Inside the black box

Wall Street analysts: Accuracy is the least of their concerns

April 30, 2013: 12:46 PM ET

What they care most about, a survey of 365 sell-side analysts found, are hedge funds.

Screen Shot 2013-04-30 at 11.46.31 AM

Source: "Inside the Black Box." Click to enlarge.

FORTUNE -- As someone who has been tracking the forecasts of Apple (AAPL) analysts for nearly five years, I was not entirely surprised to learn that when 365 sell-side analysts (not just covering Apple) were asked what factors affected their compensation, the accuracy and timeliness of their earnings forecasts came in dead last.

This revelation comes from a survey conducted by a team of  business school academics and posted online last month by Social Science Electronic Publishing. Among its other findings:

  • 82% of the analysts were men, 45% had MBAs, 43% followed anywhere from 16 to 25 companies
  • 81.5% named hedge funds as their employer's most important clients; 13% named retail clients
  • Private phone calls with management were their most useful sources for generating forecasts
  • 53% said they had direct contact with a CEO or CFO five or more times a year
  • The most likely consequence of issuing a below-consensus forecast was to increase their clients' perception of their credibility

There's lots more where that came from.

Link: Inside the "Black Box" of Sell-Side Financial Analysts, by Lawrence Brown, Andrew Call, Michael Clement and Nathan Sharp.

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