NEW YORK (
-- After the Securities and Exchange Commission's civil fraud charges against
first surfaced on April 16,
asked readers whether they thought
the dip in Goldman Sachs share price -- 15% on the day of the SEC charges -- was an opportunistic investor's reason to buy.
After all, the markets often oversell on fear, and smart investors, such as Warren Buffett, buy when they "smell fear" in the markets -- something Buffett alluded to in his annual letter to shareholders this year.
Warren Buffet, in the Goldman Sachs case, may now be regretting that he took advantage of the financial meltdown fears to buy $5 billion worth of Goldman Sachs, but that's another matter entirely.
The type of investment bets that take their lead from any one of a number of scandals -- accounting investigations, lawsuits, bankruptcy rumors -- are not for the faint of heart, but for investors with a healthy supply of antacid. The thinking goes that what at first seems like the biggest reason not to invest in a stock may, in fact, be the opposite.
This was certainly what
readers told us (and with conviction!) when we asked them in the wake of the SEC fraud charges against Goldman Sachs if it presented an opportune time to
buy Goldman Sachs shares.
Approximately 63% of poll respondents indicated that Goldman Sachs was a buy. What's more, Goldman Sachs bulls with the strongest stomachs were more vocal than moderate Goldman Sachs bulls, with 38% of survey takers saying that Goldman Sachs shares were not just a buy, but a "strong buy."
Only 20% of survey takers turned out to be Goldman Sachs bears after the SEC fraud charges, indicating last week that they thought the smart move was to sell Goldman Sachs shares.
One week later, the situation has only become worse for Goldman Sachs.
Since investors in our original poll thought Goldman Sachs was a buy when the share price was still in a range between $155 and $160, what do they think now? After the
Wall Street Journal
reported late on Thursday night that the Justice Department had begun a criminal investigation into Goldman's marketing of subprime mortgage CDOs, Goldman Sachs shares slipped to $145 on Friday afternoon, down more than 9% on the last trading day of the week.
If Goldman Sachs shares were a buy when they were trading last week at a level $10 higher than Friday's afternoon Goldman Sachs share price, are they still a buy after Friday's second big selloff?
Some analysts are answering that question with a "no." Standard & Poor's announced on Friday that it was downgrading Goldman Sachs shares from neutral to sell, and Bank of America Merrill Lynch said it was dropping Goldman from a buy to a hold.
Goldman's testimony before the Senate earlier this week was what the markets thought would be the big ticket item, and Goldman Sachs executives faced some serious scrutiny, but it had little impact on Goldman Sachs shares in comparison to Friday's action. Goldman Sachs delivered a great quarter, too, and yet the financial performance was much like the Senate testimony -- ultimately drowned out by news of another investigation, and this one, criminal in nature.
Of course, the Justice Department faces a much higher legal bar if it decides to charge Goldman Sachs with criminal activity than the SEC faces in its civil fraud case against Goldman. The fact that the SEC decided to pursue civil charges against Goldman Sachs was seen by some as an indication that it wanted to take the easier route.
The Justice Department notably failed when it pursued criminal charges against Bear Stearns, so maybe the latest drop in Goldman Sachs share price is yet another reason for antacid-popping investors to smell the fear and reap a bundle before it's all over, and thank the Justice Department leaks and the
for the latest investment gift.
Dan Freed provides plenty of reasons why
a Justice Department case remains an unlikely outcome, even if the legal overhang on Goldman Sachs shares is not likely to clear in the near-term future.
Of course, gambling on whether or not the Justice Department decides to pursue criminal charges against Goldman is yet another case of an investment gambit that is not for the faint of heart or the weak of stomach. If there were a synthetic CDO that could be created to provide both long and short positions on the legal risks facing Goldman Sachs, an investor would probably need hedge fund manager
cell phone number to figure out which side of the legal trade makes the most sense.
Goldman Sachs had no comment on the report that the Justice Department was considering a criminal case. The Justice Department was also mum on the
report. Do you have any comment?
Is the latest Goldman Sachs selloff yet another reason to buy into shares of the embattled Wall Street bank, at a new, low, low share price?
Take our poll, to learn what
has to say -- and don't forget to leave a comment below.
-- Reported by Eric Rosenbaum in New York.
>>Go Long on Goldman Sachs: Poll
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