When times are good almost everyone does well. In my experience, a crisis will separate the strong from the weak. For a major economic crisis, the financially strong will survive and the financially weak will struggle and perhaps fail or be taken over.
However, I would never have guessed that three major Wall Street firm would cease to exist as separate entities in 2008. First J.P. Morgan Chase buys Bear Stearns and now Bank of America has taken over Merrill Lynch. Lehman appears headed for bankruptcy. There are now only two remaining stand alone Wall Street firms, Goldman Sachs and Morgan Stanley.
From these investment bank examples, I take away a couple key learnings on financial strength. First, strength requires a good financial foundation designed to weather various economic scenarios. Second, maintaining strength requires managing risks so that likelihood of complete failure is low. In hindsight, it appears that Bear, Merrill, and Lehman missed in both aspects, resulting in their sale or bankruptcy.
Disclosure: At time of publication, our managed account own Morgan Stanley, J.P. Morgan, and Lehman Brothers.
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This is not financial advice. Please consult a professional advisor.
Copyright © 2008 Achievement Catalyst, LLC
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