Friday’s market session commemorated the 15th anniversary of one of the most catastrophic events in stock market history — the bankruptcy of Lehman Brothers. On September 15, 2008, Lehman Brothers, a prominent financial services company, filed for bankruptcy, triggering a downward spiral in the markets and exacerbating a recession.
Lehman Brothers was an investment bank with approximately 25,000 employees and held $639 billion in assets and $619 billion in debt at the time of its collapse. As the fourth-largest investment bank in the United States, its bankruptcy was the largest in American history.
The collapse of Lehman Brothers was influenced by various factors, including its substantial investments in subprime mortgages and the subsequent decline in mortgage values. On September 15, the S&P 500 experienced its lowest closing price in three years, and the Dow Jones Industrial Average plummeted over 500 points.
To illustrate the performance of investments in exchange-traded funds (ETFs) tracking the leading market indexes over the past 15 years, let’s consider the SPDR S&P 500 ETF Trust (SPY) and the SPDR Dow Jones Industrial Average ETF Trust (DIA).
If an investor had allocated $1,000 to SPY on September 15, 2008, they could have purchased approximately 11.15 shares based on an adjusted closing price of $89.67. Today, that initial investment would be worth $4,944.69, reflecting a remarkable return of +394.5% over the 15-year period. This investment in SPY would have generated average annual returns of over 26%.
Alternatively, a $1,000 investment in DIA on the same date could have acquired 12.89 shares at an adjusted closing price of $77.57. Presently, this investment would be valued at $4,458.52, yielding a return of +345.9%.
The bankruptcy of Lehman Brothers is a momentous event that continues to resonate within the financial industry. Its implications and lessons still shape the way investors approach risk management and diversification in today’s markets.
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