Over the last week or so--really ever since the Fed decision--I've had a vague sense of dis-ease with respect to many of the online financial columns and blog posts I've been reading. Much of them have seemed oddly bearish given Asian markets that are moving to new highs and S&P 500 and NASDAQ 100 indexes that are not far from bull peaks. But that hasn't been the whole story. Something else has made me uncomfortable with what I've been reading.
When I reflected on how I was reacting emotionally, I suddenly figured it out. Much of what I'm reading is identical to the speech of psychiatric patients. I don't mean this hyperbolically at all. I mean it in a very literal sense. If these writers spoke the words to me that they are writing, I would conclude that they're both emotionally conflicted and constricted.
Allow me to illustrate what I mean:
A man comes into my office, having just lost tens of thousands of dollars in trading. From his facial features, he is clearly upset; it's money his family can't afford to lose. He says to me:
"The market moved away from its average and that made the sellers jump in. It was a large loss and now it's just a matter of looking to the future. Things like this happen. You just have to figure it out. The economy can't be all that bad. Stocks have to come back. Just look at interest rates. That has to give things a boost."
What would I conclude from this speech sample? I would see that our patient is upset, but I would also note that he doesn't own any of it. Indeed, he barely speaks about himself. He doesn't talk about what happened in any detail, and he certainly avoids any kind of talk about his feelings.
In other words, he's conflicted (upset about his loss) and he's constricted (not able to talk about his experience). That's a common combination among psychiatric patients. The role of the shrink is to see behind the words to the experience underneath. That's where the real information lies.
Suppose we treat the writings of financial pundits the way we would treat the language samples of patients in therapy. Fortunately, there is software available to accomplish this for us, developed by James Pennebaker and his research team at the University of Texas. This software, called Lingustic Inquiry and Word Count (LIWC), will parse any text into various categories and components.
So what I did was take 7 financial columns from very respected sources, all with distinctly bearish themes. I then used the LIWC program to analyze the 15 pages of single-spaced text from these columns.
According to LIWC, exactly .55% of the text overall consisted of the word "I". The writers barely acknowledged themselves in their writings. They were offering personal views on the markets, but not presenting those as such.
Despite the profoundly bearish themes of the articles and the evident concern of the writers, only about 4% of the content consisted of emotion-related words. Oddly, those were evenly divided between positive emotion and negative emotion terms. In other words, the actual text of what was said did not match the emotional tone of the underlying message.
So what we have is a group of writers offering their personal perspectives and expressing their concerns about the Fed decision, inflation, the weak dollar, etc. Their texts, however, are written in such a way as to present the material as factual and neutral: not coming from a personal source and not connected to any emotional response.
It's just like the hypothetical patient above: worried people who talk in impersonal, non-emotional ways.
In a patient, this is known as "defense"--avoiding one's true sources of concern. In the world of online journalism, it passes for objective reporting.
Don't get me wrong: I don't think online columns and blog posts are worthless. On the contrary: linguistic distortions mask real, underlying information. Any good shrink knows that.
The Psychology of Taking Losses