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CIO Message: Reflections On An Anniversary

This month, September, marks the five-year anniversary of the bankruptcy filing of U.S. financial services company Lehman Brothers Holdings Inc.

In his essay “Complexity and Collapse: Empires on the Edge of Chaos,” (Foreign Affairs, 2010) British historian and Harvard professor Niall Ferguson noted that, “When things go wrong in a complex system, the scale of disruption is nearly impossible to anticipate.” He cites a reference that suggests the global economy had grown to resemble an over-optimized electrical grid where a relatively small surge can cause a significant problem.

The failure of Lehman Brothers precipitated a deep and unpredictable liquidity crisis in global financial systems, which in turn led to significant equity market declines around the world. We have called these “market dislocations” to communicate the disturbance of markets from their usual place or state.

A Return To Order And Stability: Answers For Investors

Five years later, we can see that these dislocations are slowly being rectified: a relative stability has largely returned to our interconnected financial system, and markets are more stable and better capitalized (the value of outstanding shares is higher).

But the influence of the crisis still lingers, especially in the psychology of decision-making by individual investors who may ask: what can I do to strengthen my own financial future?

The answer, in our view, is not dissimilar to the approach taken at the institutional level: individual investors require diversified, tested strategies that are tailored to meet specific purposes and can help withstand market dislocations.

This is the essence of MD’s portfolio approach—and when we look at the results for individual investors since 2008, we know that those who employed a strategy attuned to their personal risk capacity and time horizon, successfully weathered the events of 2008 and beyond.

As always, if you would like to discuss the investment strategies MD deploys for investors, your MD Advisor is the right place to turn.

William R. Horton, Jr., CFA
Chief Investment Officer
MD Financial Management Inc.