= 27d567bc2d48d9f40e9ccc20ea370b15)
Will_Newsome comments on Open Thread: May 2010 - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (543)
I'm looking at the forecast for the next year on CNN Money for Google stock (which will likely be an outdated link very soon). But while it's relevant...
I don't know much economics, but this forecast looks absurd to me. What are the confidence intervals? According to this graph, am I pretty much guaranteed to make vast sums of money simply by investing all of what I have in Google stock? (I'm assuming that this is just an example of the world being mad. Unless I really should buy some stock?) What implications does this sort of thing have on very unsavvy investors who look at graphs like that and instantly invest thousands of dollars? Do they win at everything forever? What am I missing?
It's fairly well established that actively managed funds on average underperform their benchmarks. I'm not aware of specific research on investing based solely on analyst forecasts but I imagine performance would be even worse using such a strategy. Basically, you are right to be skeptical. All the evidence indicates that the best long term strategy for the average individual investor is to invest in a low cost index fund and avoid trying to pick stocks.
ETA: This recent paper appears relevant. They do indeed find that analysts' target prices are inaccurate and appear to suffer from consistent biases.