A year after Lehman, rebuilding as the dust settles

Published 3:35 pm Friday, September 25, 2009

Possibly, only people heavily involved in the financial industry will recall Sept. 15, 2008, as the day investment banker Lehman Brothers filed for bankruptcy.

It was a powerful shock to the American financial system, coming only hours after Bank of America agreed to absorb the once-powerful Merrill Lynch—to say nothing of the disappearance of Bear Stearns into JPMorgan Chase six months before, or the Sunday morning announcement a week earlier that mortgage giants Fannie Mae and Freddie Mac were suddenly in government conservatorship.

On the day Lehman Brothers fell, the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) dropped 504 points to 10,917.51 and $700 billion in stock market value disappeared.

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Incredible as all that was, there was much more to come as other dominoes fell quickly.

American International Group (AIG), with tentacles reaching into most global economies, was deemed too big to fail—it got an $85 billion government loan.

Next, Washington Mutual became the largest-ever American bank failure. JPMorgan Chase took what remained and Wells Fargo slurped up all of Wachovia.

After the House of Representatives failed to pass the first bailout proposal, on Sept. 29 the Dow fell nearly 778 points to 10,365.45, its worst-ever point drop. Another $1 trillion in market value had vanished. Although a bailout package was passed a few days later, confidence had evaporated. The downhill slide continued until March of this year.

A year after Lehman’s collapse, the effects of these events are still evident.

In the meantime, financial plans have had to be re-evaluated; changes have had to be made.

Some investment and personal goals have been delayed or set aside. Nevertheless, these events re-emphasized the value of a disciplined planning process, one that encourages you to understand your financial situation, outline your goals, and develop and implement a well-thought-out investment plan. Most of all, they point to the value of constantly monitoring a portfolio and effecting changes as warranted.

Historically, bear markets invite investment opportunities. This one has not been an exception. As of the close on Sept. 11 this year, the Dow was up nearly 47 percent from its March low. From their respective lows, the NASDAQ (an unmanaged index of common stocks listed on the NASDAQ National Stock Market) had gained a remarkable 64 percent and the S&P 500 (an unmanaged index of 500 widely held stocks) had risen 54 percent. Of course, past performance may not be indicative of future results.

As uncomfortable as these events have been, they offer lessons for the future. And while the markets’ rebound has been remarkable, they remain far off their October 2007 highs and economic conditions are still far from ideal.

If you would like to discuss portfolio adjustments, whether to position yourself to take advantage of opportunities tossed out in a continuing recovery or to ensure you’re still on track to reach your goals, please give us a call.