What if you bought Lehman Brothers bonds in 2005?
Bonds & cash · Corporate. The hindsight answer, year by year, against the only benchmark that matters.
Could you have picked it? Play0.2× · S&P 500 same money: $5,763
$1,000 in Lehman Brothers bonds at the start of 2005 would be worth about $250 today. A plain S&P 500 index fund over the same years would have made more — the boring option won.
What happened: Lehman Brothers bonds paid out about 25 cents on the dollar after 2008.
The story
Lehman Brothers bonds were investment-grade debt from a 158-year-old Wall Street bank, the kind of thing pension funds held without much thought. In the mid-2000s Lehman expanded aggressively into mortgages and commercial property, funded by enormous leverage and short-term borrowing. It also used an accounting manoeuvre known as Repo 105 to make its balance sheet look smaller at quarter-ends, as the bankruptcy examiner later documented.
When Bear Stearns was rescued in March 2008, investors started asking which bank was next. Lehman's shares slid all summer, talks with potential buyers collapsed, and the government declined to provide a backstop. On 15 September 2008 Lehman filed for the largest bankruptcy in US history, triggering a global panic. Unwinding the estate took more than a decade. Senior unsecured bondholders eventually received roughly a quarter of their money back, paid out in instalments, which is better than shareholders but a poor result for an asset bought as safe.
The lesson: A credit rating describes the past more than the future, and highly leveraged firms reliant on short-term funding can fail far faster than ratings adjust.
$1,000 invested at the start of each year
| Bought in | Price then | Worth today | S&P 500 would be | Multiple |
|---|---|---|---|---|
| 2005 | $100 | $250 | $5,763 | 0.2× |
| 2007 | $100 | $250 | $4,789 | 0.2× |
| 2008 | $95.00 | $263 | $4,626 | 0.3× |
| 2010 | $20.00 | $1,250 | $6,071 | 1.2× |
| 2012 | $22.00 | $1,136 | $5,312 | 1.1× |
| 2015 | $25.00 | $1,000 | $3,301 | 1.0× |
| 2018 | $25.00 | $1,000 | $2,519 | 1.0× |
| 2020 | $25.00 | $1,000 | $2,092 | 1.0× |
green = beat the S&P 500 · red = lost money
Best entry point in our set: 2010, turning $1,000 into $1,250. The S&P 500 from that same year: $6,071.
Now try it without hindsight. The wheel decides the year and the asset class, you pick the position, ten seconds a pick, and we simulate to today. Lehman Brothers bonds is one of 258 positions on the wheel — including the ones that went to zero.
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