It has been reported that Goldman Sachs often has sold its own holdings in stocks that it had included on its "Conviction Buys" list. That is, at same time that Goldman Sachs analysts recommended that investors buy certain stocks, Goldman Sachs was selling its own holdings of many of those very same stocks. For example, it was reported that Goldman Sachs sold 1,260,802 shares of Apple (symbol: AAPL) when its research division had a "buy" rating on the stock and maintained a lofty $470 price per share target.
A review was performed of 58 stocks that were on Goldman Sachs's Conviction Buy list, which concerns stocks that Goldman Sachs claims to clients that it is most optimistic about. The review reflected that Goldman Sachs sold more than half of the stocks (31) of the 58 that it had included on its Conviction Buy list. Goldman sold more than 1 million shares of 12 of those 31 stocks. This analysis begs the question: How does Goldman define "conviction"? Investors justifiably should believe that a Conviction Buy means that Goldman Sachs believed that the stocks should be purchased. Yet, how can Goldman Sachs explain that it appears to have acted in a manner that was directly contrary to what it told investors.
According to the study, Goldman Sachs sold more than 1 million shares of the following stocks at a time when the stocks appeared on Goldman's Conviction Buy list:
• Sold 1,037,122 shares of Qualcomm (symbol: QCOM)
• Sold 1,037,646 shares of Viacom (symbol: VIA.B)
• Sold 1,237,135 shares of Eaton (symbol: ETN)
• Sold 1,252,406 shares of Pulte Home (symbol: PHM)
• Sold 1,260,802 shares of Apple
• Sold 1,974,344 shares of Philip Morris (symbol: PM)
• Sold 2,388,016 shares of Wells Fargo (symbol: WFC)
• Sold 2,410,816 shares of Mylan (symbol: MYL)
• Sold 3,124,585 shares of EMC (symbol: EMC)
• Sold 3,950,196 shares of Huntsman (symbol: HUN)
• Sold 4,200,009 shares of JPMorgan Chase (symbol: JPM)
• Sold 11,340,809 shares of Baxter (symbol: BAX)
We do not know whether there is a valid explanation for the seeming inconsistency between what Goldman Sachs told its client and what Goldman did with its own money. But, at best, the above study suggests that investors should not blindly rely on investment banks' research when making investment decisions. At worst, some would argue that banks like Goldman Sachs may have acted unethically.
At Dimond Kaplan & Rothstein, P.A., we represent investors who have lost money as a result of brokerage firms' conflicts of interest.
