Getting It Wrong

We tend to think of Wall Street as attracting the best and the brightest, with the shiniest rocket-science tools at their disposal. Well, perhaps the crash of 2008 removed that notion for many of us, but now the Harvard Business Review is reporting on a simpler matter that the Street has been getting consistently wrong for a long time now.

We talk a lot about quarterly earnings reports, and the Wall Street estimates of those, but analysts also predict longer-term earnings, making five-year projections. And they get them very wrong. Over the past 25 years, analysts' estimates of long-term earnings have been an astonishing 100 percent too high.

The general consensus is for long-term earnings averaging around 10 to 12 percent a year, whereas in reality they tend to be more like 6 percent. The only time the analysts' estimates hit the mark is in the very highest-growth years. A shorter-term horizon didn't help any: The results were the same for three-year earnings as they were for five-year.