Thus the self- directed revolution had begun. Along with this revolution, which turned Wall Street's steadfast truism upside down, came a sense that there was a party that would go on forever.
And in the end, we were all chumps during the roaring bull market of the 1990s. There is a special psychological element to losses that people took during the tech rally. There was a wave of corporate malfeasance, false accounting schemes, and complicity from those who were supposed to know better.
The entire system broke down. I'm not going against what I wrote earlier—everyone got too greedy and we all lost a little (or a lot) of our religion during the height of the boom period. Most investors could have walked away with fortunes but they didn't. Sure, the fact that many of the stocks we invested in were nothing more than houses of cards is particularly painful.
Psychologists have a list of all the emotions and angst people go through when they've lost money through fraud. This list is similar to the five stages of grief but significantly longer (list from www.yorkcounty.gov):
· Self-blame (often extremely high)
· Sense of betrayal
· Sense of violation
· Isolation ("suffering in silence")
· Social indifference
· Social stigma ("victim-blaming")
· Loss of faith in the world and in the system that was supposed to protect them
· Financial problems (due to actual monetary losses, lost work, and/or identity theft)
· Health problems (related to stress)
Ken Lay and many others in the system—from corporate chieftains to agencies in charge—either let us down or downright betrayed us. The pain may have been greater from letdown by our would-be guardians, those agencies and powers that looked the other way and in many ways encouraged the malicious behavior of publicly traded companies. The SEC, NASD, and NYSE were supposed to be protecting us.
Eliot Spitzer, the newly elected governor of New York, rode in like the cavalry to save the day and boost his political stock. Many of the fines and rulings and laws put in place since the height of the scandalous period have been insulting, toothless, and in some cases too extreme (complying with some rules has driven a bunch of smaller companies to delist as the costs have been prohibitive).
We were betrayed by the media, which became a wild cheerleader and as caught up in the moment as all of us. Sure, there were articles and publications that worked to warn of the hazards and craziness of the moment. But to this day, CNBC should have accepted more culpability about the massive madness and its part as enablers of misguided greed.
Oddly enough, because of the widespread impact of systemic fraud and failure, there isn't the same degree of social isolation generally associated with the feeling of being ripped off. Our neighbors, coworkers, and strangers on the morning train commute lost a bundle, too. By the same token, there was also much less self-blame. I attend investor conferences and speak with individual investors daily, and it's rare when one says he or she got greedy.
In the end, the feeling of being violated has had a long-lasting consequence. I think it plays a role in the way the market acts on a day-to-day basis. It contributes to the wild gyrations and knee-jerk reactions to corporate earnings, economic data, and geopolitical events.
There are so many emotions and reminders of the best of times and worst of times for stock investors of this generation. For all of those that negatively impact your mind and your approach to the market, none seems to have a deeper impact than holding on to those old losers that linger in your portfolio.
Every time you gaze at these losers that are anchoring your portfolio, any newer efforts to make money seem to be mitigated. Those losers you just can't seem to get rid of will continue to haunt you and laugh at you every time you look at your portfolio.