The researchers looked at a database of long-term growth forecasts made for all domestic companies listed on a major stock exchange. The forecasts are made in December each year, and predict how well a company’s stocks will do over the next three to five years. From 1981 to 2016, they found that the top 10 percent of stocks analysts were most hopeful about generally had poorer growth than the 10 percent of stocks they were most pessimistic about.
The paper found that investing in the stocks that analysts were most pessimistic in a given year about would have yielded an average 15 percent in extra returns (in stock terms, a profit) the following year, compared to a 3 percent return that would have been made from investing in the predicted champs.
The study, though it hasn’t yet been published in a peer-reviewed journal, is in fact merely an update of a classic study published in 1996; it too found a similarly stark contrast. Nor is this the only kind of study to find a clear gap between the professed stock expectations of analysts and actual reality. So the results aren’t exactly surprising.