Tutorials

What Macbeth teaches you about stock analysts

Matthew Partridge looks at what investors can learn from Shakespeare's Macbeth.

922_MW_P40_Profile_Bottom

Written by Shakespeare in 1606, Macbeth is based on real-life incidents from Scottish history. After receiving a prophecy that he will become Scotland's ruler, Macbeth, a Scottish general (played by Michael Fassbender, pictured, in a 2015 film version), murders King Duncan. In order to consolidate his position, Macbeth then kills Banquo, a rival. Macbeth is racked with guilt, while his wife, who had encouraged him, goes insane. Macbeth finally dies in battle.

The key moment

Macbeth and Banquo meet three witches. They tell Macbeth that he will be made Thane of Cawdor and then king. Next, they tell Banquo that while he won't becomeking, his children will. Finally, they accurately predict the manner of Macbeth's demise, albeit obliquely. The prediction about Banquo is supposedto be a reference to KingJames (descended from thereal Banquo).

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Lessons for investors

Stockmarket analysts attempt to predict what will happen in the future. They often focus on corporate profits, although they can make predictions on everything from commodities to the direction of equity indices. However, unlike the witches, research analysts have a mediocre record. For example, J Randall Woolridge of Pennsylvania State University found that between 1993-2002 the average performance of all stocks tipped by the largest 15 American brokers was 0.6% lower than the overall market's. Similarly, Amy Hutton of Boston College suggests that analyst forecasts of future earnings are no better than predictions from companies' managements.

Other uses

Even if their specific predictions are unhelpful, analysts can provide a useful overview of a company, including how it makes its money, its strategy and any key forthcoming events. The importance of analysts in providing information for investors been demonstrated by the fact that recent regulations have forced banks to "unbundle" research from other services. As a result, they have sharply cut back coverage of smaller firms. This has had the knock-on effect of making those shares much more thinly traded, and much less liquid, increasing transaction costsfor investors.

Advertisement

Recommended

Visit/519325/six-contrarian-books-for-christmas
Films

Six contrarian books for Christmas

Merryn Somerset Webb picks six of her favourite contrarian books to help you look clever and perhaps win a few arguments over the Christmas dinner tab…
9 Dec 2019
Visit/518206/the-money-to-be-made-from-classic-books
Alternative investments

The money to be made from classic books

If the idea of surrounding yourself with valuable first editions has a certain romantic appeal, here’s where to start.
28 Nov 2019
Visit/514928/sift-through-the-tech-ipo-flops-to-find-the-next-amazon-com
Stock markets

Sift through the tech IPO flops to find the next Amazon.com

Some big names in tech have floundered since listing. That may be a buying opportunity, says Matthew Lynn.
15 Sep 2019
Visit/513323/coming-to-terms-with-anna-sorokin
Films

Coming to terms with Anna Sorokin

My Friend Anna: The true story of the fake heiress of New York CityWilliams is a solid writer who does a good job of explaining how she, and other int…
21 Aug 2019

Most Popular

Visit/investments/commodities/gold/600874/gold-is-at-its-highest-level-in-years-heres-how-to-invest
Gold

Gold is at its highest level in years – here’s how to invest

Gold's rise at a time when the dollar is unnervingly strong isn't unheard of – but it is curious. John Stepek explains what's going on, and what it me…
21 Feb 2020
Visit/investments/stocks-and-shares/600863/sirius-minerals-anglo-american-takeover
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Visit/economy/600875/money-minute-24-february-house-prices-unemployment-and-corporate-results
Economy

Money Minute 24 February: house prices, unemployment and corporate results

Money Minute: previewing the week's most important economic and financial goings on, including the latest house price, and unemployment figures, and …
24 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020