When it comes to investing, the future is uncertain, and those so making investment decisions, would, all things being equal, strongly desire to have certainty in the outcome of a particular stock investment. The thing is though, that just isn’t going to happen, for as they say, the best laid plans of mice and men often go awry. Still, when it comes to money, and the risk thereof of any investment, many people are going to want to find something tangible that purports to be of a well-reasoned and expert analysis that will provide them with some meaningful insight as to how their investments will work out.
So then, the brokerage, banking, equities, and investing business world has constructed something that is, in theory, supposed to be of benefit to investors by shedding some theoretical insight about the future price point of a given stock. These experts, are known as stock analysts, who are typically quite good at putting together detailed and nuanced reports about stocks, and then weighing in as to whether a particular stock is a buy, a hold, or a sell, and further to the point they top this off with a predicted stock price of that stock, in the next 12 to 18 months.
The thing is, though, that even if each of these stock analysts were true independent agents, which they typically are not, there are a multitude of macro factors that influence the price of a given stock, which has little or nothing to do with the underlying value of a given stock; so that even when a corporation is hitting all of their targets, those macro factors as well as the irrational behavior of those that invest in stocks, can easily wreak havoc on a stock price target, that perhaps was actually pretty sensible.
However, there is another factor, that those that put out stock price targets, like to keep under wraps, which is the very access that stock analysts need in order to hear and to have a privileged audience with important executives within a corporation, typically signifies that previously written stock price targets have likely been favorable to that corporation, and, of which, newly written price targets, are in all likelihood also are going to have to be favorable, as well. That is to say, even though stock price targets, can be up, down, or neutral, the overwhelming amount of them so published are of the positive flavor, because that is the feedback loop that works out best for those parties, involved.
Additionally, one can never underestimate the greed of the general investor, who, with a calculator, can calculate their anticipated profits on a given stock, by looking at the price that they would be buying it at, and then comparing that to the stock price target that some stock analyst is predicting that it will go to over the next 12 to 18 months. Obviously, if investing was as simple as that, then everyone would make out like a bandit, but, in fact, that isn’t the way it works. In truth, stock analysts with their stock price targets, basically offer nothing of real substance or value, irrespective of how well worded and professional their document so looks, for not all that glitters is investment gold.