The Lehman Brothers' bankruptcy is not only an interesting story. We also learn lessons for our own financial planning strategy.
Watch where you put your money – not just into a Wall Street name, but also into a sound investment.
The collapse of Lehman Brothers, the 158-year-old investment bank, in 2008, might have been the turning point when the world markets really began to tumble. The end of the historic bank was recently chronicled by Vicky Ward in a best-selling book, The Devil's Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers, Wiley (March 2010). On my weekly radio show, I invited Ms. Ward to discuss her book.
Watch the video of this interview below.
Specifically, I asked Ms. Ward if there were any lessons that individual investors could derive from the famous bank’s scandalous fall. Ms. Ward said that after interviewing many people on the inside of Lehman Brothers, she realized that the culture of the firm was such that any dissenting opinions were quickly stifled. The men on top were convinced of their infallibility to the extent that they were unwilling to hear any other opinions. They ended up making big bets that ultimately failed and used cosmetic accounting to cover them. She noted that Warren Buffet rejected the opportunity to invest in Lehman Brothers because he said that the balance sheets didn’t make sense. Remember, Buffet is known for his mantra to only put money in investments that he understands.
Though individual investors may not take multi-billion stakes in massive Wall Street icons, they must make definitive decisions about where to place their money. Amongst the many lessons in this book, individuals should learn to invest in companies where the management culture is transparent and open to new ideas. After all, the world is changing and one of the biggest benefits of strong corporate leadership is the ongoing exchange of ideas that constantly improves a company’s vision. On top of that, investors should always understand the intricacies of their investments, or, at the very least, have a trustworthy investment advisor who can vet the ideas first.
Just because an institution has been around for a long time doesn’t make it invincible. Take home the lessons learned from Lehman Brothers and make sure you scrutinize and understand your own investments.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.