An analyst gets paid to evaluate the earnings or the projected move of a stock or a company. So let’s say that I am an analyst and I am evaluating Facebook stock. I project that Facebook will make two dollars or share or on its earnings (EPS) when it comes out on the quarter. And a lot of other analysts are projecting four or five on the EPS, than I am not really in line with what everybody else is doing. Now if I am correct, I’ll get to keep my job and probably get a nice raise because Facebook may not do as well as it has done in the past.

On the other hand, if everyone else was right, and I was wrong than I am going to get fired. This is where the problem lies. It is kind of like the herd mentality. If every other analyst out there is projecting a four dollar move in Facebook or a four dollar on its earnings per share, I am only projecting two and everyone else is right, then I am going to get burned.

On the other hand if I am correct and everyone else is wrong, than I will get a raise. But the fact is that analysts want to keep their job and they want to make sure they are getting paid. Because at the end of the year all the money managers evaluate these analysts and who they like the best. The point is that analysts will start these targets off, someone will say two dollars a share and the next guy will say 2.10 a share if he believes it’s higher. The next guy will say 2.30, the next guy may say 2.40. So they slowly start changing and adjusting these over time.