The latter is a sentiment that's gaining in popularity. Yale finance professor Ivo Welch recently looked at nearly 54,000 analyst recommendations from 1989 through 1994. In other words, instead of spending all their time studying stocks, analysts spend a surprising amount of time studying each other. The bulk of the herding occurs soon after the most recent revision. Within a few days after one analyst adjusts his earnings estimate, the consensus comes closer together as other analysts flock to follow the leader.
Analysts are more likely to move in a herd when they're bullish than when they're bearish.
The analysts gather in stronger packs when stocks have generated hot returns over the prior 60 days. Welch's research suggests that if a stock's price has been on a tear, if most analysts are bullish, and if estimates are rising, then estimates are likely to keep rising. That's good news for the stock price, at least in the short run. But if you want to gamble, it helps to know how the game is played. Actually, reading Welch's paper made me wonder if we should be kinder to lemmings and sheep.