Goldman Sachs: Open Mouth, Insert Foot
By
Morgan Housel
June 24, 2008
|
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.
D'oh!
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.
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