What is the job of a stock market analyst, you know the people who set lofty expectations for financial performance of publicly traded companies (i.e. the people who set forecasts that Apple never meets), what is their job?

I found a lot of definitions, but let’s go with The Free Dictionary’s 1 :

an expert who studies financial data (on credit or securities or sales or financial patterns etc.) and recommends appropriate business actions

In other words it is the job of these analysts to do a couple of things:

  1. Study and know the market.
  2. Recommend actions.

That means that these analysts need to make the most accurate guess that they can for the future performance of a company so that investors, whom the analyst works for, can make the most informed decision of when to buy and sell a particular stock. (Close enough, well, closer than analysts get to doing their job anyways.)

Given that definition, why are stories worded: “Company A missed expectations”? Shouldn’t the correct wording be: “Analyst John posted a bad guidance”? Of course it should be, but no one actually cares about that analyst’s ability to predict the future, because trying predicting the future is futile. So instead we look at who failed to meet a goal set by a person with a business card that reads “analyst”.

Side Note: I just promoted myself to “Senior Analyst” here at The Brooks Review, please cite me using that title, so that my words carry weight with the likes of CNN, NYT, WSJ, Reuters, et al.

When people refer to “guidances”, “expectations”, and so forth, they are really just referring to an outsiders best guess, formed by analyzing historic data. In other words: this is not the company themselves saying where they expect to be next quarter, it’s just a third party saying where they think a company should be based on an analysts best guess.

And yet, these guesses are being reported as if the company actually has a duty to meet them — and has failed if they do not meet them.

This is really like readers trying to guess how long my next post will be, and then getting mad at me if they are wrong about that guess. In other words: it’s the dumbest fucking thing I can think of to try and predict.

  1. I much prefer this definition.
Originally posted for members on: January 23, 2013
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