The One Thing Wall Street Analysts Are Scared Of Most

What is the biggest fear of a Wall Street analyst? Losing their job.

Because of this, the regime of analysts estimates is broken, so broken in fact that that last week’s Apple earnings was a 23 standard deviation event for the average professional estimate on Wall Street, 23!  You have to wonder how supposedly the best professional analysts in the world, covering what is likely the most widely watched company on the face of the earth got it that wrong.  And not only did they get this one wrong, they have put together a history of getting it wrong for a while now.

The next logical question is to ask, why are these analysts performing so poorly? That question is much harder to answer, and comes down to a mix of motivations.  Analysts are not motivated to be accurate, they are motivated to keep their jobs, and the way you do that it to be close to the mean, either everyone is going to get it right, or everyone is going to get it wrong, either way, you can’t be singled for poor performance.

The system is broken and it’s time to fix it.  Groups of amateur analyst bloggers have already begun the process.  Over the last few quarters these amateurs have crushed the professionals when it comes to earnings estimates for Apple.  While the average professional analyst missed Apple’s Q2 EPS by 11.01%, the average amateur tracked by Philip Elmer-DeWitt over at the Apple 2.0 blog missed by only 2.47%.  Patrick Smeille, an amateur analyst has been within 5 cents of the number the past two quarters and ranks highest in the world over that period in terms of accuracy.

The social finance world has grown up over the past two years, StockTwits has led the way.  I’m proud to have been a part of building StockTwits, not just for what we built, but for how we built it and the philosophy behind our mission.  We wanted to build an open platform where financial information could be democratized, where the best, not the loudest would be heard, where it didn’t matter who you were, only what you said.  We succeeded, StockTwits is a huge hit and it is transforming the financial landscape, disrupting some long held institutions, not least of which is financial media.

But StockTwits has always been missing something, the fundamental data set.  So when I left StockTwits, I set out on finding a way to bring those people into the conversation, to provide them with a platform to create their type of content.  The social finance world needs these people to contribute their thoughts, they are out there, they just don’t fit into the 140 character mold, and for many, a blog is too heavy.  They need a way to push their ideas around this data set into the stream, in real time, in a more rigid and organized way that can be measured and ranked.

I’m proud to say that my co-founder, Matthew Jording and I will soon be launching Estimize.  We will be releasing more details at a later date, but for now you can hope over to Estimize.com and sign up for the coming private beta release.  The more you share with friends, the closer to the front of the line you will be when we open the platform.

We’re excited for this opportunity to disrupt another huge part of the financial landscape, and provide a great tool for everyone to share their thoughts on the fundamentals of the companies they trade.  Thank you to all of the community members and advisors who have helped us get to this point, we’re excited for what’s to come.

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