The Keynesian Beauty Contest: Why expert forecasts often miss the mark
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We are constantly bombarded with expert forecasts about the stock market and individual companies that are often off the mark. Open any financial newspaper or turn on any financial news channel, and you’ll find no shortage of analysts making confident predictions about where stocks are headed. Yet, basing your investment decisions on these forecasts is often a recipe for subpar returns. Despite their knowledge and experience, expert recommendations fail to consistently beat the market. Our team at Capitalmind recently analyzed over 2,000 buy/sell recommendations made by institutional analysts on Nifty stocks between 2010 and 2020. Here’s what we discovered: Analysts made four times as many “buy” calls (upgrades) as “sell” calls (downgrades). Sixty days after the call, 63% of upgrades led to a higher price and 55% of downgrades to a lower price.When compared to the Nifty index, only 50% of upgrades outperformed the index, and 46% of downgr...