Tuesday, March 18, 2008

A few things to remember from the fall of Bear Stearns

Yesterday, 14,000 employees found out they had a new boss. In a truly historic event (I’m sure someone is already brokering a book deal), JP Morgan Chase has purchased the investment bank Bear Stearns for a little less than $250 million. The deal price represents an almost 98% drop in value and comes just days after Bear Stearns management reassured investors the company was worth $11 billion!

This is an incredibly tragic event, but a few lessons can be gleaned for the freshman of the workforce.

1. Be careful about companies attached to one particular market

While Bear Stearns offered many different products to a wide variety of clients, it was one of the largest underwriters of mortgage-backed securities in the industry. The downturn of the market (one could argue signaled by the collapse of two Bear Stearns hedge funds) began to slowly impact the company in a wide variety of ways. Working for a company that is too closely tied to one market can spell trouble for employees during market downturns.

2. Don’t hold more than 10% of a company's stock in your retirement account

As you begin to move up the corporate ladder, stock options will become an increasing component of your compensation. Make sure this stock only represents AT MAXIMUM 10% of your total assets. Sell the rest you are given and invest it in a mutual fund. Although there will be years your coworkers will make more, you will be better protected and diversified. Bear’s stock fell from a little over $150 to $2 in a year.

3. Pay attention to rumors

Although they just may be rumors, you can never be too sure. Start updating your resume and thinking about emergency plans right away! The best defense can be a good offense. You might even want to think about what other industries you could enter if a market downturn is widespread.

4. Never be a martyr

Even with all the hard work and years of dedication the employees put in, it just wasn’t enough. To top that, the company was so broke there will definitely be no “reimbursement” to the employees. Never give your employer more than is deserved to them. Show up. Work hard. Do your best. But the days of “sacrifice” are over. I’m sure you can find something better to do with your life.

5. Have 6 months of living expenses in the bank at all times

The basic message of the Bear Stearns saga is you never know what can happen. Despite all of management’s positive reinforcement of Bear’s position, the company collapsed overnight and 14,000 people woke up without any job security. The average job search takes approximately 6 months to complete. Make sure you have enough saved away for the basics while your searching.

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