CHART OF THE DAY: Wall Street Always Predicts The Same Amount Of Growth, And They're Always Wrong

button more charts
button chart prev
button chart next

The analysts at Goldman Sachs recently published a report on how behavioural biases basically screw up every aspect of the investment process.

For example, take Wall Street’s forecasts for revenue growth.

“[T]op-line variability is consistently underestimated,” they write. “Consensus revenue growth forecasts will typically start in the 5%-6% range for the market at large, but the true outcome almost always turns out to be a significantly higher or lower level. While nine of the last 10 years’ consensus revenue growth forecasts have been initially in the 5%-6% range, no year saw actual growth within that range.”

“Clustering at mediocrity,” they write.  “Analysts are reluctant to take a significant view on growth ahead of the date (conservatism, risk aversion), and/or are anchoring to economists who themselves are making the same mistake.”

Here’s the chart they include that shows how top-line growth rates almost always start at the same place, but very greatly throughout the year.

Chart of the day shows wall street's terrible revenue forecasts, february 2013

Photo: Goldman Sachs

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.