Goldman Sachs Report Card Accountability

There is precious little accountability in the world of stock market analysis. I’ve written before about how Goldman Sachs’ chief market analyst (at the time) predicted an up year for stocks during every single year from before the internet bubble burst through to when she finally stopped making market predictions after again predicting  a higher stock market for 2008. If you’re recent market history is a bit fuzzy, 2008 was a disastrous year for stocks and the start of the so-called Great Recession.

Even where there appears to be accountability, it is often easily gamed. Analysts get rankings from various financial groups, but those are often laughable. If an analyst has a “Buy” on a stock and that company reports after-hours that its main product slaughters babies by the thousands, when the analyst cuts his outlook before the market opens, he gets credit for shifting his prediction before the ensuing drop in the stock price.

So, it was a little breath of fresh air, when MarketWatch decided to take a quick look at the report card for Goldman Sachs’ 2013 investment recommendations.

Goldman Sachs 2013 Investment Calls Report Card

Remember in elementary school when the teacher had you self-grade some papers. You never really outright lied, of course, but you made sure to give yourself the benefit of the doubt as often as possible. With Goldman’s self-graded report card the same is true. The company gave itself a four out of five when a harsh grader might have gone as low as two out of five.

The concept is that Goldman predicted five main themes for investors in 2013.

It’s first call was pathetically obvious, stating that stocks would outperform Treasurys. Since the price of Treasurys moves in the opposite direction of interest rates, and the rates are pegged pretty much at zero, right now. this call is a little bit like predicting it will get warmer when it is 40 below outside. Still, they weren’t wrong, so both Goldman and Marketwatch give the Wall Street firm full marks for this one.

The second one is the one that is most galling. As MarketWatch points out, the full prediction is that stocks would beat credit, but not on a risk-adjusted basis. Goldman gave itself full marks for being right about the first part, while being wrong about the second. MarketWatch gives a half-point, and that is being generous. These are vague calls in the first place, you can’t declare victory when your thesis is incorrect.

Finally, Goldman’s actual stock calls, as opposed to its generalized, this will do better than that, calls were semi-correct. It’s sector call was basically half-right (and MarketWatch duly awards a half-point.) It’s 30 stock picks ended up beating the market, but it’s call for higher exposure to BRIC countries versus the US was a bust. This last one is the only one Goldman admits it got wrong.

Of course, these are just the big firm wide recommendations. Individual analysts issued reports all year long, and the company put out plenty of statements about what would or would not happen in relation to current events or market movements. None of these are ranked or mentioned.

Still, it is nice to see at least someone taking a look at what the big boys on Wall Street are saying. A running scorecard easily referenced for each year would be even more helpful. Maybe the financial news media will beat me to it. Or, maybe I’ll get really bored one snowy day this winter and do it for them 🙂

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