Summit News

Goldman's Abby Cohen defends her forecast record

NEW YORK (Reuters) - Investors still hang on the words of Abby Joseph Cohen, the Goldman Sachs strategist whose staunch bullish calls in the 1990s made her a Wall Street legend, yet critics say she lost her touch a long time ago.

Cohen no longer predicts where the benchmark Standard & Poor's 500 Index .SPX will end the year -- calls that burnished her reputation in the 1990s when she held to her forecasts despite corrections that turned others bearish.

She rightly understood early in the 1990s that earnings growth would be sustained longer than past business cycles. But this decade, Wall Street almost uniformly failed to grasp the magnitude of a credit bubble that would jack up U.S. home values and spawn the worst global recession in half a century.

Critics have panned Cohen’s predictions ever since the tech bubble burst in early 2000. Her profile on Wikipedia ticks off a list over the past two years of bullish calls that fell short, and says her reputation was “further damaged” when she failed to foresee the market’s deep plunge late last year.

Cohen takes it in stride. Told by a reporter at the Reuters Investment Summit Outlook this week that she has erred in the past, Cohen knocked back the accusation in a calm voice that was not testy as her words might suggest.

“I would say that if you look at the record, you were wrong in terms of whether my forecasts have been wrong,” she said.

Cohen, now senior investment strategist and president of Goldman’s Global Markets Institute, said she feared many media rely on other media reports rather than review her record themselves.

Cohen said that in late 1999, when the bull market was still raging, she was criticized for providing a mild forecast that stocks were near fair value and were unlikely to rise notably.

At the height of the tech bubble in March 2000 “I suggested to our clients that they sell stocks. For some reason, many of the media indicated that I was extraordinarily bullish at that period of time. Why that is, I don’t know.”

Cohen is a consummate professional, known for taking copious notes at client meetings. Her thinking is clear and lucid, and she adheres to her models, said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania, who has been on panels and other events with Cohen.

She is “extraordinarily nice” and “just a very delightful person,” said Battipaglia, a well-known bull in the 1990s who like many others, knew stock valuations were getting out of hand but failed to act. He credits Cohen for saying it was time to reduce equities just before the bubble burst.

She also has been phenomenally good for Goldman, he said.

Cohen is troubled by the focus on headlines.

“To focus on the number without understanding why markets move the way they do and the economy moves the way it does I think sets many investors, particularly individual investors, in a very difficult situation,” she said.

Forecasting this decade has been difficult. Knowing when stocks would recover from the post-September 11, 2001, malaise and how high they would rise, then foreseeing the credit crisis and the depth of damage from unfettered lending has been painful for investors.

Cohen says she gets no credit for saying the S&P 500 was 40 percent underpriced in early 2003 before the U.S. invasion of Iraq. The benchmark gained 41 percent from lows that March.

But then there is 2008, when in January she said the S&P 500 would end at 1,675; it closed the year at 903.25. In March 2008 she stopped making short-term forecasts.

“Some of us saw this unfolding in a negative way, and became very cautious,” said Battipaglia, who so far has stayed correctly bearish throughout the deep market downturn.

Battipaglia admits to getting smacked “pretty hard” by the tech wreck because “I just didn’t have the courage to put out the sell now signal.” He has learned his lesson.

“At least this time around I didn’t make that mistake. In 2007, we talked about a recession, we talked about getting money out, so we went to cash and I was very happy with that.

“So you do need to have, overall, a directional call that’s more right than wrong,” he said.

Editing by Leslie Adler