Take a Prozac and Call Your Broker in the Morning
It may not qualify as an entry in the Diagnostic and Statistical Manual of Mental Disorders, but much of our investing behavior--especially in the past few years--could be considered certifiable. From a certain billionaire guru of the domestic arts risking indictment over what amounts to chump change to rank-and-file investors stashing unopened 401(k) statements in the freezer, we all have issues when it comes to playing the market. That's because investing is ultimately a head game, says Richard Geist, whose new book, Investor Therapy: A Psychologist and Investing Guru Tells You How to Out-Psych Wall Street (Crown Business, 2003), is a tonic for jangled nerves and battered brokerage statements. Fast Company spent 50 minutes on Geist's couch.
Is "investor therapy" a talking cure for irrational exuberance?
The tendency is to think of investors as either rational or irrational. The argument I'm making is that humans function neither rationally nor irrationally. They function subjectively. We all have a unique set of organizing lenses or emotional convictions that guide our decision-making process. The more in touch you become with those convictions, the more mistakes you can prevent in the market.
As investors, we do research, rely on systems, and follow proven strategies. How do emotions override all that legwork?
I'll give you an example of an emotional organizing pattern that interfered with my own investment decisions until I recognized it. I tended to follow the notion that patience leads to success and action leads to failure. A lot of people are guided by just the opposite pattern: Action leads to success. Neither is right or wrong. They just get in the way when you allow them to decide for you. For me, that pattern showed up as extreme buy-and-hold behavior. But, because of increased volatility in the past 10 years, if you're too patient, you can miss the good entry points--you may be investing in a great company but a terrible stock.
How does having a better understanding of yourself actually lead to better results?
The market is clearly too large and too diverse for any one person to know everything about every sector. Your best chance of getting a competitive edge is to find the niche that matches your personality. If you're more of a left-brained person, who likes deductive reasoning and logic, you're more likely to do better investing in stocks with a 10-year history, which comes with all kinds of financial data to process. But, if you're a more emotional, imaginative, and intuitive thinker, you're probably better off focusing on emerging growth companies or startups. It's about emotional fit.
Sidebar: Emerging Lingo
"Maybe we should pity President Bush, stranded in his 50's world of hypermasculinity as his country goes gay and metrosexual . . ."
--Maureen Dowd in The New York Times | August 3, 2003
The term "metrosexual" was coined by writer Mark Simpson in 1994 to describe straight urban men who are comfortable expressing their feminine sides. It shot into the U.S. cultural lexicon on June 22 with the release of a study on male attitudes by Euro RSCG--and a corresponding story in The New York Times' Style section. Since then, the term has appeared in print more than 200 times, according to Nexis.
Sidebar: Book Box
The Book: The Naked Corporation: How the Age of Transparency Will Revolutionize Business, by Don Tapscott and David Ticoll (Free Press, 2003)
Big Idea: Here's the real lesson of Enron, WorldCom, and the rest. Transparency is the new driving force in business today. Thanks to email and online bulletin boards, employees know more about their companies sooner than ever before. Customers can prepare to buy a car or book an airline ticket with military precision. Community stakeholders scrutinize and respond to corporate activities around the globe. In the face of this rising tide of visibility, Tapscott and Ticoll argue, businesses have no choice but to rethink their values and behaviors. "If you're going to be naked, you'd better be buff."
Data Point: More-open companies, Tapscott and Ticoll propose, deliver better performance. Integrity "is becoming the foundation . . . of competitive advantage." Transparent companies likely enjoy greater stability and access to capital. They reduce operational risks. And they have better relations with employees and customers. British Telecom estimates that canceling all of its corporate responsibility activities would produce a 10% decline in customer-satisfaction ratings -- "the difference between market leadership and also-ran status."
The Last Word: Tapscott and Ticoll produce compelling evidence that transparency is an inevitable social phenomenon and that such transparency is good -- for customers, employees, and the companies themselves. Most investors, though, remain out of the information loop. And despite the authors' forcefully wishful thinking, we're not convinced that most corporations would rather embrace transparency than fight it. --Keith H. Hammonds