How has the financial crisis changed your thinking?
August 19 2009 by Robert Lawrence Kuhn
I do not enjoy writing about the financial crisis. Exposing the personal psychology of financial loss I like even less. But it is necessary for me and I hope helpful for you. My subtitle here is not “Has the Financial Crisis Changed Your Thinking?” Unless you have abdicated your position as a sentient creature on planet Earth, the financial crisis has changed your thinking. It certainly has mine, in some ways for the better, in some for the worse. I thought I’d make a list. Not in any particular order, but as they come to mind, much like free association in psychotherapy. Yes, a little psychotherapy may be helpful. You might make a list. It’s cathartic.
- Just because events are said to occur “once a century” does not mean that they won’t occur during my life. And just because events are said to occur “once in a lifetime” does not mean that they cannot occur two or more times in my lifetime. That’s just the way probabilities work. White crows can fly in flocks—very rarely, but they can.
- I’ve become more risk averse in investments—and I already was more risk averse than most as a matter of personality. This is predictable, of course, but it leads to suboptimal decision making. I’ve not invested in situations that were favorably skewed, especially considering an overweighting in cash. My family, less knowledgeable and previously more aggressive than I, is now even more risk averse.
- My father had a near bankruptcy in his at-one-time superb outerwear manufacturing business (which he had started after returning from World War II with $5,000 in savings and a $5,000 loan from his new brother-in-law). Having experienced the family trauma, I intended to make myself bulletproof after selling my business at a favorable time. But after a time, others convinced me, or intimidated me, into deciding that I was too risk averse and getting subpar returns. I’m now annoyed l listened to their advice. I felt unhappy then; I feel unhappy now. Yet I am still, frankly, bulletproof (and still getting sub-par returns). None of this, really, makes much sense.
- I find that excessive risk aversion has invaded other areas of life, like driving and flying: I catch myself wondering, “What might happen now?” I’m looking over my shoulder, as if expecting something dire.
- Extreme prudence wears off. Some years ago, after an earthquake in Los Angeles caused the collapse of several freeway overpasses, crushing cars and people, motorists in traffic would carefully stop before the overpasses. After a few weeks, the phenomenon attenuated and disappeared.
- I’ve learned not to tie my ego too tightly to my net worth. I used to enjoy tabulating my balance sheet every few months. That’s no longer a pleasure. Although wildly higher than it was a decade ago, it is sharply lower than two years ago—and human emotions reflect relative and recent relationships, not absolute and historic ones. (I tried to reorient myself to a circle-the-wagons defensive mentality—for example, selling certain less-liquid financial assets at favorable prices even though capital gains taxes reduced what had appeared to be a higher net worth, and “harvesting” capital losses to mitigate the taxes.)
- I’ve second-guessed myself a lot, but that too has begun to wear off.
- On certain investment decisions that the financial crisis trashed, given all that I knew at the time, given all that was then available to know, I actually made the proper decision. The reason I’m still agitated is that failure is painful and I seek perfection; the former may be unavoidable, the latter impossible.
- I was never much of stock trader. I’d go for long periods without checking the market. Suddenly, I had a stock-market window open on my computer all the time, scanning my main holdings innumerable times a day. I had become obsessive-compulsive, and like Pavlov’s salivating dogs, I’d feel a rush of unpleasant hormones each morning when, on the West Coast, I’d check what had happened in New York while I was still sleeping.
- Every time I spoke with my brokers and financial advisors I would feel annoyed, sometimes almost angry—which heretofore was never my wont—even though I knew intellectually that my misfortunes were certainly not their personal fault. Sure, they had advised me to buy this and that, but in truth I—not they—made all the decisions. If blame is to be cast, the only one blameworthy I see in the mirror.
- I no longer believe that people in authority, whether corporate executives or political leaders, speak truth. It’s not that they are lying—though in some cases they are—but it is rather that they do not know truth, and they do not know that they do not know. All that they state, often with confidence, is what they hope is real, not what is really real.
- I have suffered and been penalized by the actions and mistakes of others. This does not seem fair but this is the way the world works. Have my actions at times hurt others? I’ve made many decisions affecting others.
- Smart people do dumb things. It’s possible to be overly smart, to stress a system like fine-tuning a Formula One racing engine. Maximum horsepower can be generated, but at the cost of reliability. A small problem disrupts all—one speck of sand and the machine dies.
- I should never again become euphoric over increase in net worth as personal achievements, but instead maintain a sober assessment of myself.
- I’ve become more sensitive about spending—more so, frankly, than my losses should warrant. I’ve not bought minor things, which if I bought one every day for the rest of my life would still not collectively constitute a rounding error on my balance sheet. I sense this irrationality, but wonder whether, after all, this might be healthy.
- I’ve taken greater interest in making money, which I had not needed to do since selling my business, and which, frankly, I did not need to do at the worst of times and do not need to do now. But I find it psychologically helpful to crank up the competitive motor. It sputtered a bit, but came nicely to life.
- There were times that I wanted to stay curled up in bed. Frankly, I could have remained supine, but forced myself up. But it’s best to fight back, even starting slowly. Take one step, then another; that’s generally as far as I can see, anyway. That which doesn’t kill you makes you stronger.
- I want to value more of what is really important in life. How can I do that?
- Yes, life is short and it will not deal with me always as I should like or in the fairest of ways. My circumstances are as mild as milk compared to the true horrors of this world.
- Many people have been adversely affected far more than I, and I must be sensitive to their feelings. They may not do what I think they should do, but other issues, not my business, may be driving them.
- I’m not normally a talkative, sharing sort. But I’ve found that sharing trauma relieves stress. o Helping others really does help me. I try to reach out to others in small ways, though I often forget.
- I’m trying to figure out what I really like to do and plan do more of it, however hard or out of routine. This turns out to harder than I thought.
- Adversity tends to leech out my life force. I try not to allow this.
- Get and stay healthy, I implore myself; the future is coming.
So that’s my list. Looking back at it, I see contradictions that I will not correct. Artificial linear logic—all pieces articulating well, linear flow—would belie my point. I can only conclude that human psychology is often irrational—and that I’ve overused the word “frankly.” Well, frankly, we should be happy for all that we have. I will try.
Robert Lawrence Kuhn, an international investment banker and corporate strategist, is a long-time advisor to the Chinese government and senior advisor to Citigroup. Dr. Kuhn’s forthcoming book is How China’s Leaders Think: The Inside Story of China’s 30-Year Reform and What This Means for the Future. His television series—Closer To Truth: Cosmos, Consciousness, God—is broadcast on PBS and noncommercial stations.