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Why Analysts Seem to Be Getting It Wrong

Analyst “just don’t get it” when it comes to taking risks and here are some reasons why, said Fred Fraenkel, vice-chairman of the Beacon Trust Company.

“Analysts aren’t paid mostly for being right,” Fraenkel told CNBC.

“They can’t be wrong all the time, but they aren’t paid to take the risks that are associated with being right at turning points.”

Fraenkel said prognosticating a turn in a business cycle is difficult and it involves risk, which analysts are unwilling to take.

Another issue: Analysts are not good at forecasting a productivity pop at the start of the cycle, Fraenkel believes.

Second Opinions:

“They don’t do it until 3 to 4 quarters after the topline has started to strengthen — that’s when you see dramatic increases in earnings estimates,” he said.

“And, unfortunately, they should be doing it now because the costs associated with all the layoffs are showing in productivity increases.”

Disclosure:

No immediate information was available for Fraenkel or his firm.

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