In September, 2008 I sat alone sipping a juice in the open town hall area of a Goldman Sachs office. My eyes were fixed on a freshly printed 4-page report from CEO Dick Fuld on the status and future of Lehman Brothers, capital positions, $600B+ in assets, tangible book value per share, value-at-risk, etc. The $4.00 share price, many multiples lower than the 52-week high, tempted me into a modest 400 shares. People were scared: “Be greedy when others are fearful and fearful when others are greedy.” That’s what Buffett says. The lows would drop. It was days before Lehman failed. The common stock wiped out. This week marks the 11th anniversary of Lehman’s bankruptcy.

Mr. Fuld had summoned analysts early for an emergency quarterly update, five days prior to the firm’s demise. The Fed, in a quick decision that’s spawned books and Ivy League case studies, deemed Lehman Brothers and its 150+ year history too small to save.

Loss and pain can be great teachers. Mark Twain said “A man who carries a cat by the tail learns something he can learn in no other way.” I had grabbed the cat, but fortunately had just a small scratch given the position size.

I’ve learned from that scratch:

  • Slick presentations, big brands, and a storied past aren’t enough. You have to dig in, understand, and validate the numbers. Flash can solidify and etch a great story into our memories, but ultimately scales matter. Substance matters.
  • Passing on something too complex is a virtue.
  • Risk in finance is not volatility (as professors teach) but the probability of permanent capital loss. See all things Warren Buffett on this.
  • Things can be cheap for a reason. In Spanish they say: lo barato sale caro. “Cheap turns out to be expensive.”
  • Experience is the best way to learn. To learn investing we have to invest and no investor is really qualified to give investment advice without having both lost and gained money. To learn about marathons and the “wall” we have to run one. No book, video, or intellectual understanding of sodium depletion can prepare you for it. “There are certain things that cannot be adequately explained to a virgin either by words or pictures.” Warren Buffett has a way with words and results.

11 years later my Lehman shares sit in that Goldman account. Valued at $0, or perhaps fractions of a penny and rounded up to $0; paper statements arrive every month. 3-4x over the years they’ve contacted me with empty threats to transfer my account to another broker. They cite 7-figure account minimums. I’ve sat and still have the account. It’s a nice reminder of the trade and it gives me access to research.

Lehman brothers swag has nice shelf space on Ebay. There’s the weekend in the Hamptons green cap listed for $280. There’s also the lesson I learned from that $1,600 loss.