Why do analyst give their estimates?

Discussion in 'Trading' started by dafong, Nov 3, 2007.

  1. dafong


    For the most part, the analyst estimates are pretty good in determining what the stock is likely to report in earnings. Also, it shows how the institutional side is feeling about a stock, depending on the revisions they make to their estimates.

    What I'm wondering is why would analysts, who are more in tuned with the company/industry than we are, release to the public their estimates? Wouldn't it be better to keep it private and buy stocks and get a pop when earnings roll around?
  2. Because they are paid to do so.
    Good researchs produced by Phd guys are very expensive to get. Only the Big guys can afford. Free reports come out late to lure the Little guys to buy what the Big guys have bought long ago. The only tools the Little guys can use to see what the Big guys is doing is TA.
  3. dafong


    I don't think it's that late. When a company does report earnings and analysts got their estimates wrong, they are usually revised with 2-3 days. You can check for yourself on reuters after an earnings release.
  4. dafong, for your information, some senior researchers, heads of reasearchand individual ones at banks and other places get paid FARRR more than the average trader - without taking any risk, just for presenting their views.
  5. Because there is a law that actually requires it.

    Such law (don't remember the name), requires all info, including estimates, to be made public, so that institutions and retail investors may compete in an even field.
  6. dafong


    so essentially, analysts do the work and we could benefit from it
  7. piezoe


    dafong, are you perhaps fairly new at this game? I have surmised that from your initial question. The only analyst reports to be trusted, and then only with caution, are those coming from independent agencies that don't have direct ties to Wall Street.

    Let me just say that in general you should disregard any buy or hold (which in analyst speak means sell) recommendations coming from most analysts. Sell recommendations are extremely rare.

    The reason you can not trust most analyst reports is that they are often slanted to serve the interest of the financial institution they work for. Thus when GS wants to dump a large position they are having trouble getting rid of, a buy recommendation is generated. When GS is courting a new client, a very complimentary analyst report appears, etc. When earnings from a company whose stock is in their inventory are going to be weaker than expected, a revised lower estimate of earnings is released. Then when the lackluster earnings are reported, they are said to "have beaten analysts" estimates, when in reality they sucked. When the dollar is sinking like a rock and most of US company XYZ's gain in dollars is coming from overseas sales and is almost all due to the exchange rate rather than organic growth, the analysts issue a glowing report touting the strong quarter XYZ had.

    In a word beware of anything coming from the pen of a so=called Wall Street "Analyst". They are paid to tell white lies, and they know it.

    If you are trading intraday you don't care about fundamentals, and you can just ignore analysts altogether. If you are investing, either rely on independent analysis, or better yet, do your own using company and SEC reports..

    You can use obviously self-serving and silly analyst, up and downgrades to make money by fading them. But always check them out first because every now and then an analyst will issue an objective report just to keep you guessing.
  8. Yeah and they also have bosses and have to wear a suit and tie to work and basically have to answer to someone all the time.

    A successful independent trader probably will never make anywhere near 8 figs a year but 7 is not out of the question and the quality of life one can have and the time available to spend with loved ones is priceless.

  9. dafong


    I am not talking about the recommendations. I know that most recommendations are biased toward buying. What I'm really talking about is the forecasts that analysts give, the the expected EPS for the next fiscal year. They usually update it every month.

    Most stocks perform based on future expectation, and the analyst estimates show what analysts are forecasting for the stock. Therefore, if next fiscal year EPS is being raised, then the stock should be performing higher.

    For example, DRYS


    look at the consensus estimate trend, it has gone from 3.50 a year ago to over 13 bucks now for the next fiscal year. Then look at the [erformance of DRYS over the last year. Coincidence?
    #10     Nov 4, 2007