Why Goldman Underperformed Bear

Doncha just love commentary on share-price movements? Sometimes it's just so easy:

Is there such a thing as a “buy Goldman Sachs, sell Bear Stearns” trade? If so, it’s happening this morning. Shares of Goldman Sachs were up 2.2% in premarket action after the company reported another quarter of printing money, as net income rose 79% despite the tough market conditions. Bear Stearns was another matter, losing 1% after the company said net fell 61% on a massive 88% drop in fixed income revenue. Both issues were among the top five traded this morning, according to Nasdaq.

But sometimes it's much harder:

Investors took a different tack when it came to Bear, sending its shares down 0.16%, a slightly better performance than Goldman's 0.96%. Analysts reasoned that investors, who in recent weeks had questioned whether Bear could weather the markets' turmoil, now believe the firm is a survivor because its book value, a widely watched measure of a firm's net worth, has held up despite its recent woes.
If that's the case, Bear's shares looked cheap and offered more opportunity for improvement than Goldman. In recent weeks, for example, investors drove Bear's share price down to a level that was almost equal to its book value per share, a measure of a firm's net worth. The lower that ratio goes, the cheaper, a stock becomes, signaling trouble. Goldman, on the other hand, is trading at a multiple of about 2.3 times book value, according to Credit Suisse estimates. Bear's price-to-book multiple is at 1.2 times.
"The market looks and says can Goldman sustain a 32% return on equity, whereas Bear is at a 5% return," said Brad Hintz, an analyst with Sanford C. Bernstein & Co.

It's almost a spectator sport, really: watching analysts and journalists tie themselves in knots trying to explain why the company with spectacular earnings underperformed the company with atrocious earnings. Maybe it was just one big squeeze on people playing the “buy Goldman Sachs, sell Bear Stearns” trade?

Of course, there's absolutely no reason why a 4pm share-price snapshot should give the best possible indication of how the market reacted to the two brokerages' earnings news. Why not use the pre-market trading instead? Or wait a few more days to see how things shake out? I'm hoping that as journalism moves away from daily newspaper deadlines and towards a web-based, real-time operation, these kinds of stories, reporting on share price movements between one day and the next, will become increasingly rare. They certainly add precious little value.