Financial Grieving October 15, 2008
Oakville, ON, Canada Psychologists tell us there is a progression of human emotions that we experience when we have a loss. We may have lost a loved one or we may have received news that we are in danger of losing our own life. The Kübler-Ross progression is:
denial: we pretend we haven’t really lost.
anger and blame: we experience intense negative emotions about the loss and assign responsibility to someone or something else.
bargaining: we rationalize that if we can only recover our loss, we will ... [take some specific action in return]
depression: we withdraw into ourselves, do nothing, feel bad.
acceptance: we recover our balance and get on with our lives.
Currently the Canadian and US stock markets are down over 40% from their highs – I wonder if investors are trapped in this psychological spiral of negative emotions.
Are there investors who somehow deny there is a problem? “If I continue to hold my current portfolio, it will come back up.” “If I sell, I will be realizing a theoretical loss. If I don’t sell, I have only a paper loss.” “I should buy more to average down.” “I’m in for the long term.” “I don’t want to open my account statement this month.”
Are there investors who are angry and blaming others for their problems? “I have to postpone my retirement because of the stock market.” “If it hadn’t been for those American banks my portfolio would be just fine!” “Why didn’t my stock broker, financial planner, advisor… get me out!?” “Why isn’t my stock broker, financial planner, advisor etc – calling me!? Doesn’t he care?”
Bargaining? “I will re-adjust my portfolio mix once the market recovers.” “Next time I will sell sooner.” “If it goes back up to where I bought it, I will sell.” “When the market recovers, I’ll move my account to someone else.”
How about depression: “It’s too late to sell.” “If I sold at the top, I’d have had a tax problem. And now that I’m down so much, I can’t sell.” “I’m locked in to my mutual funds because of the rear-end fee.”
We’ve heard a variety of combinations: “Those big American financiers that caused this problem are getting huge severance payouts and leaving the American tax payers with the problems! Fortunately, Canada’s banking system is OK, so our problems are only temporary. I won’t sell now because we’re almost at the bottom.”
We’re only human…
All these thought patterns reflect our basic human reaction to loss – including financial loss. We see plainly that the world’s banks are in the intensive care ward. Some of the patients have died. Others are on life support. And the stock market is down 40% +. Even the value of your home could be declining. It’s only natural for us to be in pain and to react as other humans react when they feel loss. But, if we stay locked into our normal human emotions, locked in inaction, we could be exposed to too much risk. And exposure to risk in risky times can lead to even more loss. Investors are trapped by their own emotions.
Grievance counsellors tell us the way out of this emotional downward spiral lies in acceptance. Accept the loss and it will clear your mind. Acceptance will allow you to get on with your life in a constructive way.
In the financial world we can recover our losses. But we can never recover if we stay locked in to denial, anger, blame, bargaining and depression. Once we come free of these negative emotions, we can put our financial house in order and get on with our recovery plan.
Ken Norquay, CMT
Chief Market Strategist’
CastleMoore Inc.
ken@castlemoore.com
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