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No Vow of Poverty for Goldman CEO Lloyd "God's Work" Blankfein

By Alex Dumortier, CFA - Jul 20, 2015 at 12:50PM

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The Goldman Sachs Group Inc. CEO makes the billionaires' list. How have his shareholders done?

This is a light week for economic data (with the exception of June new home sales data on Friday morning), so traders will be focusing on corporate earnings. We're  entering the thick of the reporting season, with one-fifth of the companies in the S&P 500 announcing quarterly results this week, including bellwethers Apple, Amazon.com, Visa, and Boeing.

Stocks are little changed today: The Dow Jones Industrial Average (DJINDICES: ^DJI) and the broader S&P 500 (SNPINDEX: ^GSPC) are up 0.22% and 0.21%, respectively, at 12:45 p.m. EDT. The growth-oriented Nasdaq Composite was up 0.29%. 

Source: Goldman Sachs Group.

No vow of poverty 
Here's a story you may have missed from last Friday: Bloomberg reported that Goldman Sachs Group Inc. ( GS 2.94% ) CEO Lloyd Blankfein has joined the billionaires' club, with an estimated net worth of $1.1 billion, according to its Bloomberg Billionaires Index (which tracks the daily fluctuations of billionaires' wealth -- absurd!). 

There is no doubt that Blankfein has a biography worthy of a Horatio Alger novel: The son of a postal worker, he grew up in public housing in Brooklyn and attended Harvard on a scholarship, where he worked in the dining hall. 

However, I was more interested in comparing his fortunes with those of Goldman Sachs shareholders (roughly half of  Blankfein's net worth is held in Goldman Sachs shares). The following graph displays Goldman's share-price performance relative to the S&P 500 since the investment bank went public on May 4, 1999: 

GS Chart

GS data by YCharts.

Not a bad performance, in relative terms. On a total return basis, from the end of the first day of trading through last Friday, Goldman shareholders have earned an annualized return of 8.1%, versus just 4.9% for the S&P 500. That undershoots the annualized growth in the company's revenues and pre-tax income over the same period of 8.8% and 8.7%, respectively; on an absolute basis, I think it's a disappointing result for one of the world's best, most profitable franchises. 

Incidentally, Bloomberg's article states that Blankfein is the largest individual owner of Goldman Sachs stock, with 2.24 million shares. Strictly speaking, that may be true, but, on an economic basis, it's false. 

According to data from Bloomberg, Berkshire Hathaway is Goldman's sixth-largest shareholder, with 13.06 million shares -- a windfall from the providential preferred share investment Berkshire made in Goldman at the height of the financial crisis. Thus, Berkshire CEO Warren Buffett's 18.77% ownership stake in the conglomerate gives him an indirect shareholding in Goldman Sachs of 2.45 million shares. 

However, Blankfein still has 536,582 exercisable options on Goldman's stock up his sleeve (I think Goldman could have taken a page from Berkshire here, which has never issued a single stock option to any of its employees). 

With regard to investing in investment banks, I always come back to an instructive quote from superinvestor Leon Cooperman, the head of hedge fund Omega Advisors, who told Barron's in 2008: 

I determined many years ago that if you want to make money on Wall Street, you work there; you don't invest there. They just pay themselves too well. I would rather look elsewhere for investment opportunities. 

After all, he should know: Prior to founding Omega Advisors in 1991, Cooperman was a general partner at... Goldman Sachs.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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