Beware the forecasting optimists

Stuart Jackson

Montgomery Investment Management

The Dalai Lama has famously counselled that we should all “Choose to be optimistic, it feels better.” Unfortunately, many broker analysts have taken his sentiment to heart, producing earnings forecasts that we think will end in disappointment. A few weeks ago I discussed the difficulties in looking at the market price PE multiple over time in determining whether the market is cheap or expensive relative to history. These difficulties include changes in the composition of the index, which affect the marginal return and growth outlook. Another factor to take into account is the optimism of analysts. Deutsche bank produced a chart that looked at the current market PE multiple based on rolling 12-month forward broker analyst consensus earnings forecasts for various Asia Pacific markets relative to their long-term average. These PE multiples were plotted against the percentage change in the 12 month forward rolling consensus earnings forecast over the last 6 months. Continue reading: (VIEW LINK) (Stuart Jackson, Senior Analyst)


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Senior Analyst and Portfolio Manager
Montgomery Investment Management

Stuart is the Portfolio Manager of The Montgomery [Private] Fund – a concentrated, All-cap Australian equity fund that aims to achieve absolute returns from a portfolio of long only Australian shares and cash. Capital preservation is paramount.

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