Goldman Sachs is awfully fond of telling clients and the general public when to buy, sell and hold. The investment bank is the embodiment of all things Wall Street, and it makes its living off of its financial services and expertise.
But just how well does that know-how stand up to the test of time? Not very well, at least for the fourth quarter.
Goldman’s list of 40 stocks to buy — with upside to its price targets ranging between 42% and 150% — have actually underperformed the S&P 500 through Dec. 2. The 40-stock portfolio returned 6.3% since the beginning of the fourth quarter on Oct. 1, while the benchmark returned 9.9%, according to data from portfolio analytics firm Kwanti.
While 6.3% doesn’t sound too bad for just a few months time, it actually is. Any old schmuck who merely made the simplest bet possible on the stock market by buying the whole market at once managed to easily outperform Goldman Sachs’ “experts.”
Sure, at the end of the day it would’ve been better if you bought these stocks than sat on your hands, but the best stocks to buy are only good if they outperform Joe Shmoe and the broader market.
Some Interesting Takeaways
On an annualized total return basis, the S&P would have boasted a 75% return based on Q4 performance. As for Goldman’s best stocks to buy? Forty-three percent. Still not shabby, but again, it doesn’t beat the lazy portfolio.
Let’s take a brief look at the three best/worst performers on that 40-stock list.
As for the best performers:
And the three worst over the two-month period:
Now, to be fair, two months is not the longest time period in the world. Since Goldman’s 40 best stocks to buy were determined by the firm’s target price, and the target price is usually looking ahead 12 months, so there’s still time for the list to catch up to the index.
Here’s a graphical display of how the Goldman portfolio (in green, labeled “client portfolio”) did against the S&P over time.
As you can see, it took an early lead, but first started falling behind in October and has stayed behind since.
So what are the takeaways here?
For starters, buying into an index fund that tracks the broader market really isn’t such a bad strategy. If you’re the type of person who just sort of wants to take a back seat to their portfolio, a low-cost index fund should do you just fine.
But for those constantly on the hunt for the best stocks to buy, don’t take the word of investment banks as gospel. Again, it’s only two months in, but it wouldn’t surprise me if we checked up on this list 10 months from now and this portfolio was still lagging.
Putting in your own legwork beyond just looking at price targets is never a bad idea, and sometimes it can even send your portfolio cruising past big banks that are supposedly the”best in the biz.”
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.