I’m no finance expert but that’s a bit shocking. Aren’t S&P500 companies the safest, most rigorously vetted companies? Or just marketing BS? For ex. try buying the SP500 constituent data… insanely expensive! And with so many restrictions (we just grab it from the ETF)
Sure each of them was incompetent in their own field. Possibly criminally. But shouldn’t some blame go to the SP500 glorious index? Shouldn’t they do more due diligence? Shouldn’t they dig deeper before adding a new company? A normal investor would not think it’s possible to lose everything buying an SP500 “blue chip”.
And yes, Enron was also part of the SP500.
Moral: do your own universe. Forget the news, forget all experts, forget the dovish-hawkish-dovish nonsense from the Fed. Just follow the numbers (using P123 of course).
An index is just a basked of stocks that are bought with certain rules at certain intervalls.
If the rules are bad - let’s say you only buy the largest stocks in regards to their market capitalization with maybe only very few short term fundamental checks - than the outcome will probably be subobtimal. But that is exactly what the S&P 500 does.
“SVB passed its stress tests with flying colors. It also passed its FDIC examinations, its financial audits, and its state regulatory audits. SVB was also followed by dozens of Wall Street analysts, many of whom had previously issued emphatic BUY ratings on the stock after analyzing its financial statements.”
Cramer on CNBC was downplaying the problems until very recently.
Maybe reminiscent of rating agencies (e.g., Moody’s) ratings of mortgage-backed-securities in 2008.
There are deeper lessons that I am not intelligent enough to grasp, but it is not just the SP500 for sure. And not that I am any better at seeing what is coming, they can all be suddenly wrong at once. And well,“it makes sense now, obviously” (after the fact). I.e., hindsight bias.
Having worked at the former regional bank for 20 years, I can’t say I’m truly surprised. There has been an extreme “dumbing down” of corporate culture, and, the result is/was a mass exodus of experience, talent, and brains from most of the banks.
On a side note, as a former institutional trader, I can tell you that our risk department (while large in size) was the place where you were stuck if you couldn’t perform on the trading desk. There were a handful of very smart people in risk management, but they didn’t have any sway to speak of. I can’t speak to specifically to what’s happening currently at these banks, but I can only imagine what the risk controls were like.
For kicks I tried to look at the financial statements of SVB to see how quickly I could spot the problem they were going to have.
I was reminded of how absolutely terrible the presentation of data is. Finding a simple accurate debt/equity ratio or liquidity ratio was a futile exercise. I wouldn’t be surprised if that contributed to the failure of people in the bank to realize the degree of the problem early on.