I personaly agree with all above. Charts are from 2004, but they are and will be actual for a long time. Analysts are bullish most of the time. Because in the long term... stock and also GDP is rising.
One more note from Dresdner:
Look at the chart below. In a study by Torngren and Montgomery, two groups of participants, lay people and professionals, were asked to choose which stock was going to outperform each month. The laypeople were undergrads in psychology and the professional investors were portfolio managers, analysts and brokers.
They would chose between two stocks (well known blue chip names). They were all given the name, the industry and previous 12 months performance for each stock.
The students were 59% confident in their stock picking abilities on average and the professionals averaged 65% confidence. Obviously the lay people outperformed the professionals by a large margin.
When the professionals were 100% sure they were correct, they were actually right less than 15% of the time! Look below at how, as the "perfect calibration" line (confidence level) moves up, performance declined -- dramatically for the professionals. Also notice how lay people never said they were 100% confident.
You might think these studies are flawed or that I'm cherry picking the studies, but I have tons of research on this with a number of other studies that show the same thing. The point is you don't want to be overly confident when positioning yourself.
It's always important to know what the indicators that you're following actually mean, to get as good of a grip on market action as possible. But no matter what, always remain humble and avoid the cycle described above, and avoid having an ego at all costs.
It's no wonder 85% - 90% of fund managers underperform the market.
And what is "The Market" anyway? Not what most people think ...
Hat Tip Chris Rowe
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