Monday, April 9, 2012

Great Expectations?

We constantly hear about market disappointments arising from not meeting (or the opposite exceeding) the expectations of analysts or other experts. The recent example of the addition of 120,000 new jobs not meeting expectations of experts has given rise to a sharp market decline today.

Maybe the problem is not the number of jobs created, but rather the skill and accuracy of the estimators. If the estimations had been for 120,000 new jobs would the market have reacted any differently?

The same observation is applicable to those company earning reports that either meet, exceed or are below analysts' estimates.

It seems to me that a major problem is how good the estimator analysts are at their jobs.

If analysts started doing a better job of estimating, how would the markets react to that?

Eric

1 comment:

  1. In my opinion, Eric is spot on. That being said, I don’t believe it is necessarily an ‘Analyst’ problem. It is definitely Chicken & Egg. Companies are not always forthcoming with Analysts which makes the Analyst job to more difficult. Google doesn’t provides guidance. It will be interesting to see if Facebook will when it goes public. In my opinion, companies should either be transparent with Analysts, or not provide guidance at all. Based on what we know and hear in our industry, customers, market segments, etc. some remarks made to Analysts are almost misleading – making their already tough job a lot tougher.

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