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.
Also On Black America Web:
This Week’s Celebrity Instagrams (10/15-10/21)
31 photos Launch gallery
1. Just a NY girl with BIG dreams....
1 of 31
2. HAPPY CHILDREN=QUALITY PARENTING. We don't always see eye to eye on everything and that's normal. We're human beings. But we come together and do it right for what's important, the kids. We are not enemies, we are parents. And we are parents 1st. S/O to @monyettashaw for making Mason's bday memorable. S/O to @itscrystalsmith at home taking care of our other lil' Prince. ❤️❤️❤️ THIS IS WHAT CO-PARENTING LOOKS LIKE. #Blessed #Happy #AboveTheDrama #BiggerThanUs
2 of 31
3. So happy to finally be able to share with you all that I’m the new Global Brand Ambassador for @Revlon! Follow my day on RevlonSnaps. Yay! Choose Love, Everybody! #RevlonXCiara #chooselove #ad
3 of 31
4. Glam on point!!!@makeupbymotoko & @shaylinjoneshair #easybreezy @lifetimetv #beachesmovie #january2017 😘
4 of 31
5. ✨True love ✨📸: @jessiemarrerophotography
5 of 31
6 of 31
7. Today was not easy..but by the grace of God we all got through it. Words cannot express our gratitude for all of your Prayers, Positive thoughts and Support for us throughout the years. Tommy will be missed but most certainly never forgotten...And PLEASE don't ask "Where's Martin?.." he was there too...just not in this picture. Lol! God bless you all.. #LoveConquersAll #MartinShow
7 of 31
8 of 31
9. West coast get ready for #RockyHorror. I will be live tweeting again. #letsdothetimewarpagain
9 of 31
10. #THEKEYS pre order yours now ... Available everywhere #NOV22 #WeTheBest 🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑
10 of 31
11. We about to ROCK at #KCABlackBall!! All for our life-changing effort to end 🌎 AIDS.
11 of 31
12. Today's #SNAPJACK is brought to you by @yazzthegreatest 😂😂😂💋💋💋
12 of 31
13. Damn girl you kinda old to be headed to the Go Go. You coming in at the age they leaving. LMAO
13 of 31
14. Daddy daycare B-Boxin with @acewellstucker @shopraisingace
14 of 31
15. #FBF Naviyd & URV "LIL MONSTERS"
15 of 31
16. HAPPY BIRTHDAY TO ONE OF THE BIGGEST LEGENDS IN OUR HIPHOP HISTORY! @snoopdogg CONTINUED BLESSING AND LOVE FAMILY!!!!! REAL OG!
16 of 31
17. Thank you for a beautiful night VSU! Let's do it again! #HOMECOMING
17 of 31
18. Had a great time this morning with my familia Erica, Griff & Truth!!
18 of 31
19. Check out my interview on @essence facebook live. #inmyownwords #nycpromo #day2
19 of 31
20. #She💋 #tbt #TheCoveAtTheAtlantis #DawgPawsAndAll
20 of 31
21. Bae #retailtherapy
21 of 31
22. Why me and @coryhardrict got the same pose... and notee... new mouth #naked
22 of 31
23. When my husband is my personal 'hype-man'! it kills me every time! 💜😂 #WHATNOW #lostfiles📷
23 of 31
24. Diggy Simmons
24 of 31
25. Hand full of @jacquieaiche 💙💎💍 @esnail_la 💅🏾
25 of 31
26. SuperSoulers! You can watch my interview with Carl Lentz live from my Facebook page, tomorrow at 11a ET| 8a PT. #SuperSoulSunday
26 of 31
27. 💋 .. When the friendship is easy like Sunday morning. ☀️
27 of 31
28. Sunday mornings are the best........... hugs and cuddles with my angel
28 of 31
29. #huggar16 #hellohuggars
29 of 31
30. My gym is everywhere!.. #RnBMoney #TheGeneral 📸: @twelvepastseven
30 of 31
31. Nothing I would rather be doing... Rocko setting up our movie, Romelō working on a puzzle & Laiyah singing and sharing all she's learning at school... I'm so grateful for the joy they've brought into my life ... Praying for peace , joy & love in the home of EVERY family ♥️ #HeadScarfPJSunday LOL 😂
31 of 31