It’s fairly well established that actively managed funds on average underperform their benchmarks. I’m not aware of specific research on investing based solely on analyst forecasts but I imagine performance would be even worse using such a strategy. Basically, you are right to be skeptical. All the evidence indicates that the best long term strategy for the average individual investor is to invest in a low cost index fund and avoid trying to pick stocks.
ETA: This recent paper appears relevant. They do indeed find that analysts’ target prices are inaccurate and appear to suffer from consistent biases.
It’s fairly well established that actively managed funds on average underperform their benchmarks. I’m not aware of specific research on investing based solely on analyst forecasts but I imagine performance would be even worse using such a strategy. Basically, you are right to be skeptical. All the evidence indicates that the best long term strategy for the average individual investor is to invest in a low cost index fund and avoid trying to pick stocks.
ETA: This recent paper appears relevant. They do indeed find that analysts’ target prices are inaccurate and appear to suffer from consistent biases.