Investment

Goldman Sachs (GS) reported quarterly earnings of $4.58 which was much more than the $3.30 we expected based on the average of a number of analysts.

The economy is bad, and we think it may get worse, but we played this one by the numbers and bought a small amount of about $2334 or 15 shares for a portfolio of $100,000. If we had more faith in the economy, we would have bought a pile more.

GS does not have a low P/E based on its TTM (trailing 12 months) earnings of only $5.16. However, that includes a loss of $4.97 two months ago. If GS continues to earn $4.58 per quarter, its TTM earnings will be $4.58 * 4 = $18.32, giving it a P/E of about $150 / 18.32 = 8.1 in 2 more quarters. We think GS will do at least that well, so we are starting to jump in now. We generally like to buy with P/Es less than 10.

We have had fun with GS before, buying it at $160, riding it up to about $260, and all the way back down to $160 where we sold it for basically no gain or loss. That sale was on a Friday, one day before Lehman went bankrupt. GS opened down to about $100 on the following Monday.

Hope to do better this time.