Analysts Could be More Reliable

David Bianco recently posted on The Big Picture a piece that outlines the S&P Earnings versus analysts' expectations a year prior.  I encourage everyone to follow the link and see the great graphs.  Here are my takeaways and various points outlined in the article: 

• Earnings estimates seem to never account for recessions as analysts seem to be overly optimistic.
• The biggest divergence between analysts and the earnings reality was during the most recent financial crisis and subsequent traumatic recession.
• Similarly, analysts seem to undershoot earnings during recoveries.  Although they don’t miss by as much as they do during recession.  
• Top down (macro, economic predictions) and bottom up (micro, company predictions) have moved more in sync over the last decade.

I think the point is this: Don't take analysts conclusions at face value, but rather as one tool in an arsenal of many in making a well informed decision. Use the estimates as guidance, but be careful not to put too much credence in their numbers.  Most importantly, don’t make any investment decisions based purely on what analysts are estimating.