Goldman Sachs: Open Mouth, Insert Foot

Everyone makes mistakes. Some are embarrassing. Some are kind of funny. Others can cost you and your investors a lot of money, leaving you with your tail between your legs.

Goldman Sachs' (NYSE: GS  ) call on financial and consumer stocks might fit squarely into the last category, depending on how you look at it.

On May 5, Goldman upped its rating on financial stocks to neutral, or market-weight (or any other term you'd like to use to mean "I'm really not sure"), and overweight for consumer stocks. But it quickly reversed those calls to an underweight rating, citing that its original analysis was "clearly wrong in hindsight.''

Sure, it's been a horror show since Goldman's May 5 call, especially for financial stocks. The Financial Select Sector SPDR (AMEX: XLF  ) exchange-traded fund is off some 21%, Bank of America (NYSE: BAC  ) has lost one-third of its value, Citigroup (NYSE: C  ) is down around 28%, and even Goldman itself has dropped almost 10%. But should Goldman feel bad about its analysis, even though it admits it was wrong? After all, JPMorgan Chase (NYSE: JPM  ) is still holding on to its bullish call on financial stocks.

For one, Goldman didn't allow too much time for things to pan out. Anything could have happened in the seven weeks since its original call. The fact that it switched so quickly hints that Goldman was either trying to call short-term movements (about as predictable as Keno), or that it gave up far too soon. Its thesis -- that bank recapitalizations and stimulus checks would help boost some sectors -- makes a fair bit of sense. Goldman will look really bad if its original call proves correct, and financial and consumer stocks rebound from here.

Give 'em a break, all right?
Even Goldman, the uber-bank that collected a windfall profit on a brilliantly timed move betting against financial products last year, is human. And surprise, surprise -- short-term trading is still an elusive trading technique.

Chin up, Goldman.

For related Foolishness:

Fool contributor Morgan Housel doesn't own shares in any companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 670970, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:31:09 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
GS $174.67 Up +0.16 +0.09%
Goldman Sachs CAPS Rating: ***
BAC $16.67 Up +0.11 +0.66%
Bank of America CAPS Rating: ****
C $49.57 Down -0.01 -0.02%
Citigroup CAPS Rating: ***
JPM $68.49 Up +0.23 +0.34%
JPMorgan Chase CAPS Rating: ****
XLF $19.65 Down -0.01 -0.05%
Financial Select S… CAPS Rating: **