Analysts have a tough job

I studied neuroscience in university and I was supposed to be a bio-tech stock analyst when I first got into the financial industry – but as I was studying for the preliminary exams I found myself more attracted to the financial planning aspects of finance. I’m pretty happy in retrospect that I picked financial planning… I like the direct contact with retail investors.

Analysts have a tough job. They are putting forth the views they have based on the information available to them – and I’m sure they do a much, much better job at that than I could ever do. But the problem then, must be that they do not have all the correct information in front of them, right? I’m not doubting their intelligence and powers of deductive reasoning – just pointing out a logical argument.

A case in point, here are some predictions from the same analyst (some consider him to be a maverick, and some consider him to be a star)…

December 11th, 2007: Predicts the TSX will hit 16,200 by the end of 2008.

January 22nd, 2008: Predicts the TSX will hit 11,000 by the middle of 2008, and then rebound to 13,000 by the end of 2008.

I’d also like to point out that six months ago, I don’t recall anyone calling for a U.S. recession. So what does this mean? Remember to take any financial forecasts with a grain of salt – information changes all the time. Analysts dissect what is available to them, but no-one knows what new information can crop up all of a sudden. If you are a long term investor – don’t let the headlines rattle you – no one can predict the short term movements with any real degree of accuracy. The next time you see a doom and gloom report, just remember: it could very well be wrong.