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 "It is plain that a life which includes deep resentment leads only to futility and unhappiness. To the precise extent that we permit these, do we squander the hours that might have been worth while. But with the alcoholic, whose hope is the maintenance and growth of a spiritual experience, this business of resentment is infinitely grave. We found that it is fatal. For when harboring such feelings we shut ourselves off from the sunlight of the Spirit."

~ The Big Book of Alcoholics Anonymous, p. 66

 

Personal resentment is a lot like institutional resentment and mistrust, and both are common among Americans scarred by the financial crisis.  While the U.S. equity markets have rallied significantly this year, we're seeing investor money continuing to flow out of equities.  The image below displays the cumulative outflows of investor money from domestic and global equity mutual funds based in the U.S. through mid-October 2012.    

 

 

The loss of trust in markets, resentment of perceived unfairness, and anger at bailed-out banks has left a generation scarred.  And this public resentment may be driving the striking fund outflows.  According to a recent Natixis survey, investors surveyed expressed fear about their financial futures, with fear "showing itself in such things as the 53 percent who say achieving stability in volatile times is their top priority.... Nearly one in four households (22 percent) with incomes of $500,000 or more believe most investments are a pure gamble [bold is mine]."

 

At MarketPsych Data we monitor trust expressed in various institutions, and our data show historically low levels of trust in conversations about the financial industry.  See the chart below for the long-term trust trend in our Thomson Reuters MarketPsych Bank index Trust data for both the U.S. and the U.K.  You can see the gradual downward trend in trust since 2007 and that the Libor-fixing scandal sent trust in banks to all-time lows.

Fund outflows intensify during periods of declining trust, especially in 2012.  Ironically, it is investing sharks (recalling last week's newsletter) who don't get hung up on the inequities in the system, rather they study it for what it is and look for advantages in the new order.

 

But most of us are not sharks, and we have emotional systems linked into our memories and feelings of mistrust.  Performance slumps - like mistrust and resentment - are a type of emotional rut that we can fall into and have a challenging time climbing out of.

I heard Bob's story after speaking about financial psychology at a technology conference.  He pulled me aside after my talk.  As he shared his story with me, I didn't find his fall the most moving episode - it was the story of his redemption that struck me. 

 

Bob methodically rebuilt his reputation and social network in the years following hitting bottom.  Bob is today a very successful technology executive who has been sober for more than 15 years. 

 

How did Bob implode his trading account, lose all his social support, destroy his reputation, become addicted to alcohol, hate the world, contemplate suicide, and ultimately recover?  The secret to Bob's recovery lies in the method that any of us - including nations - can use to get out of a slump. 

 

We'll go into more detail on the steps to climbing out of a slump next week...

 

This material is not intended as and does not constitute an offer to sell any securities or a solicitation of any offer to purchase any securities. 

 

The information of the MarketPsych Report is presented free of charge.  It is no substitute for the services of a professional investment advisor.  Investments recommended may not be appropriate for all investors.  Recommendations are made without consideration of your financial sophistication, financial situation, investing time horizon, or risk tolerance.  Readers are urged to consult with their own independent financial advisers with respect to any investment.

 

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