Tuesday, November 07, 2006

A Word About Donkeys, Elephants, Bulls and Bears

It's Tuesday, November 7th and the midterm elections are today which means that -- after several weeks of posturing and mutual recrimination --we will once again learn who will be representing us in government on a state and federal level. It also means that pundits for both parties have been working overtime on the talkshow circuit to make the case that their party is the best for investors.

To spare you the trouble of sitting through another political talkshow snipe-fest, I will briefly recap every talkshow exchange on this subject.

Moderator: Have investors been better off under Republicans or Democrats?

Republican Pundit: Our supply side ecomonic policies, stimulus packages and capital gains tax reductions have spurred superior growth that has most benefitted investors. Everybody knows this. And any period of subpar performance during a Republican presidency is due either to the repurcussions of an irresponsible liberal predecessor or to anamolous events completely beyond one's ability to predict or control.

Moderator: Hmmm. Interesting argument. Democratic pundit, how do you respond?

Democatic Pundit: Scoreboard!!!

In fact, the Democrats can claim scoreboard on this one. Dr. Jeremy Siegel has compiled some data on the average annual return of stocks under the last 11 presidents. The average return during a Democratic presidency is 15.23% vs. 9.53% for their Republican counterparts.

Here's how they stack up. Democrats are in Blue. Republicans are in Red.

President %Ret

Clinton: 19
Truman: 18.26
Ford: 17.21
Reagan: 15.18
Kennedy: 15.15
Ike: 14.96
Bush I: 14.44
Carter: 11.04
LBJ: 10.39
GW Bush: (0.92)
Nixon: (1.32)

(Note the data compiled reflect only up to February of 2006, so GW Bush's position would not change but the numbers on his watch would improve.)

But what does it all mean? Rather than providing a basis for prediction, all the chatter surrounding the subject of party affiliation may be most instructive as a lesson in the Representative Bias; a cognitive heuristic in which we tend to make judgments made based on how representative a given individual case appears to be, independent of other information about its actual likelihood.

In other words, we tend latch on to some information because it is easy for us to mentally classify while we ignore other information that may be more important, but isn't as handy. Drowning deaths are at their highest when grass is at its longest. Why is this? Because its during summer. The representative bias would have legislatures pass a law requiring weekly lawn mowing to increase safety.

We could choose to slice market data in countless ways, but we don't. What about who controls the other 2 branches of government? What about accounting for the Treasury Secretary or Fed Chairman? Just how important is the president to stock market returns anyway? Jimmy Carter is widely considered to have been one the weakest presidents in terms of economic policies in history. He still can boast 11% returns in his tenure.

Intellingent people can debate the merits of the Democratic vs. Republican fiscal policy. We here at Marketpsych don't take sides. However, when one considers the multitude and complexity of factors that move markets, (e.g., world trade, geo-political instablitliy, interest rates, natural disasters, commodity prices, the weather see link, etc.) we suggest that the party affiliation of the president (which doesn't necessarily account for policy decisions anyway) is a rather arbitrary label on which to base prediction.

Still should vote though.

Thursday, October 05, 2006

Neuroeconomics 2006, Book, Large-Cap Value, Real Estate, and China

Neuroeconomics 2006 (Salt Lake City)Many developments in the last few months. The Neuroeconomics 2006 conference showcased some of the latest decision making research. Financial practitioners again attended the conference, including Michael Maubboussin (Legg Mason and Columbia University) and Arnold Wood (Martingale Asset Management), additionally Jason Zweig from Money Magazine was present. His next book, due out in April 2007 ("Your Money and Your Brain"), promises to be a great read about the intersection of neuroscience and investing.

SooChow Gambling Task
Researchers in Taiwan developed a fascinating gambling task (Soochow gambling task) with counterintuitive results. Even when experimental subjects know that they have a choice between a positive and a negative expected value bet (+$250 versus -$250), they still choose the negative option in large numbers (about half the time). When not told the odds, they do even worse. They lose all the money they are given at the beginning of the experiment, and still continue to lose. So what could persuade them to lose over and over again when they have a clear choice for how to make money? The negative expected value gamble usually results in a small win, but every 5 trials a big loss happens, and on average the subjects lose $250 per trial. The reverse happens in the positive expected value gamble - a series of small losses and one big gain. Even thought they lose money, those 4 small gains are so valuable to people that they persist in choosing to play from that deck of cards. It seems to support Nassim Taleb's strategy of investing for catastrophe payouts. I'll explain the psychology underlying this counterintuitive behavior - and the experiment - in detail in my book.

"Inside the Investor's Brain"
That's right - I've got a book coming out as well (wrapping up the first draft today) "Inside the Investor's Brain" to be published by John Wiley & Sons in July 2007. I hope that explains the absence of blog posts :)

Residential Real Estate
I've been getting a lot of calls from reporters about the "real estate bubble" recently, and while prices are high relative to fundamental values, it's not clear to me that low interest rates won't keep back-loaded mortgages and funky ARMs from continuing to sell. Also, rents are rising, putting more fundamental value in properties bought for investment (though nowhere near as much as prices would suggest). Where I live, in Marin County, median and per square-foot prices have continued to rise even as the supply of properties on the market has swelled. Should be an interesting next 2 years. At some point, incomes can't keep up, but I don't know when that'll be (maybe if taxes are hiked on high earners).

Large Cap Value
Money is flooding into U.S. Large Cap Value stocks since the Dow broke its previous record high. Probably will continue for a while. As of last Thursday, Bill Miller (Legg Mason manager extraordinaire) foresees low teens % appreciation in the large cap arena over the next 12 months and up to 20% over 18 months. Considering he beat the S&P500 over the last 15 years in a row (on a calendar basis), his opinion might be a little more prescient than most. Appears there are finally some good values again in the US market (not in energy or commodities, however). If the large cap rally holds for a few weeks, we'll see some good gains in tech and small cap as well (actually, that's already happening).

The May selloff in Asian equities may have put the brakes on those issues for the short term. I'm still very bullish on China, however, in companies with good accounting (not banks). Still some good values in China, and for psychological and political reasons strong growth (hopefully a little slower than current) will hold through the 2008 Beijing Olympics and potentially even through the 2010 Shnghai world expo.


Sunday, May 28, 2006

Procrastinating Away Your Retirement Savings

Recently a Stanford finance professor asked me how to save for retirement.

He told me, "It's so hard to save for retirement."
"What do you mean it's hard?", I asked.
"Well, I'm in about 50% mutual funds and 50% cash. I know I should be further in stocks since I'm in my mid-thirties, but I can't seem to get around to it."

I was intrigued. A Stanford finance professor, one of the world's elite finance specialists, was unable to set up an "optimal" retirement portfolio. Couldn't bother with it.

I was curious, "So are you saving the max every year?"
"Not really. And I'm not even in index funds."

I figured there were two related issues crying out here:
1) He wasn't optimizing his portfolio (he had too much cash).
2) He was reluctant (or somehow unable) to save enough towards retirement.

I asked him, "What seems to be the problem?" Curious if he had some psychological insight into his predicament.
"I'm kind of a nervous person with my money. I don't want to lose it."

So that explained his high cash level, but not necessarily his reluctance to save for retirement. His anxiety induced catastrophic thoughts about potential losses, and he was overestimating his risk in the markets. I could address that when I figured out the other issue.

"So what's the trouble with saving for retirement?"
"I just keep putting it off. Like I spend the money on a car or send it back to my parents in the Ukraine ... I never really get around to setting aside the money. I always find something else to do with my savings, and then I know I need to save twice as much the next year, but then I don't, and I then I'm further behind."
I responded, "You've got a lot of other things to use the money for."
"Yes, but when I get a paycheck, I can't seem to set any aside."
"So you're procrastinating saving for retirement."
"I guess."

Most of us have seen the terrifying statistics that financial planners love. For example, assuming an 8% rate of return, if you save $3,000 each year into a tax-deferred IRA beginning at age 25 and stop saving after contributing $30,000 by age 35, you would have $535,434 at age 65. If you began saving for retirement at age 35 and continued to invest $3,000 every year for the next 30 years you would retire with $331,462 at age 65. Overall, in the first scenario you would have contributed 1/3 as much cash as the second, and you would have 62% more money to retire with.

Clearly, procrastination can cost you dearly. The wealth-maximizing Stanford professor in front of me was very distressed by his procrastination in saving for retirement.

Procrastination affects all us to some degree. Whether it's studying for a big test, doing one's taxes, asking for a promotion, or launching that new business, we all have areas of life where we perpetually delay, shrinking from moving forward. Regardless of where you're falling behind, there are both psychological and neural (brain) causes of procrastination, and their often closely related. Each of the culpable brain regions can give rise to certain emotional or impulsive feelings, thoughts, and behaviors.

Procrastination arises from 3 psychological causes: fear, disorganization, or perfectionism/obsessiveness. Fear can be tackled by discovering what you are afraid of. See the list below for examples. Disorganization is best addressed by a slow process of re-organizing. The process should be slow and incremental, because otherwise it'll be abandoned. Get a To-do list and break down your tasks into very small pieces. Make sure that you can do each piece in the alotted time (this is the hardest part). Don't give up if you can't, simply re-do your schedule. See this site for more detail.

Perfectionism and obsessiveness is characterized by such extreme attention to detail that one becomes paralyzed. The Stanford professor above was perfectionistic - whenever he thought about his retirement savings, he was overwhelmed by all he thought he had to do. He couldn't buy more funds because he didn't want to be "wrong" if the funds went down in value. He wanted everything to be perfect. But the markets aren't perfect, and occasionally they're painful.

The neural core of procrastination is a process that economists call discounting. Here's a paper by neuroscientists (McClure and Cohen) and economists (Laibson and Loewenstein) that addresses the neural origins of discounting.

Discounting: Most people prefer larger distant losses to smaller immediate ones. This means that we would rather feel the pain later, even if we know it's going to be more severe, than taking it on now. We push it off until later, and we hope that it goes away. The limbic system (the brain's emotional centers) appear responsible for discounting, while the rational, planning prefrontal cortex prevents us from irrational discounting decisions. To attack procrastination, we've got to address the limbic emotions that overwhelm rational planning.

Get motivated to make a change

First, you've got to get motivated. Realize that retirement procrastination is destroying your potential for wealth. If you don't believe this is important, see the statistics about when you save, and how much, 5 paragraphs above -- print them out and paste them to your computer.

Try the following exercises. If the following thought exercises are not useful for you, then try some of the behavioral strategies listed at the bottom of this article. To use neuroscience principles to stop procrastination, try the following.

Reasoning with your limbic system

1. Enhance your perception of long-term pain. In order to disrupt the discounting equation, you've got to see so much potential long-term pain as a result of not saving now, that you become terrified -- you'll gladly accept the short-term budget squeeze to prevent poverty and unhappiness in retirement.
* Think of a poor, unhealthy, unhappy retiree. And then think of a smiling, sun-tanned, golfing, and world-traveling retiree. Which would you rather be?
* Do you feel financially insecure? If so, do you want to feel that way the rest of your life?
* Remember that many pension funds are underfunded and are going to go broke over the next 50 years. if you're under 40 and relying on a pension for your retirement, you should be very careful.
* Don't count on your house to provide you wih retirement equity. Markets and environments change in unforeseen ways (hurricanes, earthquakes, etc...)

2. Decrease your perception of the short-term pain.
* Even if you save only the cost of 1 latte per day, you could have a sizable retirement fund.
* Try saving only a small fixed percent of your income now. Then start saving, for example, 25% of every raise into a retirement account. If your salary increases 50% over the next 10 years, then you'll be saving 8.3% of your salary per year by the end of the 10 year period.

3. Increase your pleasure in saving:
* By saving for retirement, you are increasing the endowment that you can leave to your children and grandchildren, your place of worship, or your university, for example. Your savings can become a legacy that does a lot of good for a lot of people.
* Do you enjoy being responsible and doing the right thing? Savign for retirement requires discipline and persistence. If you like the feeling of challenge and achievment in life, then you can turn that energy towards securing a solid financial future.
* IRAs are tax-deferred, and the Roth is tax free. You can save a lot of money on taxes this year (IRA) or when you retire (Roth). Does saving money make you happy?

4. Expand Your Time Horizon: Get out of emergency mode - that's never a healthy place to be. Focus more on what's truly important in life, not on your latest emergency. Try to sit back and get comfortable with takign a long-term perspective now.
* Think about the generations that will follow you. Do you want to contribute something to them?
* Your life is likely to be long (longer than current life expectancies).
* There is no hurry in planning for retirement. It is simply a necessity, and should be a part of your monthly plans, like paying a mortgage or rent.

5. Identify the internal block
What do believe will happen if you save more for retirement?
Some common responses are:
- Everything will work out for the best anyway, it always does.
- I'll make more money later, so I'll start saving then
- If I save now then I'll have to live like a miser - I'm barely getting by now.
- I have to pay off my debts first
- If I save more for retirement, then my lifestyle will suffer, and I earned this lifestyle.
- I don't want to be stingy like Scrooge.
- I'm not like everybody else, I live differently - I'm a creative person - so I dont need to save.

Now, ask yourself, if you identify with one of these beliefs. Do you really think it is true? Is it so important that you would you bet you future happiness on it?

6. Correct mistaken beliefs- If I plan for retirement,then that means that I'm going to die someday
(yes, you are).
- Thrift is uncool
(so is a $600/month social security check) and
(many great historical persons were frugal)
- I need to maintain a certain lifestyle where I live
(the "keeping up with the Jones'" defense. what about when you retire, what type of lifestyle do you want then?)
- Investing is too complicated. I don't understand it.
(Take baby-steps. Get an "Investing for Dummies" book or meet with a financial planner. Read one chapter per week. Plan on meeting your goals by one year, not in the next week)

7. Automatic Behavioral Interventions
If you have trouble relating to the advice about beliefs and emotions, then try the following techniques. Many people use these to bypass procrastination. These are especially helpful if you're anxious and you over-analyze.
- Use automated paycheck or bank account withdrawals to ensure that the same amount goes into a protected account each month.
- Scale up you savings amount over years. I'll repeat this because it's proven to work: Try saving only a small fixed percent of your income now. Then start saving, for example, 25% of every raise into a retirement account. If your salary increases 50% over the next 10 years, then you'll be saving 8.3% of your salary per year by the end of the 10 year period.
- Use the services of a financial planner (that will keep you out of the loop entirely) Here's one I recommend: Ken Winans, Novato, CA, USA

Hope this helps!


Thursday, April 27, 2006

Intel Stock Rally

So how did we know Intel (INTC) stock would rally after its disappointing earnings last week? (See 2 blog entries beneath this to see our original forecast). Since the poor earnings report 7 days ago (5 trading days), the stock has rallied more than 5%, to $20/share. This rebound effect is in line with our observations, over thousands of similar cases. The fundamental reasons for this effect are entirely psychological. This pattern repeats with startling regularity. If you're interested in the nitty-gritty details, check out this academic paper by Dr. Peterson entitled "Buy on the Rumor and Sell on the News."

Happy trading,

Wednesday, April 19, 2006

Neuroeconomics in NYTimes

A mention of neuroeconomics for investors in tomorrow's NYTimes by an excellent and thoughtful blogger - Tyler Cohen

Appears that Risk and Reward are computed in separate areas of the brain, per Bossaerts at CalTech - he has received a research grant to study the neuro-correlates of risk. Appears to support Knutson and Kuhnen's finding that risk-seeking and risk-aversion are somewhat compartmentalized neural processes. Should be interesting to see how things develop.


Intel Earnings Down 38% (and stock will rally).

Here's a psychological price pattern in the making:

We're going to see a classic "Sell on the Rumor, Buy on the News" price reversal with Intel's disappointing earnings today, profits down 38%. The disappointment was priced in anticipation, and now a relief rally will ensue. These relief rallies usually last about one week on average. Let's see if this pattern is repeated.

INtel (INTC) stock has dropped from $22 to $19 per share over the past 3 months, on just such dismal speculation. Now that it has arrived, many shorts will cover.

"Intel Net Sinks, Weak Outlook Reflects Challenges"
at The Wall Street Journal Online (Wed 10:52pm)

"Intel 1Q Profit Down 38 Percent to $1.35B"
Associated Press


Tuesday, March 14, 2006

Investing in India

Investing in India

This post is a short divergence from pure investor psychology. It is a quick photographic tour of one of the most profoundly changing countries in the world. The Bombay Stock Exchange has been rocketing, particularly under the influence of foreign institutional investment, and the rally has recently neared the 11,000 level.

I outsource some financial software development to India, and I've had several years experience working with, travelling through, and living (3 months) in India. On my last trip, September through December 2004, I took the following pictures around the BSE.

During September 2004 one of the local business newspapers had the results of a survey of stock brokers. Only 33% of the brokers thought the BSE would reach the 6,000 level in 2005. The man pictured to the left was standing outside the BSE, and has the Journal tucked under his arm.

Other areas of India had joined the investment stampede in 2004. To the left is the storefront sign of a financial advisor selling mutual and bond funds. Now on plywood, soon on mirrored glass. This photograph was taken in Mysore, India (in the South - Karnataka state).

The contrast between the traditional and the modern is fascinating, and one hopes that the increasing divergence in wealth will not provoke an anti-capitalist backlash. Notice the women carrying pots and pans on their heads outside an investment shop.

Since India is a society that has been economically stratified for millenia, a backlash is only likely to occur if the lower castes start to see real economic progress as a possibility, but are then disappointed.

Here is the sign of Saraswat Bank, sharing the same building (on the "back" side) as the BSE. You can see the trees growing out of its second story sign.

This is an IPO of shares in a shipyard. You could subscribe to the IPO right there under the umbrella. They wouldn't sell shares to me, though. India currently allows only registered mutual funds and hedge funds to make direct investments. Or if you're of Indian extraction you can register as a "Non-resident Indian" (NRI) and purchase shares directly. Rumor is that Indian markets will open to foreign individuals by the end of the year.

I contacted a dozen brokerage firms in India and some foreign firms doing business in India (such as HSBC and ING), and none would allow me to invest in Indian shares, except for two enterprising men who were particularly keen for me to tell them how much money I was going to "give" them. I found the "give" word a little too strong, so I avoided their brokerages. One worrisome observation was the enormous cost savings on commissions for trades opened and closed within the same day. From 1% per transaction for a multiday trade to .05% per transaction for a round-turn within one day. No doubt that liquidity, and probable speculative excess, are encouraged by such pricing schemes.

To the left are a few of the wide array of financial publication available in India, primarily in English.

Happy travels,

Thursday, March 09, 2006

Trader Experiment in Bay Area

Trader Experiment in Bay Area

Wanted to mention a study we're doing on the psychophysiology of traders in the San Francisco Bay Area. Similar to Andrew Lo's experiments, but measuring in more detail. I'm looking specifically at the physiological signals of emotion and arousal that preceed trading, and doing an analysis of whether any of these signals can predict trade outcomes. E.g., is there some type or degree of anticipatory emotion that predicts bad trades vs good ones. This study is performed by a PhD at the Center for Neuroeconomics at Stanford University and myself (medical doctor) at Market Psychology Consulting.

The experimental protocol is below:

Traders will have 4 electrodes painlessly attached to the face and two attached to two fingers of the non-dominant hand. The protocol requires a 6-second pause before trades are executed. The hand should be held completely still and no talking or large movements during the 6-second pauses before the trade. Trade success or failure should be known within three months (so we can measure the correlation with trade outcome). I plan to do a 30 minute period of measurement on one day, possibly additional sessions on different days, if the traders are up to it. The 30 minute session should be one in which the trader makes at least 5 trades (otherwise it's not worth the time).

If interested in participating, please let me know. We'll come to your workplace. There is no payment for participating, only the happy knowledge that you are contributing to the advancement of trading science. Plus you'll get to use your own results to improve your trading (if we find something).


Tuesday, February 28, 2006

Why The Count of Monte Cristo Wasn't an Investor: Hidden Emotions = Poor Choices

One of the true "blessing-curses" that comes with having a Ph.D. in psychology is the introspection, that instinct to revisit decisions to determine the deeper, underlying factors behind them.

It can be a painful exercise, but is almost always a worthwhile one. And the revelations may surprise you. I'll relate a recent anecdote. But this is no tale of investing, my friends.... this is a tale... of revenge!

I decided last month to buy some JDSU (recently voted the "The Worst 5 Year Performer" by Wall Street Journal Online. Congratulations - I guess).

JDSU is not the typical stock that I like to buy. It's a former highflyer beaten down beyond all recognition. It's volatile. When it's not, it sinks like a row boat with a small leak. And, frankly, I don't understand what the heck they do. And I read the company profile. Twice. See if you can make sense of it. http://finance.yahoo.com/q/pr?s=JDSU. (I double dog dare you.)

But I decided to buy it anyway. There was a buzz ("They're turning it around!"). Cramer mentioned it. Whatever the reason, I jumped in. Naturally, in keeping with what I call "Whack-A-Mole Syndrome"(TM), I bought it precisely at its high and have watched myself lose 10% in the span of a couple of weeks.

In looking back at this strange decision, I discovered something. My thoughts and emotions were curious. Off center. Not what they typically were.

You see, someone close to me had bought a position in JDSU at $13/share a while back. It was down from a high of close to 90. Seeing it as a buying opportunity, this (otherwise wise) individual uttered those fateful words... "How much lower could it go?" and proceeded to grab the falling knife as it went past.

How much lower? There is only one answer to that question and we all know what it is. In the case of JDSU, it reached a low of $1.32/share.

But that was years ago. It had climbed since then. Turned the corner. It was up over $3/share now. So I decided to I'd hop on the upswing. Make a quick profit. Get out.

It was in watching the stock drift lower that that the hidden emotions began to reveal themselves.

The person who had bought the stock at $13/share passed away suddenly in December.

He will never see a profit from JDSU.

But I could. And (damnit) I would.

I didn't care about the money. Seriously. I cared about payback -- literally and figuratively. Just a little profit. Didn't have to be a lot. Just a few bucks. I wanted this stock to give something back. The stock owed us that.

Someone forgot to tell the stock. So now I have this stock I don't want and -- for the moment -- it would appear I fell into the same trap. (Hey, I said it was a tale of revenge, not successful revenge.)

Investing isn't personal; it's business. We know this. But every once in a while the Market (In Her infinite wisdom) reminds us.

This particular case is an extreme example. I recognize that. Most hidden emotions are much more mundane. Nonetheless, I invite you to pick a stock that has bedeviled you, look back, and explore the reasons why you bought it. You may learn something about yourself or even detect a blindspot that could save you in the future.

If you like, write myself and Dr. Peterson. We'd be happy to supply an observation or just hear your story.

As for me, maybe I'll go back to investing in MO. Yes, they make cigarettes. But at least I know what cigarettes are. Besides, I have some relatives who smoke. It's not pretty. The wheezing at the top of every staircase. The uncontrollable coughing fits. Yellow fingers... I think they'd be pleased to know that Altria was giving them something in return.

Uh oh... here I go again.

Thursday, February 02, 2006

Neurofinance in the News

A Bloomberg article released yesterday ("Inside the Trader's Brain") describes the potential (and the controversy) surrounding neurofinance.

There is a lot of development here, but not a lot of hard facts yet (I'm quoted in the article saying as much). Brian Knutson and I took Adam Levy (the article's author) on a quick tour of Stanford and the neuroimaging lab last August. Adam was, helpfully, silent about the research we discussed, much of which is on-going.
But we have some excellent clues pointing to a revolution in the way markets are analyzed and traded.

One area of advance is in trader assessment using advanced technology. I've recently received interest in trader evaluations using portable devices such as that worn by Andrew Lo in one of the article photos. These devices are actually incredibly primitive, and it's still hasn't been conclusively proven that there is any predictive power in the data they report (mostly cardiac and electrophysiological variables). They are like a lie-detector. Traders don't know in advance when they're making a bad trade. This is crucially unlike liars, who are caught because they are trying to repress the true answer. However, we've recently made a breakthrough in that regard as well.

Additional advances have occurred in the way market data is analyzed, exploiting new predictive advantages. I'm starting a hedge fund based on those advances. And that's all you'll hear about that.

Of course, I'm being vague here. I just wanted to drop a note that things are definitely happening in neurofinance, and much of it is already a reality in our proprietary work - hence the lack of specifics.

One thing of immense importance in advancing this field is research grants. Currently, most research is funded by the National Institute of Health and related goverment agencies. No funds are currently available (to us at Stanford) for applied research, using real traders and investors. So if you know someone interested in sponsoring some neurofinance research.... Send an email to Richard on [email protected] or Brian Knutson.

Best wishes,

Thursday, January 05, 2006

Wealth Guilt

-- Have you ever felt guilty about making money?
-- Undeserving of your affluence?

I live in Marin county, which is located north of the Golden Gate bridge of San Francisco. Based on the median prices of homes sold in Marin county during 2004, 3 of the 20 most expensive zipcodes in the U.S. are located here (Forbes.com). Given this wealth, you might expect people in Marin to be pretty capitalistic and business-oriented. But that's not the case.

In fact, there is a distinctly anti-capitalist flavor to Marin county. Many hippies settled here in the late 1960s and 1970s. The politics is generally "liberal" (John Kerry got 70% of county votes in the 2004 election). And there is some discomfort with big business, which occasionally appears as outright demonization.

And while those anti-business attitudes have frozen development and helped maintain an excellent quality of life for residents, those attitudes often carry unhelpful negative judgements towards money and those who have it.

There is a paradox: many residents of Marin county have significant assets (at least in the value of their homes), yet many are suspicious of business and capitalism. This creates an internal conflict - people here have money, but they remain uncomfortable with its power. For me, learning about this conflict has led to very interesting discussions with other local therapists and coaches. We are calling it a "conflict of conscience."

Guilt about wealth, and self-sabotage in the pursuit of it, are widespread in America. The media use rich businesspeople as safe "villains" (Ebenezer Scrooge and Gordon Gecko [Michael Douglas in "Wall Street"] are the prototypes), sure not to offend the majority of people. American society often teaches that businesses have caused most of our current environmental and health problems. We seldom hear about the enormous benefits that well-managed businesses have brought - those are taken for granted.

For the wealthy, the conflict of conscience may emerge as an aversion to the wealth one has. They may rashly give away, spend, loan, or squander resources on bad investments, for example, to remedy their distress. Others hide their money, pretending it's not there, and meanwhile neither investing it nor acknowledging the tremendous good it can do.

For some people, wealth feels unattainable. The conflict described above emerges as chronic self-sabotage in their business or finances. They may self-sabotage attempts to accumulate money, or they may feel that they face too high a hurdle for achieving success. For many of them, money is associated with shame. They might feel they are betraying their values by succeeding (especially if they grew up in a proud blue-collar family). On the other hand, they may fear being the subject of other's envy. They don't want others to feel bad because they are richer.

There are many possibilities here, and every person has different experiences. In general, the themes are similar, and specific techniques can reduce the "Conflict of Conscience" described above.

Richard Friesen, who is a businessman, psychologist, and a former trader on the Pacific Stock Exchange, will be hosting a f.r.e.e. teleseminar called "Conflict of Conscience" at 6pm PST on February 2nd. I'll be contributing 5 minutes or so to this hour-long seminar, and I think what Mr. Friesen has to say about this topic is timely and very important.

You can sign up for the teleseminar by emailing the following address with your name, phone number and country or US zip code in the body of the email.
[email protected]

And Mr. Friesen's video introduction is here:

I'm also sending out an invitation to my email list. You can become a part of the Market Psychology Consulting email list by registering for one of our financial personality tests and checking the box for the email Newsletter.