Bear Stearns and the art of making money in tough times

September 13, 2007

joseph-and-his-amazing-wastecoat.jpgTough times bring with them opportunities. Hardly surprising, then, that entrepreneurs invest where and when more cautious souls are scrabbling to escape. Joseph Lewis and his investment in Bear Stearns is a recent example


[An update can be found [March 17th 2008] to the following post]

Doom and gloom in the world’s financial markets. At the core of the problems are those institutes in the so-called sub-prime markets. At the core of the sub-prime business are the American investment and banking giants such as Bear Stearns.

But the principles of entrepreneurship hold. One of these is a calculated approach to risk-taking. Which appears to be what British entrepreneur did recently in investing in Bear Stearns.

Those of us outside the collective frenzy of the trading rooms have to reply on the indicators of expert opinion. The most immediate indicators are that the mighty Bear Stearns organization has been having a particularly tough time. Losses in two large funds seem to have prompted leadership changes.

According to a Bloomberg report

Bear Stearns triggered a decline in the credit markets in June after two of its hedge funds faltered as default rates on home loans to people with poor credit rose. For subprime mortgages turned into securities, defaults hit a 10-year high. The company pledged $1.3 billion to help stem losses in the funds. They filed for bankruptcy protection on July 31, two weeks after Bear Stearns told investors they would get little, if any, money back.

This was followed the removal of senior figures including one of the joint Presidents, Warren Spector, leaving Alan Schwartz, 57, as sole president. Spector was regarded as being groomed to take over from 73 year old James Cayne as CEO. The leadership moves have been seen as attempts by Mr Cayne to reassure markets.

Get out of that place

As a leadership watcher, my impressions recently have been that Credit Markets are a bad place to be in. And Bear Stearns a particularly bad place to be invested in. [Background music of I gotta get out of that place].

But such pessimism swamps awareness of opportunities to be made out of adversity. Step forward the fearless entrepreneur.

This week we learn that Billionaire British investor Joseph Lewis has invested over £400 million to acquire a 7% stake in Bear Stearns

Joseph Lewis. Who he?

A good starting point for billionaire bulletins is the Forbes Rich-List

Turns out that Mr Lewis is a self-made billionaire now happily located in Bahamas, gainfully employed through his Tavistock investment apparatus. There he is also busy building a nice little golfing set-up around the corner with his golfing chums Mr T. Woods and Mr E. Els.

Pausing one day, maybe on a newly leveled tee, he is unable to resist setting up a birdie chance. His route may skirt dangerous ground, but there’s no gain without risk. He makes his selection. A beautiful swing. Faint, Muppet-like cry of ‘in the hole’ from an admiring spectator …

Enough of this golfing metaphor. According to the BBC
Mr Lewis has bought the shares over the past two months through his Florida-based investment firm Tavistock, according to a filing to the US financial watchdog, the Securities and Exchange Commission. It makes him Bear Stearns’ largest individual investor… His other investments include minority stakes in Tottenham Hotspur and Glasgow Rangers football clubs.

To boldly go

What’s the leadership angle? The entrepreneur seems to me to capture the archetype of the heroic leader. In mythology, the hero leaves the everyday world and sets out on a lonely and courageous adventure. Along the way he (usually he) encounters the greatest and most fearful of hazards, before overcoming them, and eventually returning home. In most fairytales the hero is reunited with his love, and they live happily ever after. This seems to be the story of the entrepreneur-hero. Which is also pretty much the case for the business leader-hero, whose courage gains its deserved rewards.

The Greeks tended to include in the story such wrinkles as the way that the hero’s achievements are temporary blips in a final outcome determined by fate, the Gods, or whatever.

In either case, the hero-figure boldly goes where most of us fear to travel.