Karl Mills, head of the investment firm Jurika, Mills & Kiefer in Oakland, California, has noticed a pattern among many of his clients. Their responses to the volatile stock market are not all that different from those lingering in the stages of grief.
What’s the source of their anguish? Mills says, “I think they’re grieving over the way things were and have anxiety about the way things are now. So within that context you see people who exhibit these characteristics.”
What does this mean for the rest of us? Well, if investors don’t start accepting their losses and the fact that times have changed it will only prolong the stock market from bottoming out. The economy cannot fully restore until that happens.
Though Jurika, Mills & Kiefer haven’t turned their firm into a part-time mental health facility, they are offering some hard line advice to those who need to accept where they are now financially.
Mr. Mills was kind enough to share a few words with me about his theory in addition to his thoughts about the U.S. economy and those still refusing to accept reality.
On how a majority of his clients have reacted to the declining market and their financial losses:
“The first stage is denial: ‘I’m not looking at my statements, I’m not paying attention to the market. It’s too depressing and as long as I just ignore it, it won’t really hurt me.’
The next step is anger where they place the blame on themselves and the institution. With this not being your typical downturn, they start to worry over things they could have done differently.
That leads to bargaining, which is essentially the attitude that “I want to do something, but I don’t want to do something now.”
This can lead to a worse case scenario in which investors realize they should have sold their stocks sooner – spurring depression.
Clients come in saying, ‘Oh, I’ll never get it back. I’ve failed as a provider for my family.’
Many feel as though they dropped the ball. They say that their ego is contended on a sense of status and financial acumen. That’s been damaged so they in turn feel damaged. There are a lot of emotional and psychological issues related to that.
Finally there is acceptance where clients realize what’s done and done and work towards the next type. What we try to do is to counsel people on where they are and help them set realistic financial expectations.”
On the changing times:
“People follow the strategy that the market should always go up, and that we live in a world of 3% GDP growth, low inflation, and low interest rates. The current financial environment marks a different era that we are seeping into.
The larger point is the portfolio that brought you here may not necessarily be the portfolio that should take you out of there.”
On the consumer's role in the economic crisis:
“Our perspective is that the U.S. economy – particularly the U.S. consumer economy – has been living beyond its means for about 26 years and you can track that by just looking at the growth of outstanding debt in the economy relative to the GDP since 1981.
We’ve been over borrowing and over consuming beyond our means for quite a while and it has created a false of prosperity and wellbeing.”
Advice for investors:
“You want to identify what is going to do well in a new era and steer your portfolio that way. That’s why we try to educate and counsel people. You are where you are regardless of how you got there you are here, so the most important thing is make sure your portfolio is in position to reflect what is to come and not on what has been with the hope that it will return to that. We don’t think it will. We are going to return to something different.”
For those ignoring the state of the economy:
“We encourage people to increase their savings, do whatever they can to pay down their debt, and be relatively cautious as we move forward. We don’t believe we’re completely out of the woods yet. We think there’s a false sense of recovery going on now in the market. People are pointing out the vital signs are improving, which they are, but in many cases that just means that they are getting ‘less bad.’ The economy is on artificial life support.The good news is that the economy is not dying, it seems to be stabilizing. The bad news is that we’re going to be in a hangover for a long time. We’re still trying to borrow our way out of debt and that doesn’t work.”
I’m almost tempted to now learn Hindi and Mandarin now. How about you?
To those of you who invest, has it been difficult for you to accept your financial losses? If so, to quote the great Whitley Gilbert: “Relax, relate, release.”
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Michael Arceneaux hails from Houston, lives in Harlem and praises Beyoncé’s name wherever he goes. Follow him on Twitter.