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Article by Ian Matheson - published in Listed@ASX | Winter 2019

THE CONSENSUS TRAP

With fewer analysts covering ASX 300 forecasts, companies must be more proactive about managing earnings expectations.
 

Out-of-date sell-side analyst forecasts are causing serious and growing problems for listed entities and for investors who rely on consensus estimates when making important investment decisions. Commonly, this might be the consensus or average of the earnings forecasts of the analysts conducting research on a company among ASX 300 stocks.

A decline in the number of stockbroking analysts who publish earnings estimates is combining with an increase in the number of outdated or stale forecasts remaining in circulation to create an investing trap. In a nutshell, investors increasingly base their investment decisions on bad information, often without knowing it. This is because the consensus or average can be distorted by out-of-date forecasts from analysts.

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