On February 29th, 2008, Bear Stearns stock stood at 79.86 per share.  The 52 week high is a whopping $159.36.  Today a share is valued at just $4.21 – but that’s not the worst part.  JPMorgan Chase announced that they will be purchasing Bear Stearns for the low, low price of $2 per share.  That’s a little over a 96% discount from the February 2008 closing price – just 17 days ago.  The Federal Reserve approved the deal immediately, and even offered special financing to JPMorgan Chase so they could proceed.

A poorly structured company

Bear Stearns made big bets in the mortgage investment world.  You know, that same financial world that has collapsed in a stunning way over the past few months.  Poor investment decisions into a very shady market didn’t turn out well for this company.  Without the JPMorgan buyout, they would likely have declared bankruptcy.  Shareholders often receive nothing when a company goes bankrupt – certainly not the return on investment that you were looking for.

Diversification wins the day

If you had purchased $10,000 worth of Bear Stearns stock on February 29th, 2008, you would walk away from this deal with about $250 after the buyout.  If that $10k was a small part of your portfolio, then the pain would not be so bad.  Gains in other areas would help make up for the loss.  But if a large portion ( or all ) of your investment portfolio was tied up in Bear Stearns stock, then the blow would have been fatal.  It would take years to recover from a hit like that – if you didn’t become averse to stocks completely.  Diversify – both in companies, and across sectors.  Rebalance your stocks and funds on a regular basis ( yearly is fine ) to ensure you aren’t too heavy in a particular area.  The advice is not new, but this stock’s story just enforces how important it really is.