Group Think: What's Ahead For Q4?
Charles Sizemore | Sep 12, 2012 11:10AM ET
There's an art to following the recommendations of Wall Street strategists. Taken individually, the average analyst tends to be pretty sharp. They do their homework. They have well-funded research teams. And it can be worthwhile to hear what they have to say, even if their advice tends to be conventional.
But whatever value there is in listening to an individual strategist, you can get an entirely different layer of insight from seeing what they have to say as a group.
That's not to say you should blindly follow their advice. Indeed, as often as not you can even use them as a contrarian indicator and bet against them.
Failure To React
Like all investors, top strategists can be prone to certain psychological biases. They tend to “anchor and adjust” their existing forecasts, which means they fail to fully react to new information. They fall victim to a “recency bias” in that they tend to place undue importance on recent events while ignoring the long-term historical record. They are prone to “confirmation bias,” meaning they look for data that confirms their current view rather than keeping an open mind and letting the data guide their opinions.
And perhaps most of all, they can be prone to herding behavior. We humans crave the approval of others and often think and act as a group rather than as independent-thinking individuals. It’s during times like these that the smart money doesn’t look all that smart.
The Call
That said, let’s see what the smart money expects for the remainder of 2012. In its September 3 MarketWatch .
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