Don’t Get Taken By Goldman Sachs
The Dynamic Wealth Report
August 26, 2009
Don't Get Taken By Goldman Sachs
by Corey Williams, Editor
Do you ever get the feeling you’re trading on yesterday’s news? Well,
that’s exactly what’s happening if you’re getting financial research
from Goldman Sachs.
This story is absolutely shocking. It’s been all over the financial
media and hit the cover of yesterday’s Wall Street Journal.
Goldman’s been holding “trading huddles” for their preferred clients. In
these meetings, preferred clients receive short-term trading ideas from
research analysts. Often the ideas were counter to the long-term advice
given to regular customers.
Rest assured, Goldman’s preferred clients aren’t your average investors. They don’t have a few thousand, or even a few million dollars. I’m
guessing you need a hundred million dollar account (or more) to get
preferred status.
The bottom line is, what Goldman’s doing is illegal. It’s against the law
for analysts to publish opinions that are at odds with their real
opinion. Remember all the bad research during the dot com boom? That’s
where this law came from. In my book, this lumps Goldman in with Bernie Madoff. It puts them in the same league as pump and dump penny stock
pushers.
They’re nothing but a scam.
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Now the SEC and FINRA (Financial Industry Regulatory Agency) are
launching investigations of the “trading huddles”. Who knows what will
come of it, but I’m guessing a slap on the wrist.
As an editor for a top notch financial publication, I couldn’t imagine
lying to subscribers. I couldn’t sleep at night knowing I wasn’t putting
out first rate research. Or even worse, pitting one group of clients
against another. But that’s exactly what Goldman is doing.
And this isn’t the first time regulators are looking at Goldman.
Earlier this year, they caught the attention of the SEC with
“high-frequency trading”. This scam is a real beauty. It’s essentially
insider trading with super-computers. Instead of insider financial
knowledge, they have insider knowledge of how trades are filled.
In a nut shell, they use super computers running complex algorithms to
front-run orders from regular and institutional investors. They’re able
to scalp pennies off of every transaction. It may not seem like much, but
high-frequency trading sometimes accounts for half of all trades on any
given day.
It’s no wonder this is now an eye-popping $20 billion a year scam. And
Goldman’s estimated to have 20% of the business. A little quick math
will tell you that’s $4 billion a year.
They’re gaming the system at the expense of regular investors (like you
and me).
To be honest, I don’t know if I should be angry or happy about stories
like this. Don’t get me wrong, I’m disgusted by the dishonest dealings
on Wall Street.
On the one hand, this story could turn people away from financial
research or investing all together. Nothing can crush a dream quicker
than learning the deck is stacked against you. On the other, it could
turn people to smaller firms for financial research. For regular
investors, it’s always better to be the big fish in a small pond.
How can you protect yourself from dishonest research?
First, understand how the company makes money. If there’s a conflict of
interest, it’s time to start being skeptical. Goldman caters to lots of
ultra-wealthy people. If you’re not one of them, assume the research you
get might be old.
Second, seek out relationships with independent research organizations. There are a number of them out there run by honest people. They work
hard to generate good profitable trade ideas. We hope Hyperion Financial
is at the top of your list.
And finally, use common sense. If you don’t feel like your research is
top notch, look for new providers or do more yourself.
Remember, Wall Street’s filled with people trying to scam you out of your
money. Do your own research and always look out for yourself. No one
cares for your money more than you!
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