Should You Invest in Goldman Sachs (GS)?
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.
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!