A January 2014 study suggests that 2014 will be a good year to put more trust in analysts’ financial forecasts for a company’s stock. That’s because during good times, analysts tend to be more accurate than when times are bad. (As of press time, the Dow Jones industrial average was up 10.5 percent compared with a year ago.)
Because stock prices tend to move more predictably during good times, analysts’ predictions are more accurate and, thus, more helpful to you, according to Roger Loh and Rene Stulz. The study by the researchers at The Ohio State University and Singapore Management University was released by National Bureau of Economic Research, which is a nonpartisan organization.
During bad times—when stock prices are down or volatile—analysts’ forecasts tend to be less accurate, the study found.
Consequently, if analysts forecast that a company will report a decrease in earnings in 2014, you should consider selling, according to financial-services company Fidelity Investments. Conversely, if analysts are bullish about a company’s prospects, you should consider buying.