Clients Probably Unlucky…
link Goldman Sachs Advice Hands Clients Losses in 7 of 9 Top Trades – Bloomberg.com.
Gee, I wonder how that happened? Goldman makes “trading” profits every single day for the first quarter of this year, yet the picks given to clients were losers. Anyone who has experience trading markets knows that it is improbable if not impossible to have wins every single day for a quarter with directional bets. More likely what are considered “trades” are arbs between positions which in fact carry very little risk to Goldman. Especially in making markets in over the counter derivatives where they may be the only source of bid/ask quotes.
Let’s be clear here, Goldman is not in the trading business, it is in the business of making money, which doesn”t have to be the same thing. Guessing in which direction macro economics takes prices is very much an imprecise science. Forecasts which may be brilliant may take more than the expected time to unfold and can eat up resources in the meantime. However, if you are the primary market maker for products, you are able to see the supply and demand from both sides and profit accordingly. Logically if you think about it, it’s difficult to see why Goldman maintains any clients at all if they are so adept at trading their own accounts. The answer is of course, they need customers to get order flow. Without the benefit of knowing the customer on both sides of a trade, for example a municipality being advised on an interest rate swap and a hedge fund on the other side, it would be difficult to carve out a “trading” profit.
No doubt, much of the trading profits are derived from currency trading and arbitrage, which becomes somewhat easier if your boys are advising nation states on interest rate policies. Goldman is a great organization, but they exist to make money, trading is a coincidence. As for the advice given publicly to customers, well that’s par for the course. Historically, funds and advisers in general have always underperformed the overall market indices, but the illusion of special insight keeps people coming back.
There is an old saying, I’m unsure of who to attribute it to, but it goes, “never buy stocks from someone who sells them for a living”. Something to think about next time someone tells you to go long bananas.