Be Careful Of Goldman Sachs’ Market Calls

That title, trust me, was hard to type! Becoming a ‘Wall Street analyst’ was something that I aspired ever since I had a vague idea about investing in the stock market. As much as these analysts bring a wealth of information to all investors alike, most of these analysts try to do something that would lead to unwelcome results; timing the market! The recent remarks by a couple of Goldman Sachs analysts serve as classic examples of trying to time the market.

If you are not sure of what path to choose after reading the below headlines from two recent Bloomberg articles, don’t be disheartened. So am I.

Source – Bloomberg
Source – Bloomberg

On April 13, Goldman was saying the markets have likely bottomed, meaning investors should ideally get back into stocks. Just 14 days after, the same Goldman Sachs is warning investors of another collapse in stock prices.

Investors generally associate these types of abrupt changes in sentiment from novice investors. But, this time around, it’s one of the leading investment managers in the world. Perplexing, I know, but this was coming. Goldman has a history of getting it wrong (every market timer, for that matter, has a history of getting it all wrong).

On December 4, 2007, CNBC reported Goldman’s call for a market bottom. Goldman Sachs chief investment strategist Abby Joseph Cohen, in an interview with CNBC, predicted that the S&P 500 index would hit 1,675 by the end of 2008. This expected level was 14.5% higher than the market close of 1,463 on the day she made the call. This advice, as many investors now know, did not age well. The market, in fact, bottomed many months later and investors continued to lose money throughout the end of 2008.

S&P 500 return from December 4, 2007, to December 31, 2008
Source: YCharts

If not Goldman Sachs, who should we listen to? No, Goldman Sachs will not get everything wrong! In fact, they employ some of the best brains in the business. What investors should rather do is avoid all market calls no matter from whom they are receiving it. Yes, this list includes me as well!

Norman Augustine, a former chairman of Lockheed Martin, famously said:

If stock market experts were so expert, they would be buying stock, not selling advice.

As investors, the best course of action is to ignore the noise in the market and look for bargains in this highly volatile market. An increased level of volatility, despite the contrary belief, is a friend of contrarian investors. Because of volatility, shares of great companies could momentarily trade at very attractive prices, and doubling down on such opportunities could lead to very attractive returns in the long run.

The key to success is to remain objective and not be bothered about what is happening in the market. This, I know, is easier said than done. But, this is a formula for success in the long term.

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