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Should You Invest in Goldman Sachs (GS)?

by Carlos Portocarrero on 4 May 2010 12 comments
Photo: Srqpix

Goldman Sachs is not in a good place right now:

  • The American people are angry at Goldman
  • Investors are wary about their stock (it's down about 13% after the SEC news broke)
  • The SEC thinks they may have broken the law
  • They are taking the fall for the mortgage crisis and the recession
  • They are "the bad guy" right now

Whether you believe Goldman Sachs did anything wrong or not doesn't matter — they are taking a huge public-relations hit right now. If you watched any of the senatorial hearings last week, you know the government is trying to blame them for everything short of global warming.

So why on earth would you invest your money in their stock?

Because Warren Buffett said so...kind of. Let's go straight to one of his Warren-isms to find out why Goldman might be an attractive stock right now:

Be greedy when others are fearful and fearful when others are greedy

This one does seem to suit Goldman to a T doesn't it? Oh and guess what? Buffett owns $5 billion worth of preferred Goldman stock (with a sweet 10% dividend) and he's publicly backing the firm's reputation.

Goldman Sachs has a reputation of having the smartest people in finance working hard to make as much money as possible. This still holds true today. Whether or not the company is found guilty of any wrongdoing, I personally find it hard to believe that their reputations will suffer much in the long run.

I'm not saying you should buy the stock...but if you liked the stock before and were considering buying it, this would be a great time to get it. A 13% discount doesn't come around very often.

ARTICLE CONTINUES BELOW

Warren's Wisdom

There's a reason I once wrote that Buffett's advice is so hard to follow: every bone in your body is probably telling you to stay as far away from Goldman stock as possible. From any finance stocks in general. And maybe you should — but these are times (like the huge drop in the market in 2009) when brave souls take action and are rewarded years down the line.

So next time you feel like investing in a company would be the absolute worst possible idea in the world — remember the words of Warren Buffett and re-consider everything one last time before making up your mind.

More About Goldman

There has been some great stuff written about the Goldman situation, among them is James Surowiecki's piece in the New Yorker about how this has all happened before and will likely happen again. Even Goldman's own documents hinted at what they're being accused of:

The flipbook for the deal at the heart of the current Goldman Sachs scandal warned that it might not contain all material information, offered no guarantee that the information was accurate, and said that there were “potential conflicts of interest” in the deal. It might as well have said “Don’t trust us.”

James Altucher of the Wall Street Journal wonders aloud if GS is a buy:

I’m staying away from it but my guess is by this afternoon or Monday morning shorts will begin to cover, GS will respond, and a new chapter in the financial crisis media buzz will begin.

I'm curious to hear how others feel about the Goldman situation in general and the idea of investing in a company when their reputation is in the midst of taking a colossal hit. Share away in the comments!

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Guest's picture
4 May. 2010 | 9:31 AM Miguel D

I was actually going to write an article similar to this one and I don't know about you but I took great advantage on Friday when Goldman Sachs was around $145 a share. It went up on Monday by 3% and it didn't really decline this morning seeing as though the stock markey lost around 222 points. OUCH!

Warren Buffett seems to be extremely confident in that Goldman didnot commit any wrongdoing. If Mr. Buffett thought the opposite, he would have called that 5 billion right away because not only did the investment get too risky for Buffett but now he is gambling with his own reputation.

I see a substantial rise in the future for this stock.

Guest's picture
4 May. 2010 | 9:31 AM Miguel D

I was actually going to write an article similar to this one and I don't know about you but I took great advantage on Friday when Goldman Sachs was around $145 a share. It went up on Monday by 3% and it didn't really decline this morning seeing as though the stock markey lost around 222 points. OUCH!

Warren Buffett seems to be extremely confident in that Goldman didnot commit any wrongdoing. If Mr. Buffett thought the opposite, he would have called that 5 billion right away because not only did the investment get too risky for Buffett but now he is gambling with his own reputation.

I see a substantial rise in the future for this stock.

 

Guest's picture
4 May. 2010 | 12:51 PM dj

Investing by numbers is easy - assuming their is transparency, no insider trading, and no corruption. But we vote with our dollars. If you condone the business practices, then go for it, but if you want things to change, go some place else.
Buffett would also probably say invest in what you know and do your OWN homework, including reading their SEC filings. If we really want financial reform, where WS isn't the largest % of our economy, it is up to the investor to hold the company accountable for their actions by not putting our dollars in their basket.

Carlos Portocarrero's picture
4 May. 2010 | 6:54 PM Carlos Portocarrero

Whatever you mean by "investing in numbers," it isn't easy. And the part of the point of the article is asking that very question: "did Goldman do anything wrong?" Investing isn't the time or place to hold a company accountable for what we think they did right or wrong—this isn't politics. 

It's about making money and if you think Goldman is a good investment you would "vote with your dollars."

Guest's picture
5 May. 2010 | 7:54 AM Anonymous Coward

When the price on GS bottoms out because they are getting sued by everyone, and losing their court cases, you may feel a bit silly suggesting that it might be a good time to buy.

The huge drop in the market in 2009 was a general drop that affected almost all stocks. The drop in GS is because of their corrupt and probably illegal activities.

Would you do a writeup suggesting that JNJ might be a good stock to buy if it dropped significantly because , for example, there was a class-action lawsuit against them with good evidence that they were putting arsenic on Tylenol for the past 24-48 months, and then invested in pharma companies that produced the chelating agent that treated arsenic poisoning?

Carlos Portocarrero's picture
5 May. 2010 | 8:37 AM Carlos Portocarrero

Here's the problem: everyone is assuming Goldman is guilty of breaking the law. They may be guilty, but in my humble opinion what they did is not illegal and more than likely won't be punished in any significant way.

If that is indeed the case, and all these assumptions of wrongdoing are false when so many people believe they are true—then do you see my point about this being a fantastic opportunity?

The idea is that in the furor of indignation from the media and people who don't know the details or want to blame Goldman for the recession (which is ridiculous), it's possible this is just hype and the company (along with the stock) is going to be the same one it was two weeks ago.

That's why it's an intriguing stock to look at right now...

Guest's picture
5 May. 2010 | 9:17 PM Anonymous Coward

Unfortunately, WC doesn't allow replies directly to his comment responses here, so I have to put this as a reply to myself:

http://money.cnn.com/2010/05/05/news/companies/childrens_tylenol_recall_...

Just a coincidence, but interesting.

---

If you really think GS is completely innocent, you are a fool. There are at least SOME laws that protect us from the kind of fraudulent, and blatantly abusive acts they have committed. I am confident that I will be able to come back here once all is said and done, and that GS will have "paid for their crimes", at least somewhat.

If I come back much later, and they have NOT, then mother earth help us all, since our entire economy is built on lies (ie, the world economy). Oh wait, the 'Drill Baby Drill' crowd will have already fucked Mother Earth by then, so she will be of no use. Oh well. At least we made some good money during the trip!

Xin Lu's picture
5 May. 2010 | 6:56 PM Xin Lu

I wrote a post about the Goldman situation here:

http://baglady.dreamhosters.com/2010/05/04/my-thoughts-on-the-goldman-sa...

I don't think they broke the law, but they are easy to blame right now. I wouldn't say that their stock is the best bet on the market now, though. Shorting Europe is probably the way to go for the short term.

Guest's picture
5 May. 2010 | 9:49 PM Anonymous Coward

It is sickening to see this blog, that I have turned to for SOUND financial opinion in the past, has turned into this type of speculative and unfounded advice/recommendation/advice RAG.

If you asked me 3-4 months ago if I thought Wise Bread was the type of site to bring speculative, and likely insolvent advice to their readers, I would have laughed at the thought.

And yet, today, here we are. wisebread has always SEEMED to be the impartial moderator that steered it's users in the right direction no matter what. That let them know that there are, despite the economic situation, SOME things they could do to continue to improve their fiscal positions, no matter what the greater economic situation may be. Unfortunately (for wisebread), today is the day that I realized that they are no longer providing that third party, objective view.

Sorry Wisebread - I might be the only one, but I'm unsubscribing. Your advice is no longer solvent, nor reputable.

Carlos Portocarrero's picture
6 May. 2010 | 3:41 AM Carlos Portocarrero

Too bad AC: you will be missing out on some great content from some really good writers. But why do you assume Goldman is guilty? Because the economy is in shambles? Because of the recession? I understand the need to lay blame, but if you really analyze the facts of what happened, you'll see that what Goldman did (even if you really don't like it), isn't very different from what happens every day in the market.

Someone makes a deal they think is good and it turns out not to be. Oops, they were wrong.

Just because you don't like the deal and feel it's awful doesn't mean it's illegal or even morally wrong. It's the market—this is how it works.

I hope you give Wisebread another shot: the writers here provide great advice from all kinds of different points of view.

Guest's picture
11 May. 2010 | 9:39 PM Anonymous Coward

Again, I can't respond directly to WC's comment for some reason, so this is a reply to my post.

> why do you assume Goldman is guilty?

I didn't mention that they were, or were not. I simply said the article was speculative and not exactly sound advice. Invest in a company that is widely hated and that is also under federal investigation?? Not exactly "Wise" use of my 'bread'. The phrase 'vote with your money' comes to mind.

>Just because you don't like the deal and feel it's awful doesn't mean it's illegal or even morally wrong. It's the market—this is how it works.

How is what GS did NOT morally wrong? Please do explain, because I find that statement humorous. As far as the legality is concerned, I am not a lawyer, and the federal courts can determine that for themselves.

Guest's picture
28 May. 2010 | 4:26 PM Life McGowan

If you're greedy enough then there's nothing wrong with going with the Goldman Sachs.
Everything for them was entirely profit. They're manifestation of wrongful acts are covered by their intense desire for money rather than clean living. I'd rather say that Buffer's pure intention was mainly for benefiting in the business. Well, maybe for them money can buy anything even dignity.