The Fall of Washington Mutual

Washington Mutual is perhaps one of biggest banks to collapse in American history. In 2008, after 119 years of operation, the bank was brought to its knees after the Recession hit.

What caused the banking giant to fall? It was a combination of things. First, Washington Mutual gave insanely generous loans to corner the market on middle-class consumers. It wanted to be the “Wal-Mart of Finance.” Sadly, this sent the bank to its ultimate doom when the 2008 Crash rolled in and consumers started defaulting on their loans.

Trying to control the panic among depositors and investors, Washington Mutual began reorganizing its Home-Loan Division, laying off more than 22% of its staff. That’s when things went from bad to worse.

Investors, seeing the banking giant losing its grip, decided to bail ship. Suddenly, there was a massive run on Washington Mutual as many depositors withdrew their funds from their accounts and investors tried to get rid of their stock.

It was a race to the bottom and Washington Mutual was losing big. The management tried to negotiate talks with other big banks seeking financial help and a possible buyout. They got nowhere. They received only one offer from J.P. Morgan Chase and it was for $4 a share. They rejected that offer.

By now, things were hopeless. The company tried to prevent further backslide by stopping wholesale money lending and it even tried to replace its CEO. Nothing worked.

It was finally apparent that nothing would save the banking giant, and the Federal Deposit Insurance Corporation (FDIC) seized the bank and brought its horrible year to a close. Depositors were given their money back. Investors got nothing.

This is why you can never assume that a bank is a stable investment. Because anything is possible in the world of finance.

How to Conquer Fear

Fear turns some of the greatest minds into mush — and that’s by no means an exaggeration. I’ve known some of the smartest people who threw all their talents away because they were afraid of their own shadow. But that doesn’t have to be the case for you. Fear doesn’t have to beat you. You can control it. You can conquer it.

Almost everything in life boils down to how much you can take. There’s an old boxing quote I’ve always loved that says: “It doesn’t matter how hard you can hit — it’s about how hard you can get hit and keep moving forward.” You have to be stubborn enough to take the hits of life and not let them faze you. Who gives a crap if you’re fearful as long as you move past it and control it instead of letting it control you. If you’re scared, you should think, “So what?” Never let it control you.

If you have some sort of crippling fear that’s bugging you, you can get past it through scheming. That sounds pretty bad, but the truth is that scheming sometimes works. Whereas, if you let yourself get crippled by fear then you are bound to fail. If you’re scared, think your way past the fear and get your head in the game. The more scared you are, the more you should think about situations to beat your fear. Use your fear as a force of power for yourself.

Remember that fear is natural. It’s a primal instinct that has been given to us to keep us safe. Don’t ever ignore your fears outright. Use them to your advantage or at least recognize them.

Fear isn’t unstoppable. You can control it or you can let it control you. The answer is to not let fear faze you; instead use it as a focusing mechanism and always be aware of it.

Leverage Leverage Leverage

You can’t live your life hoping for miracles, because in the end you’ll want to hang yourself. The solution is to wait for sure deals before making yourself look like an idiot.

You might not be a good planner, a brilliant thinker, or a good looking person — but in the end it doesn’t matter. What matters is patience and playing the cards you’ve been dealt in life. Don’t give an inch. You can bend, but don’t break.

If you can practice the discipline of never giving up leverage — if you can be smart enough to never give an inch in the other person’s favor except in your own, then you will win.

 

Consumer Cyclicals Vs. Consumer Staples

There are two kinds of goods in the market that every investor needs to know about: consumer cyclicals and consumer staples.

Consumer cyclicals include things like electronics, movie tickets, and other somewhat unnecessary items. Consumer cyclicals are items that are bought specifically for enjoyment, and they often fare worst in bad economic times. Because when money is tight, nobody wants to spend their money on those things.

Then there are consumer staples. Consumer staples are goods that are essentially necessities — like milk, eggs, oil, and paper. These kinds of things are not wants, they are needs. This makes them more valuable in tough economic times.

Consumer cyclicals are goods for people who want it. Consumer staples are for people who require it.

Life and Risk Tolerance

Everything is subjective. There’s no real one-size-fits-all plan for life that works perfectly every time. You have to think in terms of your own personal goals and your own risk tolerance. It’s a bit like investing.

In investing, you have personal goals. Either you can choose investments that are riskier for a chance at greater profits, or you can take the safe route and invest in something stable with less volatility for lower returns. No choice is necessarily “wrong” — it’s just a matter of preference. It just depends on what you want out of your investment.

The same thing goes for life itself. You can either choose to live on the edge your entire life with a greater chance of failure or you can simply do what’s stable. It all depends on your life goals and what you want.