How To Cut Your Dependency on Mr. Market

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Investors spend enormous amount of time analysing companies, industries, trends and simply try to understand how the business works. That is of course very much needed and at least basic understanding is absolutely essential for correct asset valuation. However, in the very end of the valuation process one deeply subjective variable may enter into the calculation. And it may change everything.

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Discussion Paper: Are Analysts Providing Measurable ‘Added-Value’?

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Once companies have provided financial guidance: Are analysts’ forecasts able to add any extra value? If so, how often and by how much?
A study by AKRO investiční společnost, comparing the accuracy of analyst forecasts and management forecasts, shows that so called ‘post event’ analyst forecasts, i.e. those made post recent results/management guidance, are in general more accurate than management forecasts. Both the frequency and magnitude of the greater accuracy prove significant, a somewhat reassuring conclusion for research analysts.
If analysts are able to provide insights with regard to tangible measures of value, it seems logical to assume analysts are also able to provide insights with regard to less tangible measures of value, e.g. management quality, industry outlook. At a time when the ‘active’ asset management industry is getting a bad press, and many research departments are being downsized[i], the results should give pause for thought.

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