The Wall Street Psychologist’s Gyroscope encourages periodic self-examination that includes a refresh on key concepts, such as fiduciary responsibility. It also requires an intimate understanding and application of virtue. Once you have performed these exercises, it becomes possible to avoid the pitfalls that dragged the principals of LTCM to their knees. Lacking such internal mechanisms, highly intelligent people seek justifications elsewhere. Warren  Buffet had offered to buy LTCM for $250 ... Continue Reading

Initially enormously successful with annualized returns of more than 40% (after fees) in its early years, in 1998 LTCM lost an estimated $4.6 billion in less than four months following the Russian financial crisis. The fund folded in early 2000. Niall Ferguson points out that the LTCM partners forgot their history vis-à-vis the 1917 Russian default during their glorious Revolution. Ferguson, in his recent book (“The Ascent of Money: A Financial History of the World”)  refers to LTCM as ... Continue Reading

For the uninitiated, the stunning flameout of LTCM was a key spark that led to the market implosion of the late 1990s continuing through 2008 with the demise of Lehman. Deregulation and bailout protocols developed during this period foreshadowing the government’s approach to the recent meltdowns. A number of my patients have worked for hedge funds based in Stamford and Greenwich. The operational style of hedge funds developed in these affluent areas set the tone and mentality of the market ... Continue Reading

A hedge fund is: An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. ... Continue Reading

Since the 1970s, the National Rifle Association has bandied about its clever slogan: “Guns don't kill people – people kill people.” Depending upon your view-point, this catchphrase is either woefully irresponsible or quite profound. For instance, British comedian Eddie Izzard added to the NRA’s adage when he said: “The National Rifle Association says that guns don’t kill people, people do. But I think the guns help.” [1] The Wall Psychologist’s Gyroscope is intended to inspire you to ... Continue Reading

Financial professionals, in particular, often exhibit co-dependency problems; their sense of self-worth—both in and out of work—is nearly entirely dependent on their job performance-their "production." I do not preach a brand of blind altruistic investing, which would likely be professional and financial suicide. It is critical that you cultivate ways to apply moral principles that do not threaten you, and also learn to compartmentalize personal values. Compartmentalization is a necessary ... Continue Reading

Money may empower people, but its inherent dualities can also contribute to a sense of imprisonment. Obsession with money can breed greed, paranoia, fear, delusions of elitism and superiority, and envy. Conversely, inching towards morality helps incrementally free you from such corrupting negativity. When you have to ask a question such as “Would you put your mother in it?” you surrender all trust, both externally and internally, as you concede your voluntary role in this never-ending ... Continue Reading

You can have “all the money in the world,” yet still not be in control of your health, or your relationships, or your family’s well-being, or your emotional and intellectual fulfillment. This is hard to remember in a professional environment since everyone’s “value” seems to be based on production: how much money the individual generates for the company, the size of his office, the office view, the parking space, the alliances, the  title, the number of assistants, the base compensation and ... Continue Reading

For all the good in money, there is also a flip side. Money does not guarantee happiness, self-esteem, pride, achievement, or emotional intimacy. Money does not necessarily correlate with integrity and honor. Money can be a creative tool, but when you become obsessed with it to the extent that you judge yourself and other people only by their portfolio value, sacrificing all spirit and sense of self, money ceases to be a source for good. Many Wall Street professionals become quasi expert ... Continue Reading

Meanwhile, Kroll’s Global Fraud Report 2008[2] found that the average major U.S. Company surveyed lost approximately $8.2 million to fraud within the previous three years, with 85 percent of the companies polled suffering from at least one fraud during that time frame. That same year, the 2008 report to the Nation by the United States Certified Fraud Examiners Association estimated that the real cost to companies in terms of fraud and worker embezzlement is equivalent to 7 percent of the ... Continue Reading

Morality is a scarce, incredibly expensive resource in the financial services industry. Professionals are beset by an endless cycle of ethical skirmishes, with many resigning themselves to the conclusion: “I cannot afford to be moral, and if any one tells you they can they’re lying.” Yet, what they do not understand is that with each incremental compromise of their character, they surrender a bit more of their integrity. Unbeknownst to them, there are consequences to these moral ... Continue Reading

Under ideal circumstances, most people I treat would be less likely to shed their morality. Unfortunately, the financial services industry is not an environment conducive for maintaining morality. There is a sense of oblivious bravado. Many of the many young FPs I’ve counseled openly acknowledge recruiting new clients under suspect conditions. They were desperate to do something, anything to get into the market, and frequently mislead gullible clients who would buy anything they sold because ... Continue Reading

“The love of money is the root of all evil.” - Paul (1 Timothy, 6: 7-10) “Lack of money is the root of all evil.” - George Bernard Shaw “Man and Superman: The Revolutionist’s Handbook” “So you think money is the root of all evil. Have you ever asked what is the root of all money?” - Ayn Rand (1905-1982) “Would you put your mother in it?” - Anonymous Money = Complicated. No one ever said reconciling the morality of money with life in the financial services would be ... Continue Reading

In a compelling column entitled “Disaster and Denial,” Paul Krugman from the New York Times acknowledges: “When I first began writing for The Times, I was naïve about many things, but my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs.”[1] Krugman reminds us that regulator types “…..[live in] a bizarro universe in which government bureaucrats, not greedy ... Continue Reading

I advise my patients to Read Sun Tzu’s “The Art of War.” Every battle is won before it is ever fought.” To some of us, this may sound like an overly militant approach to financial management, but nevertheless: becoming familiar with a few highlights of Sun Tzu’s military treatise (written in China circa 5th century BC) can help brokers understand the mindset of many higher-ups for whom they toil. Sun Tzu believed that all war was based on deception, and that the mission was to defeat the ... Continue Reading

The Wall Street Psychologist - A Common Scenario Imagine, for example, that you are a retail stockbroker, having worked as a financial consultant for the same firm for 25 years. You’ve seen a variety of managers come and go and you are familiar, by now, with the old boy network. You were an average performer (third or fourth quintile); you make a decent living, you had the golden handcuffs (the great bulk of your retirement funding is placed in your firm’s stock) and then along comes a meltdown ... Continue Reading

Whatever your beliefs on the subject, it seems safe to say that in the cutthroat world of Wall Street, there often seems to be a greater force at work, pulling strings behind the scenes, while many employees “on the ground” sweat day after day over bottom lines, profitability, liquidity, and balance sheets. This is perhaps the most common working model for financial professionals today: the one in which the individual has his own business group within a massive corporate structure that, in ... Continue Reading

In the King James Version of the Holy Bible, Proverbs 16:18 warns that "Pride goethe before destruction, and a haughty spirit before a fall." In no segment of society does this adage fit so snugly than in Wall Street. How is it that these brilliant economic theorists from Harvard, MIT, and Cal Tech make such epic mistakes? How is it that so many astute business minds, fixated obsessively on the minutiae of the market, fail to see the massive hurricane bearing down on them, until they are ... Continue Reading

Widespread superciliousness, arrogance, narcissism and class-consciousness permeate Wall Street at all levels—which is partly incubated in business school. The Wall Street Psychologist’s Gyroscope advocates that the individual remove these blinders and embrace the humility that provides clarity. A sense of entitlement is a mind trap. The humble individual can think more objectively and reverse course more easily than the overconfident narcissist. American humorist Calvin Trillin provided ... Continue Reading

This blind collusion and lack of the assumption of responsibility are rooted in a concept known as “System Justification Theory,” which refers to a social psychological propensity to support the status quo, often contrary to logic.[1] This is a fascinating dynamic. You have a large number of members of an industry that not only look the other way, but endorse this unwritten code of collusion. In any other context, they would likely disparage theft and deception, and many may not actually ... Continue Reading

The questionable behavior revealed by my patients never ceases to amaze me; nor do the outrageous justifications they nonchalantly tout when ‘explaining’ their deeds. For instance, during the past 25 years, I have worked with dozens of financial analysts: sector analysts, M&A analysts, hedge fund analysts, and mutual fund analysts.  I estimate that at least half of the analysts I’ve treated casually bragged to me how they would share inside/confidential/sensitive information with their ... Continue Reading

For business purposes,  marketing campaigns were designed to entice consumers to want things they did not necessarily need by surreptitiously aligning their products with these unconscious desires such as: status, being sexy and desirable, self-esteem, prestige, being superior and better than, overall sense of worth and wellbeing, being a member of the “in” group, being adored and admired, and being popular. What has followed since has been an endless parade of celebrity endorsements, PR ... Continue Reading

In 2002, film documentarian Adam Curtis produced a remarkable series entitled “The Century of the Self,” dissecting the rise of consumerism and the mechanisms of influencing and manipulating consumer behavior.[1] Interspersing archival footage with commentary and factoids, Curtis explored the application of Freudian theory, specifically the exploitation of the self, not as a vehicle for liberation, but as a tool of manipulation wielded by marketers and politicos to power ... Continue Reading

We consume. Sustenance. Resources. Ideas. Emotions. Each other. Ourselves. We consume. We are ravenous. Consumption is the engine that powers human experience. Consumers drive 70% of the U.S. economy; they are essential, they are indispensable. Never forgot, however, that investment creates jobs. Consumers lubricate the economy. They do not provide infrastructure; investors do. Understanding the psychology which fuels our intricate ecosystems of consumption is critical not only ... Continue Reading