July 15 (Bloomberg) -- Meredith Whitney took away. Then she tried to give back.

The bank analyst, working for CIBC World Markets in late 2007, helped wreck Citigroup Inc. shares by correctly predicting the bank would stop paying dividends.

Whitney, now heading her own firm, triggered a rally in bank stocks Monday when she declared a “buy” on Goldman Sachs Group Inc., usually Wall Street’s most-profitable firm.

Goldman Sachs shares rose 5.3 percent to $149.44. Investors bid up other bank stocks too, and the Standard & Poor’s 500 Index, an indicator for the entire market, rose 2.5 percent to 901.05.

It appeared that investors believed the market would resume the rally that began in early March following the long decline that came with the world credit crunch. If bank stocks were stronger, the economy and the market would benefit. It wasn’t to be. The rally quickly dissipated yesterday, the S&P 500 rising just 0.5 percent to 905.84.

Goldman Sachs had done its part, reporting record profit and revenue for any quarter in the three months ended June 30. Profit was $3.4 billion, or $4.93 a share, up 65 percent from earnings in the same 2008 period.

The New York-based bank was looking like the juggernaut of old, taking risk and managing it well -- while competitors, chastened by horrendously failed trades of the recent past, were more conservative.

Fast Pace

Goldman’s earnings were ballooned by record trading gains in securities, commodities and currencies and record underwriting revenue. Revenue from the business that includes trading jumped to $6.8 billion from $2.4 billion in the same 2008 period. That revenue was $6.6 billion in the first quarter.

The company earmarked $6.7 billion, or 48 percent of its total revenue, for compensation. That number was certain to irritate politicians who would see Goldman Sachs as continuing the same pattern of heavy risks hoping for huge payoffs that led to collapses of the subprime mortgage and credit default swaps markets.

Goldman, they will note, took advantage of government guarantees to borrow money recently and took $10 billion in industry bailout money. It paid back that amount plus $426 million in dividends.

The almost-rally set off by Whitney and Goldman Sachs again demonstrated the stock market’s fragility since it was hammered by huge losses at financial companies and the need for the government to bail them out.

Zigzag

This pattern of big daily losses interspersed with big daily gains continues to show the hopelessness of trying to figure out the market -- attempting to get out when prices drop and then get back in when prices seem to be rising.

A study of mutual fund investors by Dalbar Inc. in Boston shows the futility of such efforts.

Investors who held onto a stock fund that mimics the S&P 500 for the last 20 years would have enjoyed an average annual return of 8.4 percent, the study said. But the average stock fund investor got a return of just 1.9 percent -- because he or she moved in and out of funds. My guess is that people who make their own investments in individual stocks fare even worse.

While it’s hard not to panic when stocks plunge as they did last year and early in 2009, there’s consolation in knowing that if you don’t sell, you’re sure to be invested when the market bottoms out.

The Goldman Sachs rally was short-lived. One of these days we’ll get a real one.

(David Pauly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Pauly in Normandy Beach, New Jersey dpauly@bloomberg.net

Last Updated: July 14, 2009 21:01 EDT