To all - current bull mkt finally explained : drugs ! (Prozac).
March 5, 2000
INVESTING DIARY
A Psychiatric Theory on Irrational Exuberance
It is a truism that the stock market is a pendulum swinging between fear
and greed. But what if there is no fear because investors are chock full of
Prozac or other psychoactive drugs?
Perhaps stock prices and indexes like the Nasdaq composite, up 20.8 percent
so far this year, could race to unprecedented valuations as investors' usual
reactions to things like high price-earnings multiples and rising interesting
rates are suppressed.
That is the hypothesis being floated by Randolph M. Nesse, a professor of
psychiatry at the University of Michigan, in a recent essay posted on a Web
site called Edge, ( edge.org ).
Nesse points out that prescriptions for psychoactive drugs rose to 233 million
in 1998 from 131 million in 1988, with nearly 10 million filled last year for
Prozac alone. Next, he considers the likelihood that a disproportionately high
part of the population connected to the markets -- brokers and wealthy
individuals, in particular -- are likely to be taking antidepressants.
And he says he has noted that certain of his patients who take such drugs
seem to worry too little about real dangers. "This is exactly the mind-set of
many current investors," he said.
Nesse said he did not want to belittle the positive effects that antidepressants
may be having on the economy.
"They are productive employees," he said of workers taking such drugs.
"But if investor caution is being inhibited by psychotropic drugs, bubbles
could grow larger than usual before they pop, with potentially catastrophic
economic and political consequences," he said. "If chemicals are inhibiting
normal caution in any substantial fraction of investors, we need to know
about it."
On the other hand, if a "Prozac effect" on the markets is confirmed through
further research, it might not necessarily be bad news for stocks. Only
one-third of the population that could benefit from antidepressants is
currently taking them, according to Nesse. So, presumably, the market has
room to go higher.
(Full disclosure: Nesse said he was not currently invested in the market,
having recently sold a position in a biotechnology stock, Affymetrix.)
In any case, Nesse is adamant that government-sponsored research into the
topic is necessary. But he is not sure whether it should be carried out by the
Securities and Exchange Commission or the National Institutes of Mental
Health.
-- Richard Teitelbaum
Copyright 2000 The New York Times Company |
