An anniversary worth remembering
It has been only eight years since the start of the financial crisis that nearly drove the American economy into a depression. Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008. The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets.
It seems like it was much longer than just eight years ago, given how completely most individual investors have forgotten the horror of those times, and how the economy and stock prices slumped.
It’s understandable if people want to forget about that ugly episode, given that stock prices have recovered. The major stock indexes have stayed at or near record highs (on a nominal basis), lulling many into thinking that all is well. But investors must always be realistic about risk, and the eighth anniversary of Lehman’s failure is a good time to look carefully at your portfolio’s risk profile.
Those who are inclined to the long view may also remember what stocks were doing roughly 15 years ago. Anyone out there old enough to remember the dot com bust?
The bottom line is that we have had two very major setbacks in financial markets since the turn of the century. There is no way to time earthquakes or stock market slumps, but it is always wise to be prepared as the years pile up after the last one.
I think it was summed up best in “Where Have All the Small Investors Gone?” an article by Ben Levisohn published in Barron’s August 27, 2016:
“Investors have plenty of reasons for their lukewarm embrace of the current rally. During the past 15-plus years, they’ve seen their stock portfolios lose half their value not once, but twice. And in just the past 12 months, there have been two corrections—drops of 10% or more—that sure felt like the beginning of something far worse. With those memories still vivid, investors can’t be blamed for seeking safer investments, especially baby boomers with an eye on retirement, who would naturally be easing out of stocks anyway as a way to protect their nest eggs.”
— Andre Shashaty, principal, 360 Investment Advisors