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时隔14年,爆雷事件再度重演!投资记忆如此短暂,你学到了什么?

After a lapse of 14 years, the thunderstorm happened again! What have you learned from having such a short investment memory?

券商中國 ·  Mar 26, 2023 16:36

Source: Broker China
Author: Qu Hongyan

In the US subprime mortgage crisis that broke out in 2008, Citigroup's stock price dived from a peak of 57 US dollars to 1 US dollar, and the stock price of AIG (American International Group), the second-largest insurance company in the US, plummeted by more than 90%. After a lapse of 14 years, the Silicon Valley bank filing for bankruptcy protection also shocked global financial markets.

Although the causes of the current financial turmoil and the 2008 subprime mortgage crisis were not the same, excessive pursuit of profit through aggressive methods was also an important driver behind the crisis. Moreover, no matter where this round of crisis comes from, investors in companies such as Bank of Silicon Valley and Credit Suisse cannot escape heavy losses.

As Galbraith, the author of “A Brief History of Financial Fandom,” warned: People's financial memories last no more than 20 years at most. Generally speaking, 20 years is enough to dilute people's memories of a certain disaster, and the lessons of history will be repeated again. From an investment perspective, investors should always look back on major financial disasters. Rational investing begins with respect for common sense and self-examination. When people forget the risks, black swans are often not far away.

Wise Men Warn: Finance Is Unfit for Innovation

Since the Federal Reserve implemented quantitative easing policy in 2008, global financial markets have been in a low interest rate environment for a long time. In mid-March 2020, the Federal Reserve once lowered the federal funds rate range to 0-0.25%. Abundant capital is most beneficial to the development of technology companies. The Bank of Silicon Valley took advantage of this trend, providing credit support to startups while providing capital to venture capital funds, and ultimately relied on startup IPOs to achieve a virtuous cycle. This model innovation helped Silicon Valley Bank grow from a small regional bank to the 16th ranked bank in the US.

Although the Bank of Silicon Valley has a huge network of technology enterprise relationships, it is still essentially a bank that grows by investing in short periods of time through a high-leverage model. Under the low interest rate environment in the early stages, the Bank of Silicon Valley used aggressive leverage on the asset side to lay out a large number of treasury bonds and mortgage-backed bonds, but as the Fed's interest rate hike progressed, these bonds experienced huge losses, which eventually eroded corporate capital, and news of the urgent need to supplement capital exacerbated the crisis of depositors' mistrust. Looking at the debt side, the recession in technology companies exacerbated the loss of debt-side capital. Under double pressure, Silicon Valley Bank experienced a terrible crisis of crowding.

In the two years from 2020 to 2021, the Bank of Silicon Valley increased more than twice, while traditional bank stocks such as Bank of America and American Express rose only 50% during the same period.However, in the past year, the Federal Reserve raised interest rates nine times, and the federal funds rate rose to the 4.75% to 5% range. Against this background, the highly leveraged arbitrage behavior of financial institutions that were slow to adjust or got lucky revealed massive losses. These losses also almost erased the bank's net assets, and the stock price was erased.

As stated in “A Brief History of Financial Fanaticism,” the financial business is not suitable for innovation. The financial world praises the invention of the “wheel” time and time again, and this “wheel” is often a slight and more unstable variant of the “wheel” of the past. All financial innovations, in one form or another, involve the development of debt secured by more or less physical assets. All crises have involved debt in one way or another, and debt has dangerously exceeded the size of payable assets.

In the 2008 subprime mortgage crisis, the subprime mortgage business, which once seemed very dazzling, blew up, burying Wall Street's “century-old store” Lehman Brothers, and also triggered a global financial tsunami that lasted more than a year. The subprime mortgage business also appeared to be an amazing financial innovation at the time. Subprime mortgages were loans provided to borrowers with low credit ratings and ability to repay their debts, mainly real estate mortgage loans. Subprime loans brought profits above the market average to their financial institutions, but they also posed a risk of explosion, and Lehman Brothers fell victim to the subprime mortgage crisis.

Dechong Securities filed for bankruptcy in 1990. This company was the originator of the garbage debt pandemic in the 1980s. Michael Milken, who controlled Dechong Securities, was also imprisoned. Junk debt means that some companies take out corporate acquisitions through large amounts of debt and use leverage to obtain ownership and control of another large company. Before Dechong Securities went bankrupt, its annual revenue reached 4 billion US dollars, which is enough to rank among the top investment banks in the US. “Wall Street's oldest rules will return, and financial geniuses only existed before the market crashed.” Galbraith said.

Escape Tips: Investing Needs to Learn from History

In “A Brief History of Financial Fandom,” Galbraith said that under normal circumstances, after 20 years, a new generation shines brightly, and 20 years are enough to dilute people's memories of a certain disaster.

Shareholder Duan Yongping also mentioned the Silicon Valley Bank bankruptcy incident that reminded him of an acquaintance who invested a lot of money at XX Bank many years ago, “People Never Learn” (it's hard for people to learn lessons).

Graham also mentioned in his book “Securities Analysis” that before the stock market boom in the 1920s, banks and insurance stocks were almost all held by people with rich financial experience and mature judgment. Since there is a close link between the profits announced by these financial institution companies and price fluctuations of the securities invested, only these people could avoid the risk of value judgment mistakes when investing in such stocks.

“A Brief History of Financial Fever” describes in detail the mass mentality of disaster events in human investment history, such as the 17th century tulip bubble, the South China Sea bubble, the US junk bond frenzy, and the 1929 US stock crash. Howard Marx, chairman of Oak Capital, has said that this book is extremely important because it tells about cycles, fanaticism, and the pendulum-like swings of the human mind.

Many of the cases quoted in “A Brief History of Financial Fanaticism” are from “Great Mania: Extraordinary Popular Fantasies and Mass Mania.” Bernard Baruch, the person who threw out stocks before the stock market crash in 1929, specifically mentioned this book. He said that these mass insanity has been repeated over and over again in human history, and occurred so frequently, indicating that it reflects that human nature must have some deep-rooted characteristic. “There is also a strange side to these mass insanity. No matter how highly educated they are or how high their positions are, people cannot be immune from being infected by this' virus. '”

Therefore, Baruch places special importance on common sense in investing. That is: when hope is high, I always warn myself once again that two plus two is still equal to four, and that no one has invented any method to achieve something to gain without any effort, and when the outlook is pessimistic, I also remind myself that two plus two is still equal to four, and that no one can keep humans depressed for a long time.

Editor/Somer

The translation is provided by third-party software.


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