Goldman Admits It Goofed

You don’t find the word “goofed” in many financial headlines, especially ones dealing with Goldman Sachs, but Reuters has the goods:

Goldman cuts financials, admits goofed on upgrade
Goldman Sachs & Co strategists urged stock investors on Monday to “underweight” U.S. financial and consumer shares, admitting it was wrong when it upgraded both sectors just seven weeks ago.
The downgrades sparked selling in the two sectors as investors feared that weakening consumer demand and deterioration in the credit markets will weigh on profitability.
“We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalizations and fiscal stimulus,” Goldman strategists led by David Kostin wrote. “Our thesis was clearly wrong in hindsight.”

Good for them for reversing their call. One of the biggest mistakes investors make is refusing to admit defeat on an investment. People will hang on to the worst sorts of stocks just so because they don’t “want to take a loss.” Stocks don’t have egos. Sometimes it’s best just to let it go.
Here’s a look at how the S&P 500 Financials and Consumer Discretionary Indexes have done since the beginning of last year.

This chart reminds me of another big mistake investors make: “It’s already down so much, it can’t possibly go any lower?”

Posted by Eddy Elfenbein on June 24th, 2008 at 9:34 am

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