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Yoshikami: The Ghost of Lehman Past

It’s been a year since the collapse of Lehman Brothers but the damage remains. It seemed like a distant world away when we once held on to the belief that financial engineers could do no wrong and we were free to embrace with wild abandonment such leverage.

But nothing could be further from the truth. The house of cards collapsed and set into motion a financial meltdown not seen since the great depression. Can such market chaos happen again? As an investor, let history be your guide. Problem is – Wall Street seems to have a problem understanding this.

Going out of business
Flickr User:
Going out of business

The worry is not so much for best-of-breed organizations that can navigate these dangerous waters adeptly. Instead, it is the fringe firms willing to take excessive risk and believing in their own infallibility that merit concern. This must be monitored carefully. But there is not much of that going on. So once again we must have faith in corporate self control; a bit unsettling to say the least. As stimulus dollars (and yen and yuan and euros) pour into economies there is a tendency to conduct business as if these matters are inconsequential.

Here’s the bright side: There have been encouraging changes in the marketplace; valuations of capital assets including real estate have become more realistic. Leverage is lower. And so the atmosphere that existed when Lehman collapsed is a bit more sober.

  • See Video: Lessons from Lehman
  • As an investor, be aware. Question your actions and motivations. Do you remember the pain of losses from 6 months ago? Are you looking at valuations and how they match up with current state of the economy? Are you investing with a belief that you might be wrong? Are you more cautious than is warranted given your time horizon? Are you being too aggressive and banking on everything going just right?

    And so the ghost of Lehman haunts us still. Frightening, real, and alarmingly still present in other forms; under new names. The world's economies simply cannot take another shakedown brought on by recklessness and excessive hope.

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    Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.