New York, NY —
It keeps on getting worse. As the Dow Jones tumbles lower and lower, individual investors face mounting confusion and anxiety. And that’s not an ideal state of mind for decision making -- as one firm is trying to remind its clients. WNYC’s Siddhartha Mitter reports.
REPORTER: It was an elegant cocktail reception at the American Museum of Natural History, but with yet another ugly week unfolding on Wall Street, the atmosphere here wasn’t exactly festive.
BLUM: I’m personally fine, economically not as fine, the same as the rest of the world right now.
REPORTER: Barbara Blum was here, along with two hundred or so other guests, at the invitation of her investment advisers, a firm called Gerstein Fisher. They came for insight about the plummeting market and how to cope with the decimation. Hovering above were the museum’s massive blue whale, hammerhead sharks and other creatures of the sea.
FISHER: If they had a jungle room I would have done it there, but we chose the oceanography room as the closest thing.
REPORTER: And not just because folks are feeling underwater. Gregg Fisher, Gerstein Fisher’s president, wanted his clients to think about how we deal with the financial crisis as a species -- with the very human blessing and burden of emotions.
FISHER: It’s uncertainty in times like these that has people really derail their long-term plans. And emotions do tend to kick in when it comes to making financial decisions.
REPORTER: And how could they not? For a crowd like this, with many people in their fifties and sixties, the market collapse raises fears – of retirements in jeopardy, and nest eggs destroyed. Barbara Blum said she felt this not just as an investor herself, but also among patients in her practice as a psychologist.
BLUM: I’m watching many, many people go from desperation to despair, and hope is a very limited emotion right now.
REPORTER: Also in short supply: Any kind of certainty about how long and how much worse the crisis is going to get. That’s what was bothering attendees Greg Bernhardt and John Cucarese.
BERNHARDT: There’s absolutely no sense that you can know where the bottom is.
CUCARESE: We’re all worried about what’s going on, but to put your head in the sand is not the way to go.
REPORTER: That’s the spirit Gregg Fisher was looking for. Emotions, he said, are understandable, but they’re always getting in the way. If you’re prepared to be patient, now – in a down market – could be exactly the right time to invest. But it turns out that people aren’t too receptive to that advice.
FISHER: People have this huge fear of loss. The fear of loss is far greater than the pleasure we get from a potential gain. And very often this fear of loss is about a loss we never had, and may never have.
REPORTER: You might say Fisher has an interest in making this argument – since he makes his own living by investing other people’s money. But he also brought in a big gun to fortify his position: Richard Thaler, a well known professor from the University of Chicago business school.
THALER: It’s clear that emotions are playing a big role right now. And emotions don’t play any role in standard economics.
REPORTER: Thaler is a pioneer in what’s called behavioral economics. He studies how our psychology leads us to do things that standard economics doesn’t consider rational.
THALER: We probably want to make our financial decisions not when we’re worried and anxious but when we’re calm. And the best thing would have been to decide what you would do if this arose. And the next best thing is to try very hard to take a long perspective.
REPORTER: After Thaler’s talk, a client named Norma Rosenberg seemed at least partially reassured.
ROSENBERG: They were conveying to us that our emotions get in our way, instead of looking calmly and staying the course.
REPORTER: So what about all that pent-up fear and anxiety? Well, Thaler says we can all still channel it to good use.
THALER: I think what people should do is turn this anxiety and worry into savings. Rip up their credit cards, and resolve to make 2009 the year that they get out of debt. That’s my advice.
REPORTER: For WNYC, I’m Siddhartha Mitter.