NYT: Portfolios Depressed, Traders Seek Therapy
(N.Y. Times Full Text 07/07 04:50:22)
Publication Date: Sunday July 7, 2002
National Desk; Section 1; Page 1, Column 2
c. 2002 New York Times Company
By ALESSANDRA STANLEY
Picture a Wall Street trader striding through the doctor's waiting room and
flopping down on the couch. He rages about the collapse of WorldCom, then
falls silent.
His therapist leans forward and asks quietly, ''And how did that make you
invest?''
Psychologists are not new to company boardrooms or trading floors. In the
1990's, the science of market psychology became an industry as financial
institutions, and especially hedge funds, hired psychologists to hone their
competitive edge -- be it analyzing investor choices, coaching money
managers or revealing clients' unconscious desires.
The use of psychotherapy by market professionals to find their inner
trader, however, is something else.
''I had a client who grew anxious every time he had to sell a holding, he
kept saying 'I can't seem to let go,' '' Richard A. Geist, president of the
Institute of Psychology and Investing in Newton, Mass., said. Dr. Geist, who
teaches at the Harvard Medical School, is both a psychotherapist and a
financial adviser. ''I asked him what that reminded him of,'' Dr. Geist
said. ''He remembered that as a child he had trouble letting go of his
mother when it was time to go to school.''
For such patients, the classic Freudian disorder carries a new economy
twist: divestiture anxiety.
It is hardly surprising that in the current economy, financiers are seeking
psychological counseling or pharmaceutical solace.
Many firms bring in psychologists as consultants for money managers, but so
far the companies do not appear to be ordering their employees to seek help.
Some traders, themselves, however, feel the need.
Their turn to therapy is a little like struggling athletes who seek out
sports psychologists to improve their game.
One trader, speaking only on the condition of anonymity, said he went to a
therapist to overcome his love/hate relationship to risk.
The trend of seeking therapy springs from two distinct schools of
psychology that flourished during the boom. One is behavioral finance, which
studies the irrational choices most investors make. Behavioral economists
like Richard H. Thaler of the University of Chicago have set up mutual funds
based on their insights into market psychology. The other is wealth therapy
-- psychologists like Suze Ormond (''The Courage to Be Rich,'' Riverhead
Books, 1999), who help clients cope emotionally and practically with
windfall wealth.
Now that the bubble has burst, investors are not seeking the courage to be
poor. Patients want their heads examined to regain their wealth.
Behavioral economists warn of ''the endowment effect,'' the tendency of
investors to endow stock they own with more value than it has. (A variation
on the old Neopolitan saying, ''Even a cockroach is beautiful to its
mother.'') A corollary is that even seasoned investors place too much faith
in tips and insider hints.
''My analysis and my gut told me that I should sell my Tyco shares,'' one
New York business mogul confessed. ''But I knew someone on the board who
said that Dennis Kozlowski was a decent guy, and I allowed my judgment to be
swayed until it was too late,'' he said, referring to L. Dennis Kozlowski,
Tyco International's former chief executive who has been indicted for tax
evasion and evidence tampering. The mogul remains wealthy, but has become an
avid student of market psychology -- including his own.
There are, however, traders who argue that the financial world in the
1990's relied too much on therapists -- and antianxiety medication.
''My own view is that one reason the investor class, including me, missed
the downside was serotonin,'' James J. Cramer, a former hedge fund manager
and author of ''Confessions of a Street Addict'' (Simon & Schuster, 2002),
said, referring to a substance in the brain that antidepression drugs
augment. ''Prozac and all those other drugs banish the 'this is the end of
the world' thoughts,'' Mr. Cramer explained. ''Which means you are not as
anxious as you should be about an obvious down side.''
Mr. Cramer said he nevertheless drew a lesson from one tenet of behavioral
finance: he is not the only person who feels disproportionate rage and
sorrow over losses. Research by behavioral economists suggests that most
people feel twice the pain over a financial loss as they do pleasure in an
equivalent gain.
''Sudden wealth syndrome'' was a term coined by the Money, Meaning and
Choices Institute in the San Francisco suburb of Kentfield, a consulting
firm that was spawned by the dot-com rush. A co-founder, Joan DiFuria, who
swapped an 18-year career as a metal commodities trader to become a
psychologist, spoke of mass hysteria. ''When the market was up, our entire
culture was caught up in power and greed and winning the big lottery,'' she
said.
Treatment varies. Dr. Geist, the psychotherapist and financial adviser,
holds 50-minute sessions with individual clients. Van K. Tharp, a
psychologist and ''stock-trading coach,'' who 10 years ago founded The
International Institute of Trading Mastery Inc. in the Research Triangle
town of Cary, N.C., holds workshops and sells books and tapes. Until he got
too busy, Dr. Tharp said, he could do psychological evaluations based on a
lengthy questionnaire and a 10-minute phone consultation.
He says his clients come from all over the world. ''Experienced traders
begin to realize it's not just about outside factors,'' Dr. Tharp said.
''Their performance is them and they are obviously making mistakes. Once
that sets in, they are willing to get a coach to help them.''
Dr. Tharp himself, however, had to seek legal coaching two years ago, when
investors in the Maricopa hedge funds, run by David M. Mobley Sr., of
Naples, Fla., and endorsed by Dr. Tharp, sued Dr. Tharp for negligence. Dr.
Tharp had treated Mr. Mobley for overconfidence, and was so pleased with his
progress that he invested money in Maricopa, and encouraged his other
clients to follow suit. Mr. Mobley was convicted last year of cheating
investors out of more than $50 million.
Dr. Tharp said his own suit was recently settled, and that he has learned a
lesson from his own mistaken overconfidence in recommending mutual funds.
''I'll never do that again,'' he said.
Not all money therapists are so deeply involved in their clients' finances.
Richard Trachtman, a New York-based clinical social worker and
psychotherapist who specializes in money issues, said he does not operate as
a financial adviser. He helps clients uncover their deep-rooted taboos about
money.
But he can help clients better understand what kind of portfolio best suits
their psyches. ''There are some people who should invest very conservatively
through mutual fund diversification and the like,'' he said. ''Other people
can enjoy the risk without becoming devastated by loss.''
John Jacobs, a New York psychologist whose practice is mainly focused on
couples and families, has also developed expertise in wealth issues -- many
of his clients are business tycoons and money is often a ruling
preoccupation.
''I think the real illness of the age is the loss of perspective,'' Dr.
Jacobs said, referring to patients whose self-esteem rises and falls with
the Nasdaq or Dow. Even after a 40 percent drop in their holdings, he says,
they have no ability to appreciate that they are still very rich. Dr. Jacobs
tries to bring back a realistic assessment.
Some losses, however, are sharper than others. ''I worked with a gentleman
who was worth $800 million and ended up worth only $20 million, and that did
make a huge difference in his life,'' Dr. Jacobs said.
''It wasn't all bad,'' he added. ''He found out who his real friends are.''
Photo: Richard A. Geist, a psychotherapist and financial adviser, has
clients troubled by letting go of investments, a divestiture anxiety.
(Essdras M. Suarez for The New York Times)(pg. 17)
(END)
04:09 EDT July 7, 2002 |
