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Goldman's trading prowess doesn't translate to good advice
Old 05-19-2010, 06:02 AM   #1
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Goldman's trading prowess doesn't translate to good advice

Seven of Goldman's Top Nine Trade Ideas Lose Money

So here's an interesting juxtaposition.

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Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firmís investment advice fared far worse.
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Old 05-19-2010, 03:20 PM   #2
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But last year their recommendations made money.

GS is a profitable company with some smart and very connected folks. The corporate motto is almost certainly some variation of "Greed is Good". I suspect that their top corporate objectives are make money, make more money, and make even more money. Probably #5 is make money for their clients (to help objectives 1-3 in the long term) and being good corporate citizen is why down the list.

I am still scratching my head why this is news or worthy of Congressional inquiry. I am happy to be a bond and shareholder (via Warren Buffett) of the firm "if you can't beat um join um."
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Old 05-19-2010, 03:28 PM   #3
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I am still scratching my head why this is news or worthy of Congressional inquiry.
I think I'm looking at this from a different perspective. As in . . . "Why does the trading desk make money every single day, but the firm can't put together nine recommendations that make money?"

My first thought when I read this article was that there is a difference between trading for Goldman (or a large hedge fund) and trading for ones own account. Goldman makes money trading because it has several advantages that ordinary folks don't have. Even Goldman's analysts (who are part of the trader's advantage, but only one part) can't replicate the success of the traders with their "best picks". What chance do part-time do-it-yourselfers have?
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Old 05-19-2010, 04:11 PM   #4
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Originally Posted by Gone4Good View Post
Seven of Goldman's Top Nine Trade Ideas Lose Money

So here's an interesting juxtaposition.
I guess it's all that front-running of their customer's trades through their high frequency trading computer programs.

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Old 05-19-2010, 04:27 PM   #5
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Originally Posted by Gone4Good View Post
I think I'm looking at this from a different perspective. As in . . . "Why does the trading desk make money every single day, but the firm can't put together nine recommendations that make money?"

My first thought when I read this article was that there is a difference between trading for Goldman (or a large hedge fund) and trading for ones own account. Goldman makes money trading because it has several advantages that ordinary folks don't have. Even Goldman's analysts (who are part of the trader's advantage, but only one part) can't replicate the success of the traders with their "best picks". What chance do part-time do-it-yourselfers have?
From what I read in the article.... it is not proprietary trading they referred to making money every day... it is their trading desk for customers... ie, you put in an order and the fill it... they make a spread.. I HOPE they make a profit on this every day or they would go out of business...


Now.... if they were talking about their proprietary trades making money every day.... I would say there is a fix going on.... I don't think even Bernie would have claimed that....
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Old 05-19-2010, 07:04 PM   #6
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From what I read in the article.... it is not proprietary trading they referred to making money every day... it is their trading desk for customers... ie, you put in an order and the fill it... they make a spread.. I HOPE they make a profit on this every day or they would go out of business...

Now.... if they were talking about their proprietary trades making money every day.... I would say there is a fix going on.... I don't think even Bernie would have claimed that....
The market making desks take proprietary positions too.
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Old 05-21-2010, 04:15 PM   #7
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Originally Posted by Texas Proud View Post
From what I read in the article.... it is not proprietary trading they referred to making money every day... it is their trading desk for customers... ie, you put in an order and the fill it... they make a spread.. I HOPE they make a profit on this every day or they would go out of business...


Now.... if they were talking about their proprietary trades making money every day.... I would say there is a fix going on.... I don't think even Bernie would have claimed that....

That was my impression also. The trading desk makes money every day on the difference between spread and ask. Their proprietary trading desk makes money because they are smart guys who have access to more information than most participants.

I believe the long-term record of GS analyst is also decent, a several years ago I read their recommendations were among the top of all Wall St. analyst.
Although I think it is open question if they actually outperform the market on risk adjusted basis. However, they aren't even Warren Buffett much less perfect and certainly have bad years.
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Old 05-22-2010, 08:16 AM   #8
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Quote:
Originally Posted by Texas Proud View Post
From what I read in the article.... it is not proprietary trading they referred to making money every day... it is their trading desk for customers... ie, you put in an order and the fill it... they make a spread.. I HOPE they make a profit on this every day or they would go out of business...
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That was my impression also. The trading desk makes money every day on the difference between spread and ask.
That seems to be it. It doesn't seem like news at all to me, but then again I'm not going out of my way to look for ways to put certain groups in a bad light. It's like the difference between the carpenters and plumbers and electricians on a construction site "making money every day", and the housing developer "making money on every project". One is expected, one may not be. That is not news.

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I am still scratching my head why this is news or worthy of Congressional inquiry.
Scape goat. Some of us gotta hate somebody. Makes some of us feel better.
I think there is a more interesting juxtaposition here than those two snippets in the OP (and the info that was left out).

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