How Losing $500K in ‘08 Led One Trader to a Different Kind of Portfolio, with Jared Dillian

Paula Pant (0:00)

It is September 2008, and Jared Dillian, who runs the ETF trading desk at Lehman Brothers, walks in to work, passed a bunch of TV trucks and reporters who were holding all microphones, goes to the trading floor, looks around at the chaos happening, and takes off his tie, because he realizes he's not gonna need it anymore.

In that week, he had about half a million dollars worth of Lehman stock that went to zero.

Lehman Brothers collapsed, that was the onset of the great financial crisis, the great recession, and today we're gonna talk to the guy who was inside of that. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars, financial psychology, increasing your income, investing, which is the topic of today's episode, real estate and entrepreneurship, acronym double I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Our guest, Jared Dillian, studied math and computer science at the US. Coast Guard Academy. He served in the military. He has an MBA from the University of San Francisco. As I mentioned, he ran the ETF trading desk at Lehman Brothers from 2004 to 2008 Revenue roughly quadrupled while he was there, but he calls it the most stressful job of his life. He now writes a market newsletter called The Daily Dirt Nap. He's a former Bloomberg opinion columnist. He was a university finance professor for 13 years, and he is the author of The Awesome Portfolio.

In this upcoming interview, we're going to talk about if you invest in index funds. He's going to talk about how Buy and Hold has not faced a real bear market since the Great Recession, and what that means for you, how to plan for the next one when it does arise. He's going to talk about a simple portfolio, splitting your portfolio between stocks, bonds, cash, gold, and real estate. He's going to talk how you can find your risk tolerance and what to do if you want to start a business or change jobs. Also, if you get stock from an employer, like RSUs, he'll share some stories, some cautionary tales, about what happened to Lehman coworkers who did not sell out as fast as they could. I want to make a note on the timing of this interview. We recorded this in September before the September Fed meeting. So you can check his interest rate predictions against what actually happened. Again, we recorded this about one week before the September Fed meeting. With that said, here is Jared Dillian.

Jared, you were on the ETF trading desk at Lehman Brothers in 2008 Tell us about that.

Jared Dillian (2:37)

It was absolute insanity. It was the most stressful job I ever had in my life. And I used to be in the military, so that's saying something. I worked there for seven years from 2001 to 2008 The peak was basically the summer of 2007

Bear Stearns went bankrupt in March of 2008 Our clients, which were typically hedge funds, if you went out to dinner with them, they would tell us privately, like, you guys are next. Like, that is going to happen. I didn't really believe them. And the market actually got a pretty strong bounce from March to June of 2008 The day of the bankruptcy, I was walking up to the building, it's the 49th and 7th in Times Square, and there were TV trucks parked all around the building, and I'm walking up to the entrance, and there's reporters sticking microphones in my face, and stuff like that. And I go up to the second floor, which was the equities floor. We had to wear suits. Lehman was the only bank that had to wear suits. So everybody's sitting there in suits with their ties on, and I'm just like, I don't need my tie anymore, so I took my tie off.

And literally people came to work for a week with nothing to do in the hopes that somebody would buy what was left of Lehman, basically the broker dealer operation. So on Friday of that week, Barclays bought the broker dealer. So everybody became a Barclays employee, and I had had enough at that point, so I just quit, and I started my newsletter.

Paula Pant (4:14)

What was the mood? So in that meeting where, when you took your tie off, tell me about what they said, and tell me about the mood, and tell me about some of the conversations that were happening in Whispers.

Jared Dillian (4:25)

Well, the mood was not good. You know, a lot of people had a lot of stock, Lehman stock. I mean, you would, every year in your bonus, depending on your rank, you would get a certain percentage of Lehman stock. So I was a VP, so I was getting like 25% of my compensation in stock, which was restricted for five years. So I had a bunch of stock that I couldn't sell. It was about half a million dollars worth, and that went to zero. So everybody experienced that. And then on top of that, Lehman had an employee stock purchase program where you could buy Lehman stock at a 10% discount. So people just loaded up on Lehman stock, you know, in addition to what they were getting in their bonuses, when you do stuff like that, you're making your life more procyclical.