What happens when analysts’ recommendations go wrong?
That’s the title of a new study which looks at analysts’ willingness to change their mind when markets move in the opposite direction. Interviews with analysts showed some are “profoundly” affected by a “sense of failure”.
Regret and shame shaped analyst responses; fear of public humiliation means analysts often don’t revise failed forecasts for as long as possible. Analysts admitted to often going with their gut as opposed to focusing solely on fundamentals. Sometimes, analysts capitulate by changing their recommendation to “hold”, and then ignoring the stock for as long as possible.
As one analyst put it, “just put it on neutral” and “put your tail between your legs and sulk”.
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Commenting on the study, Liberum strategist Joachim Klement admits to having used such coping techniques in the past, but says they don’t work in the long run. What does work? Admitting to mistakes and honestly assessing them. “Be a man about them”, says Klement, “not a coward.”
