Posted on 07/06/2002 11:29:26 AM PDT by GeneD
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."
We now have to have therapists and trauma experts with our armed forces and education systems when things go awry. How did we survive in years past without these experts on character weaknesses? We were too stupid to know how much we were traumatized until an expert got around to telling us.
FMCDH
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