17 years since Lehman Brothers collapsed: 5 lessons for investors in risk, leverage, liquidity and diversification

Seventeen years ago, on September 15, 2008, investment banking giant Lehman Brothers applied for Chapter 11 banking protection. Founded in 1850, this bank was one of the most respected financial institutions of the time. Furthermore, this particular event has caused serious panic over global stock markets. It was the largest bankruptcy in history, with over $ 600 billion in assets. The resulting immediate impact was serious, with more than $ 10 billion in initial investor losses and a 4.4% wall in the Dow Jones industrial average on a single day. This further deepened the fear of a global economic collapse. The collapse sent shockwaves by regulators, investors and governments. This revealed in -depth defects in risk management, supervisory regulatory and the interdependence of financial institutions. The collapse was followed by government bail and emergency policy intervention. The collapse of the Lehman Brothers became a historical symbol of how unmarked risk management, improper caution, lack of regulatory supervision and the balance sheet even removed the most decorated and deepened Wall Street firms. Five key lessons for investors from the Lehman Brothers’ crisis diversification are essential: The collapse of Lehman Brothers has shown how to put too much on a single asset class, in this case, related to securities, disastrous consequences for investment portfolios. This further increased the need for effective diversification on sectors and instruments to protect against underperformance or default in any asset class. Monitor leverage and risk: Excessive dependence on debt or excessive loans strengthen both profits and losses. Therefore, borrowing must be planned effectively. Lehman Brothers’ strategy that is very leverage has made it exceptionally vulnerable in an economic downturn. This is a clear lesson for investors to keep in mind: Never borrow your repayment ability. Furthermore, too much debt on any balance sheet should be considered a screaming red flag. Regulations and transparency protect investors: This crisis highlights the need for timely alertness, regulatory intervention and transparency in accounting to ensure the interests and rights of businesses and investors. Proper regulation can go a long way to keep the system shock resistant and the integrity of financial markets intact. Importance of Liquidity: The sudden evaporation of liquidity after the collapse of Lehman brothers made it extremely difficult for the institution to sell assets, raise funds and fulfill its immediate debt obligations. It highlights the importance of investment in liquid instruments. It is extremely important to ensure that investments are made in asset classes that can be easily left out if needed. Asset classes such as large cap stocks, government bonds and top-rated corporate bonds are some examples that can be considered by investors to keep their wealth safe and safe to face a liquidity-driven problem. Be careful of short-term euphoria: Euphorie in the market, such as during the 2000-01 dot-com bubble or the economic environment before the collapse of Lehman Brothers, can easily hide the vision of investors. Lehman’s aggressive pursuit of profit and disregard for warning signs led to an unforeseen economic collapse. It is a reminder of investors that sustainable, long -term investment strategies can look boring and repetitive, but are still much safer than chasing speculative profits. Investors must always recognize and practice these five lessons while investing. Focus should be on the respect of the fundamental rules of wealth accumulation to build a generation fortune. Disclaimer: This article is intended only for educational purposes and should not be considered financial advice. Investments are subject to risks, and professional guidance is recommended before making decisions.