McKinsey report: For the past 30 years, analysts’ earnings forecasts have been excessively optimistic.

The McKinsey Quarterly report published on the 19th of July has made quite a lot of noise on the blogosphere as it clearly shows what was obvious to many: analysts inability to see anything but rosy future and their tendency to overestimate earnings. Unfortunately, this bias is introduced by how they are compensated and how their firm makes money, so it might not just be an issue of skill and incompetence, but also of integrity and honesty.

Here are a quote and two charts:
Analysts, we found, were typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined.
Moreover, analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year,4 compared with actual earnings growth of 6 percent.

So now, with this information in mind, do you see that the rosy picture and earning forecasts they have been publishing might be a bit too optimistic?

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