P2JW306012-4-B00600-1--------XA 11/01/2008 AZ,CL,CX,DX,EE,FL,MW,NE,NY,SC,SW,WB,WE
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B6 Saturday/Sunday, November 1 - 2, 2008 * * * * THE WALL STREET JOURNAL.
Special Advertising Section
Ideas to Manage Your InvestMents
The Psychology
of Panic
The sight of other’s panic pervades us in insidi-
ous ways. We magnify it through the lens of
our own shaky financial futures, causing a
state of hysteria that clouds our perspec-
tive. “Watching TV pundits bemoan-
ing the economy, reading newspapers
doing the same, and monitoring the
movement of the stock market on a
minute-by-minute, hour-by-hour basis
like an O.J. Simpson car chase creates a
form of madness,” says Ken Dychtwald,
Ph.D., a psychologist, gerontologist author
of “The Power Years: A User’s Guide to
the Rest of Your Life” and CEO of
Age Wave, a research organization
focused on the financial and social
implications of an aging popula-
tion. “You’re glued to the doom
and gloom, and you feel alone, fly-
ing without a net.”
While our elders have inured
themselves to the possibility of finan-
cial pitfalls having come to age during
the Great Depression, Baby Boomers and
their descendants grew up in prosperous
postwar America, a period of boundless
optimism. “If you don’t read the news
or peruse your portfolio then maybe it
won’t be so bad,” says Patricia Farrell,
a psychologist, author and the mod-
erator of the Anxiety/Panic Board for
WebMD, an online health care site.
“You stick your head under the cov-
ers until the fear subsides. Everyone
wants to do something, to be active
and in control of their lives, but
when fear erupts, the control factor
and rational thought go out the window.”
Others agree. “We’ve been going through 18
months of financial turmoil and economic disrup-
tions, and not surprisingly, households are re-evaluat-
SLEEPING BETTER
ing their savings and investment activities,” says Paul
Ballew, senior vice president of customer insights and
analytics at Nationwide Mutual Insurance Company.
IN CHALLENGING TIMES
“Their focus on what’s really important narrows, By Russ Banham
I
making it hard to also keep an eye on the big picture
of their long-term goals.” f you’re like many Americans this past to be extremely volatile. For the most part, they
Fear warps people’s ability to think straight, crip- month, you received your investment advise everyone but the soon-to-retire to avoid
pling their capacity to make prudent decisions. portfolio in the mail and tucked it into wholesale selling of stocks in their portfolios and
“You need to make peace with the fact that no the file box unopened. Why add insult to reasonably consider buying more shares in
one is sure where the economy is headed. Not even to injury when you already know your larger, reputable and financially solid, publicly
Warren Buffett claims to know when the market will investments had fallen beyond your wildest night- traded companies, especially those with interna-
improve,” says Michal Ann Strahilevitz, Ph.D., who mare. Yet, is denial really the best way to manage tional exposures. “There are a lot of companies
does research on consumer decision-making and one’s financial future going forward? that are trading well below not only their price-to-
investor psychology at Golden Gate University, where Of course not. Postponing the truth of one’s earnings ratios but their price-to-growth ratios,”
she is a professor of marketing and business adminis- financial condition is like postponing needed sur- says Womack. “It’s time to think long-term,
tration. “You need to manage your investment wealth gery. While the fundamentals of investing remain particularly if you’ve got a good ten to twenty years
with an eye toward your emotional health. Think in the same in bull and bear markets, investing in before you plan to retire. Plant the seeds now and
terms of how buying or selling (a stock) will affect you down times requires confidence that better days watch them blossom a few years from now.”
emotionally if that stock goes up or down. Will you lay ahead. Financial planners and investment
be able to forgive yourself if the downside occurs? If advisors are optimistic the bull market will roar Sage Advice in Challenging Times
the stock goes drastically up after you sell it or drasti- back in the near future. Next year, they concede,
cally down after you buy it, will you still be able to is too close to call — hence, the unopened port- Womack’s advice is far from a guarantee, but
sleep at night? Some will say ‘hold the course,’ but if folios and fingers-crossed panic. “Our phone has it does draw upon historical precedent. All mar-
you know you can’t handle the fire, it is OK to get out been ringing off the hook,” Eric Henderson, senior kets rise and fall only to rise again (okay, and
of the kitchen.” vice president of Nationwide’s Individual Invest- fall). While the current financial crisis is the worst
Ballew says people must stick to the fundamentals ments Group, says. “Investors to have hit all but the Great-
in good times and bad. “Don’t panic; instead work with are nervous, to say the least, and est Generation, the likelihood
your financial advisor on a strategy,” he says. “Don’t want to know what they should “The truth is that of the is that it, too, will pass. Not
scrimp on insurance coverage to save a few pennies do. Call volumes overall are that the emotional and psy-
or get below maximum contributions to your 401(k), up three-fold from this period ten identified chological repercussions of the
given the free corporate match and tax benefits. And last year.” ongoing economic crisis aren’t
make sure your investments are diversified.” “The truth is that of the major stressors, severe — according to the most
Farrell counsels investors to acquire financial ten identified major stressors, recent Independent Advisor Out-
information, then filter out the hyperbole and take the five of them involve money or five of them involve look study by Charles Schwab
rest at face value. “More importantly, just pause,” she work” according to Dr. Michael & Co., 49 percent of more than
says. “Allow yourself to take a step back from the situ- Roizen and Dr. Mehmet Oz from money or work” 1,000 advisors queried say the
ation so you don’t get drawn into the whirlpool. Step the book, “YOU: Being Beauti- current market conditions are
back and plan prudently with someone you trust since ful.” “Concerns about personal — Dr. Michael roizen causing their clients to request
you’re not a wizard of finance. And remember that finance are five times greater anD Dr. MehMet oz more conservative investments.
money isn’t everything; there are many ways to keep than those about health.” Being risk-averse may offer
yourself happy that don’t involve spending it, like hav- When fear takes hold of calm in these times of great
ing friends over for dinner, each bringing a dish.” human beings, it impinges our stress, but it might not be the
Dychtwald proffers similar advice: “Reflect on ability to make informed deci- best investment strategy. So
what really matters in your life. It sounds corny, but sions “People reevaluate their risk tolerance when says Martin Pring, an author and market techni-
give the kids a hug, hold your spouse closer and tell markets are going down,” says Greg Womack, a cian who studies and measures investor sentiment.
your mom and dad you love them. Money has got us Certified Financial Planner (CFP) and president “When everyone is bearish, the next important
all a bit hysterical, and it’s time to reboot and remem- of Womack Investment Advisers in Edmond, OK. move is likely to be up,” comments Pring, whose
ber what’s really important. And if you’re going to “They tend to hunker down, make decisions out most recent book is “Active Asset Allocation Using
listen to people for investment advice, don’t listen to of fear, which causes them to miss out on the next Exchange Traded Funds.”
the hysterics and the amateurs, turn to the seasoned, sustained rally.” “Obviously, we don’t need an indicator to tell
thoughtful, knowledgeable men and women who Womack and other financial planners believe us people are fearful right now,” he says. “Every
have a view of how things unfold and a hopefulness the current stock market offers opportunity, with business periodical, magazine and TV news show
toward the future. numerous large cap companies, growth funds is already telling us that. There is an unprecedented
“Finally, take the long view. The epicenter is ter- and emerging markets funds offering tremendous level of hysteria. Many investors are trapped
rifying right now, but if you step outside it and look value to those with the ability to handle all the because things fell so quickly.” Human behavior
at life as a grand portrait with this point in time just a negative noise. The problem is getting investors to being what it is, times of stress seem to make the
single moment within, you will feel better.” put aside their fears, even as the market continues Continued on next page
— R.B.
Illustration by David Gothard
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