Portfolio management: lessons learned from Lehman collapse

I have NOT added any new money to my brokrage account since Sept 15 2008 Lehman Brothers collapse, so it’s easier to calculate the performance of my portfolio (+25%, from Sept 30 2009 to today Sept 14 2009), and compare to benchmark (S&P -16.75%, from Sept 15 2008 to Sept 14 2009). We can not predict catastropic events, if we really want to predict future or talk about any lessons for industry, I think one thing is clear:

one either becomes too big to fail (like AIG), or becomes the first to fail (like Bear Stearns), the last thing one wants to be is being No. 4 investment bank, leverage heavily and caught in the financial and political turmoil. We all know the day before Lehman fall, Merril Lynch (No. 3 investment bank) got bought by B of A, and shortly after that No. 1 Goldman and No. 2 Morgan Stanely converted into bank holding company.

For me personally, I can think of the following.

Lehman is NOT too big to fail

This is the message Paulson sent to the street this morning. In other words, Paulson was saying “speculators, you should know this coming in last 6 months, sorry but I can not help you out this time, because in doing so I could lose my job too”. Pauslon gave two reasons he won’t bail out Lehman Brothers: 1) Since the Bear Stearns crisis, Lehman has been in the news for almost 6 months, the partites should have taken steps in the case of “go under” of Lehman; 2) Since the Bear Stearns Crisis, Fed has opened the discount windows to investment banks. Lehman should have done its own job to raise capital, keep its house in order.

(Obviously, the reporters are not welcomed in the Lehman building)