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A Lesson From Goldman Sachs for Individual Investors

By    |   Friday, 20 Sep 2013 07:41 AM

Goldman Sachs is a Wall Street powerhouse. Because of its success, individual investors should study Goldman and benefit from the strategies the firm uses to make billions. Unfortunately much of what the firm does is veiled in secrecy.

In a recent interview with Bloomberg, Goldman's chief risk officer explained how the firm saw problems developing in the mortgage market. Prices of mortgage derivatives were going down and this was an indication to him that the firm should prepare for a bear market.

That was the secret behind Goldman's success. They did not spend time arguing with the market and attempting to make excuses that blamed the market for mispricing their investments. As prices fell, Goldman sold.

Their large profits came from shorting the market. When a trader takes a short position, they borrow securities in order to sell something they don't own. They will eventually buy the securities to repay the loan. If prices decline, short positions make money. Goldman sold mortgage securities short to benefit from the expected decline.

Individual investors will not be able to make short trades or trade the derivatives Goldman used to make billions of dollars. But individuals can listen to the markets and accept the reality of prices. When prices fall, it is time to prepare for a bear market in order to avoid losses.

Individual investors can sell their most aggressive stocks, for example, as prices start to fall. They can defer new investments while the bear market unfolds. This might require missing the exact bottom and buying after the market starts moving higher, but avoiding losses is the best way to preserve wealth and meet your financial goals.

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MichaelCarr
Goldman Sachs is a Wall Street powerhouse. Because of its success, individual investors should study Goldman and benefit from the strategies the firm uses to make billions. Unfortunately much of what the firm does is veiled in secrecy.
Goldman,stocks,fall,bear
276
2013-41-20
Friday, 20 Sep 2013 07:41 AM
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