Are equity analysts over-optimistic? Implications from past data

Came across the following data in a recent Mckinsey article on long term forecasts vs actual earnings. The implications are interesting

1. Analysts are (at most times) over-optimistic on growth trends and perhaps underestimate the effect of competition (companies don't exactly play tennis against a wall), challenges to scale, change in consumer taste, alternative products etc
2. Follow earning revisions after trend change in actual earnings rather than vice versa (which is their real worth)
3. However, during periods of recovery they get over pessimistic and estimate lower recovery

While this is important point to remember for fund managers who follow their advice, this has important implications for analysts, themsselves (The good ones should know this intuitively)

• Its generally more accurate to be lower than consensus
• It helps to be contrarian

This, of course is aggregate data and would be interesting to perhaps look at the top 5 rated analysts

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