You know you’ve messed up when former treasury Secretary and Harvard Professor Larry Summers thinks you need to go back to school. 👨🏫 In a Twitter-worthy hot-take, Summers blasted the executives of failed Silicon Valley Bank (SIVB) on CNN, saying the company committed ‘one of the most elementary errors in banking’. That’s like forgetting to check when your assignment is due, or calling your teacher ‘mum’. 🍎
What exactly went wrong with SVB? Silicon Valley Bank piled into long term bonds that declined in value as interest rates rose. Then, when the bank’s tech-savvy customers wanted their money back, SVB was faced with a ‘whaddaya mean the bank is outta money?!’ scenario. 😳
While the second-biggest bank failure in US history continues to ripple through shares prices of other key US banks, including First Republic (FRC) and Keycorp (KEY), the ‘limited edition’ remains of the SVB are being flogged off by canny entrepreneurs on eBay (EBAY) - from wine coolers to empty cardboard boxes. 📦
Mistakes are a part of life. But avoiding rookie errors with money is important if you want to get the most out of investing. Like, perhaps, not putting all your eggs in one basket? 🥚 SVB was pretty industry-specific, promoting themselves largely as the bank for tech. When it comes to investing, spreading investments across different sectors, industries and even time horizons, can help reduce the risk of being wiped out if one area takes a tumble.
Another reason SVB ran into trouble is because they didn’t have enough cash on hand in an emergency. 🚨 When they were forced to sell their investments at the wrong time, they locked in big losses. Keeping an accessible emergency fund could help save you from being forced to sell investments at the wrong time, like when your car’s on the skids and you need new wheels. 🚘
Finally, as investing GOAT Buffett says, ‘never invest in a business you cannot understand’. Being able to identify where risks might be lurking can save you a tonne of stress down the road. 🧘