Mellody Hobson talks about fall of investment bank, Lehman Brothers, and what we can learn from it, five years later.
This past weekend marked the fifth anniversary of the fall of Lehman Brothers. As we know all too well, the leading financial firm’s bankruptcy is credited for triggering a global financial crisis. I think five years is a great marker to take a look back and try to digest some of the eye-popping numbers associated with the behemoth investment bank’s fall and consider some lessons learned. Let’s start by reviewing some of those numbers.
We’ll start with the biggest and the most mind-boggling: $639 billion. That was the total assets Lehman Brothers reported in their final quarterly report, and it earned Lehman the dubious distinction of being the largest bankruptcy in U.S. history.
To put that in just a little bit of perspective, General Motors had just $89 billion in assets before filing for bankruptcy, (it has $163 billion today).
Now let’s take a look at the smallest number: 18 cents. That’s how much Bloomberg estimates creditors of the Lehman estate will receive in 2016. That’s eighteen cents on the dollar.
And this next one is somewhere in between: $34 million.
That was the total compensation for Dick Fuld, the former CEO of Lehman Brothers, for 2007. It’s worth noting that $29 million of that was in stock options, which would end up completely worthless, but $5 million of it was in cash—and that’s a sum that many people would be happy to earn over a lifetime.
But now we’ve gotten to the good part: After such a colossal financial catastrophe, what have we learned?
Of course, hindsight is 20/20, but now that we have a clearer picture about what happened, we can have a better plan for how to approach events like this should they happen in the future…And the adage rings true: History repeats itself.
I wouldn’t say it’s good news, but it’s a game plan for the future. The downturn was painful for investors but it delivered some good lessons.
First, invest systematically in good companies regardless of the short-term investment climate. During the worst of the crisis in 2008, everything went down regardless of the quality of the underlying business. At the time, it felt punishing, but it was actually an opportunity to snap up shares of great undervalued companies.
The few contrarians who bought stocks while the market was tanking were able to ride the recovery all the way from the bottom. I’m not saying to try to time the market—that’s never a winning venture—but dollar-cost averaging—investing say $100 a month in a mutual fund no matter what—allows you divorce emotion from your investment discipline. There is wisdom in the saying…It’s not timing the market, but time in the market that pays off. And if you don’t have the stomach to buy at a bottom (and I understand that most people don’t), at the very least, don’t sell! A buy and hold strategy is best over the long-term.
Second, have a cash cushion. This is helpful for a number of reasons. A cash cushion can cover expenses should uncertainty strike. In addition, cash gives you the option to take advantage of buying opportunities. And don’t forget: What cash giveth, debt taketh away. While cash gives you options, debt limits them, so minimize debt.
Third, and finally, this too shall pass. As in life, it’s sometimes hard to see the light at the end of the tunnel. Consider this: Investors weathered the worst economic crisis in 80 years and it took just four years for stocks to return to all-time highs. If history has taught us anything, it’s that bubbles burst and markets recover.
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This Week’s Celebrity Instagrams (11/26-12/2)
27 photos Launch gallery
1. Little Legend and Puddy 😍😍😍😍
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2. "You on point Phife?" "all the time,Tip". 💥 #bannedfromnormal
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3. Vegan! The Impossible burger at Crossroads
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4. Lawrence #BeforeandAfterEpisodes 1-4: 184lbs 13% body fatEpisode 8: 196lbs 8% body fat S/O @coachdaveboxing with the works outs and @kildareriordan with the nutrition
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5. Jus haaaanngin out
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6. Meanwhile back at home in Atlanta GA someone mad they not on the 🛳. 😳
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7. No limits... Photo cred: Chris Bridges @ludacris
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8. new new
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9. Apparently my 260lbs is too much for the actual vines in the Hawaiian jungles to hold me without breaking and me falling hundreds of feet. So for safety purposes, I'm forced to swing thru #Jumanjj on wires strong enough to hold 12 adult buffaloes and 1 adult Rock. #OnSet #Jumanji #IronicallyIEatBuffaloDailyForLunch #MoreManThanNatureKnowsWhatToDoWith
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10. hey ma! 🎎#wcw 💙
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11. Surprise visit to our factories!!! #GoodAmerican #USA
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13. Peachy Keen 🔥✨⚡️
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14. If this don't look thankful I don't know what does. Happy Thanksgiving to you and yours. #UltraBlessed #24kMagic #SweetPotatoFly
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15. Late nights @nbcmarlon with the writers... we in here!!!
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16. There goes my baaaaaaaaabbbbyyyyy #QueenKingMagic!!! We're up to something! Ira BIG!!! Stay out our buisness -
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17. You want to win every game you play but when you come home to these faces... who cares. #ILoveYouGirls best part of my day, everyday!
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18. Steady,steady..... full size jenga.. "I got this one "???? Or do I ?
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19. #BrotherlyLove #tbt
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21. #basel #TeamLOVE @kingcombs
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22. Just introduced a special screening of @directher 's groundbreaking (must see) documentary @13thfilm with my brother @themichaelealy | @unitedblackout #blackoutblackfriday
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23. Me & Vanessa Williams giving #DuckLips #Pose on the set of #DaytimeDivas @vh1 - Coming Soon to a tv near you. Lol. - My make up done by @makeupsurgeon
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24. This picture just makes me wanna praise the Lord, you hear me!!!!!! Yes Lord brotha #TEDDYCAMPBELL What a #man !!! You are everything right on this picture husband ......... #gorgeous #stylish #classy #strong #masculine #king #sexy #debonair #gentlemenstyle And that #bible in your hand just seals the deal for me (probably cause i know that, that is what helped you become just as amazing as you look😘). While my heart and mind experiences the goodness of God at #church on Sundays, my eyes experiences the goodness of Teddy😍. Amen somebody🙌🏽. "Bless the Lord oh my soul and all that is within me bless his holy name" #myman #myhusband #goodman #blackman #dapperman #godlyman #goodfather #mybestfriend
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25. Yesterday was my mama's 53rd birthday!!!!! Got to celebrate with her all day. If this is what I have to look forward to I can't wait. Looking like a soft bucket a cocoa butter. Yaaaaaaaaaas! 😍😍😍 love you mommy!
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26. "Shout out to @PureAtlanta for getting the family right"....I'm loving this jogger. 😍😍
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27. GC "Gods Child" Red on Red SweatSuit available now at www.MonicaApparel.com ... Take Your Crown wherever you go!! I'm pictured in a Medium... Go to the site now for other options ... cc: @trukernell
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