, they put a target of $17 or $13 - that sort of thing. They aren’t looking at it the way an owner would and/or someone who would want to be a long term investor in the business. So the analysts are disappointing from that point of view.” Mohnish Pabrai

“Despite the number of actual “rocket scientists” who have flocked to the investment business, securities prices aren’t subject to Newtonian principles, only behavioural ones” Seth Klarman

“Occasionally I have been influenced by the special reports issued by the most reliable brokerage houses when these special reports are not widespread but solely to a few selected people.  However, on the whole, I would feel the typical public printed brokerage bulletin available to everyone is not a fertile source” Phil Fisher

“Bloomberg lists on a monthly basis the highest-ranked and lowest-ranked stocks by sell-side analysts. I look at the lowest ranked for buying opportunities and the highest-ranked for selling opportunities. “  Jon Jacobson,


“My bottom line on research (as you know): the average analyst isn’t much help, and only a few are far above average – by definition” Howard Marks

“To gauge investor sentiment we use Wall Street research as a contrarian indicator, so we’re attracted to names where analyst ratings have turned broadly negative and sell ratings are in the majority”  Peter Shawn

“Thus Enron represents another instance, like the dot-coms, where 9a) most benignly, we’d have to say brokerage house analysts possess little insight and their opinions are of no value, and (b) cynically, it seems they’re not there to help investors as much as their companies’ investment banking efforts”  Howard Marks, 2002

“My experience is that the recommendations of Wall Street analysts are wrong more often than they are correct.    Why do analysts tend to be substandard stock pickers? Most analysts follow only one or a few industries and tend to have deep knowledge about the companies they follow.  However, there is a large difference between knowledge and judgment. It is said that knowledge is knowing that a tomato is a fruit, but judgment is not putting it in your fruit salad. To have good judgment, you need to have the knowledge, but, in my opinion, you also need many other qualities, including common sense, stable emotions, confidence, and, quite possibly, an indefinable sixth sense.

Furthermore, in my opinion, most individuals, including securities analysts, feel more comfortable projecting current fundamentals into the future than projecting changes what will occur in the future.   Current fundamentals are based on known information. Future fundamentals are based on unknowns. Predicting the future from unknowns requires the efforts of thinking, assigning probabilities, and sticking one neck out - all efforts that human beings too often prefer to avoid.

 Also, I believe it is difficult for securities analysts to embrace companies and industries that currently are suffering from poor results and impaired reputations. Often, securities analysts want to see tangible proof of better results before recommending a stock.  My philosophy is that life is not about waiting for a storm to pass. It is about dancing in the rain. One usually can read a weather map and reasonably project when a storm will pass. If one waits for the moment when the sun breaks out, there is a high probability others already will have reacted to the improved prospects and already will have driven up the price of the stock - and thus the opportunity to earn large profits will have been missed.”  Ed Wachenheim 

“You find that analysts and economists have big egos, which just gets in the way of making money because they can never admit that they are wrong”  Michael Platt


“We do not rely on Wall Street-generated research. We do our own research.” Lou Simpson

“As for our brave economists, they often seem nervous don’t you think? It seems curious that they most often don’t seem nervous right before an economic crisis. Ultimately, we observe with the years that they seem most nervous when the best bargains are available to investors!”  Francois Rochon

“There are 60,000 economists in the US, many of them empoloyed full-time trying to forecast recessions and interest rates, and if they could do it successfully twice in a row, they’d all be millionares by noew… As far as I know, most of them are still gainfully employed, which ought to tewll us something” Peter Lynch

Economists have entirely failed to predict any of the recessions we have had in the time since consensus forecasts were available, and this may actually be an unfairly easy test. In principle, economists could have successfully predicted recessions and had the information be useless for investors because the market had already priced in the probability. But every single recession – and indeed pretty much every surge and dip in GDP growth over the past 40 years – has been poorly predicted by Wall Street economists.” Ben Inkler

“I don’t bother to read most economists (particularly those who insist on being called Dr. Sam or Dr. Eric) and strategists because they tell you only about what has happened, not what will happen.  They don’t forecast, they just extrapolate recent trends into the future. They are mostly followers, who revise their forecasts of the future based on the direction of the latest economic numbers or what markets have done recently” Barton Biggs

“The amount of mental effort the financial community puts into this constant attempt to guess the economic future from a random and probably incomplete series of facts makes one wonder what might have been accomplished if only a fraction of such mental effort had been applied to something with a better chance of proving useful.”   Phil Fisher


“The trouble with analysts reports is that their time frame is usually six to twelve months, but ours is five years.  So it’s fine to read what they say about businesses, but not their price targets”  Jean Marie Eviellard


“As for the equity research published by brokerage firms, I read little of it, and never rely on it” Guy Spier

“Although many Wall Street analysts have excellent insight into industries and individual companies, the results of investors who follow their recommendations may be less than stellar.  In part this is due to the pressure placed on these analysts to recommend frequently rather than wisely, but it also exemplifies the difficulty of translating information into profits”  Seth Klarman

“I assume that the price for a market on any given day is the correct price, then I try to figure out what changes are occurring that will alter that price.  One of the jobs of a good trader is to imagine alternative scenarios.  I try to form many different mental pictures of what the world should be like and wait for one of them to be confirmed” Bruce Kovner

 “When we first started off, we did virtually no trading, and almost all serious long positions were held for long-term appreciation.  That view did not last too long; I began to realize that adverse market movements could periodically dwarf the impact of even the best stock picking.  We remained fundamental stock pickers but the emphasis changed.  More often than not, the net exposure of our capital began to determine our success”   Michael Steinhardt

“Consistency is the key. It is close to impossible to get a good, long-term, rate of return if you suffer serious negative numbers en route.  It’s the math.  A single year that is down 30% means you have to get 30% per year positive returns for the next four years to get back on track for 15% annual average.  Or, if you score 20% annually for four years, and then suffer a 30% decline, your five year average return is only 7%” Ken Fisher 

...the mad dividend grabs driving acutely unattractive valuations in utilities and old-line telecoms have more than wrung the prudence out of the income opportunity there"  Barrons

"my experience, you know, in talking to hundreds of them [analysts] , is that there are relatively few that are actually thinking about, “What do we buy and put away forever?” Like, we’d buy a farm or an apartment house or something." Buffett

The question is how do you decide if something goes down a lot, that you decide you’re wrong and leave, or do you decide you’re right and want to add to it?  I think in public security, what we try to do is understand what the market is thinking.  Understand why they’re down.  To me, that’s an important part of investing in public markets, is understanding the psychology of the market.  By the way, I don’t necessarily do this by reading Wall Street research.  I don’t actually think that’s a helpful thing to do.  I think the way I do it, is to understand the business and then understand where it’s being priced and then understanding effectively what the volatility and the drivers or the earnings going forward are.  David Abrams

The team maintains strict independence; we read virtually no sell-side research for the long book and do not actively reach out to other managers, enabling us to identify unique investment opportunities relative to the broader Wall Street herd and to take a contrarian long-term view of those companies at what we believe are opportune moments. Chad Clark, SEG

“According to New York University Professor Aswath Damodaran, ALMOST 85% of equity research reports are based on some relative valuation metric. In other words, most investors are laser-focused on what might happen over the next few quarters or years. What happens to a company in year five and beyond is of little concern to renters of stocks.” Sean Stannard-Stockton

“Most people would rather die than think and many of them do!” Bertrand Russell “Most analysts would rather extrapolate than think and most of them do!” Anonymous