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SVB and Lessons From the Global Financial Crisis

Posted March 13, 2023

Zach Scheidt

By Zach Scheidt

SVB and Lessons From the Global Financial Crisis

It's been over 14 years since that fateful day at the hospital.

You may have heard me tell the story about the birth of my twins during the Global Financial Crisis.

It was my job as a hedge fund manager to protect my clients' wealth, and I took that job very seriously.

But as a father and husband, it was also my job to be fully present for the birth of my children.

I'll never forget barking "sell, sell, sell!" into my phone and then turning to my wife and telling her "push, push push!" as our twins were born. Something had to give.

Within a week, I turned in my resignation and embarked on a new chapter in my life: being present for my kids regardless of what happened in the market.

Ironically, that decision laid the foundation for this email hitting your inbox today. 

Because while I'm no longer a hedge fund manager, I still love the markets, investing, and helping you grow and protect your wealth.

In light of the SVB Financial Group bankruptcy and the market turbulence, I decided to share three timely lessons from the Global Financial Crisis.

Pay close attention, because they're directly tied to the challenges we're facing today.

There's Always More Than Just One Problem

You've heard the old saying that when you see one cockroach, there are always more around. The same is true when something breaks in the market.

Last week, we saw the failure of Silvergate Bank, Signature bank, and then SVB on Friday. While all three had their own specific issues, there's an underlying theme in play...

The Fed's interest rate hikes have put stress on our financial system. That stress is showing up in different ways and could continue to create challenges for months to come.

Several regional banks sold off sharply today in response. Investors are worried deposits will leave these banks and that the companies will be forced to merge or declare bankruptcy.

We may see several bankruptcies before all is said and done.

Back during the financial crisis, we saw the first signs of stress in 2007 when the housing market crashed.

New Century Financial Corporations filed for bankruptcy in April. Then Bear Stearns started taking on water in July. 

(The hedge fund I worked for at the time was on the same floor as the Bear Stearns regional office. And I knew several people who were wiped out as a result of the bankruptcy.)

But it wasn't until the fall of 2008 that Lehman Brothers went under, AIG had to be bailed out, and the market ultimately bottomed.

To be clear, I'm not predicting that our current crisis will last another year. In other words, this isn't the financial crisis all over again. 

But I do think there will be more casualties before the story ends.

Live to Fight Another Day

It may seem silly to sell stocks after a drop like we saw last week. But risk management is incredibly important in today's market.

Many speculative stocks benefited from a bear market rally this year. But that doesn't mean these stocks are worth their high prices.

Speculative tech stocks could have much further to fall. If you hold too many of these shares in your account, you could lose a lot of wealth over the next few weeks.

As a hedge fund manager, it was my top priority to protect the wealth that our clients trusted us with. That should also be your priority as a retiree or someone saving for retirement.

Protecting your capital means that you get to live to fight another day.

And it means that you get to take advantage of the stock market deals after the smoke clears and there's overwhelming opportunity (instead of overwhelming risk).

So make sure you stay in the game by protecting the wealth you've worked so hard to set aside.

Don't Jump Back in Too Quickly

One of my biggest challenges in the market (and in life) is that I try to rebound too quickly. It's just part of my personality.

Sometimes we all get knocked to the mat. While it is important to get back up again, it's also important to understand what hit you and how to avoid the next blow once you get back up.

If your retirement account got hit in the market selloff last week, consider closing all (or most) of your positions and taking a day away from your computer. 

Try not to watch the news or read the headlines. Just clear your head and gain some fresh perspective.

Then when you come back, you can add new positions judiciously. Maybe the stocks you were invested in are still great investments. If so, buy the shares again.

Or maybe you'll realize that some carry more risk than you're comfortable with, so avoid those and find better opportunities.

I promise you'll have a clearer sense of what makes sense in today's market if you clear your head (and account) then start with a fresh perspective.

These three lessons helped me get through the financial crisis. And hopefully, they'll help you better protect and grow your wealth in today's challenging environment.

I'll be back to you shortly with ideas on what's working (and what to avoid) in today's market.

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