Analysts have been evaluating and predicting future trends for a long time and now they are getting more and more exposure with 24/7 stock market news, with their word often being taken as truth. However with a study showing that 49% of analyst ratings on the Dow 30 were incorrect in 2012, is their word really worth following?
Looking at the oil prices compared to the analysts expectations over the past couple of years, there is clear evidence that the reality has far from reflected the analysts expectations.
For example if we consider the start of 2009, we can see that whilst analysts forecasted the oil prices to be around $65 per barrel, in reality prices stood $25 higher than this at $95 per barrel.
This is not a one off case, and has been seen to happen again and again with worse consequences. Take the start of 2014. Analysts predicted a declining price in oil, just for the opposite to happen. Oil prices in 2014 increased throughout the first half of the year until reaching its highest level in May.
Of course, analysts do get a fair share of predictions right but how do we know if we should rely on their advice?
Predicting the future of any investment product is difficult. Whilst Jim Cramer from CNBC media fairly stated that “Wall Street analysts don’t exactly have a sterling track record”, some are known to have made some brilliant forecasts.
The bottom line is that it is important to remember that whilst stock analysts might have a greater insight into the future of the stock market than you, it is important to take their report as apart of a bigger picture and to not take their predictions as the sole basis for your investment decision.