"Admit the void; accept loss forever.
Wisdom is mourning; blessed are they that mourn."
-- Norman O. Brown

Dear Shrink Rap: A couple of years ago we had a death in the family and had to go to counseling. I'm starting to see a pattern of all the grieving stages you go through and people's reactions to this bear market. Am I wrong, or are we still in just the anger stage? -- CAK

Shrink Rap: The stages you are referring to come from the model of grieving theorized by Elisabeth Kubler-Ross, M.D. Her research showed that those facing their own death, grieving the death of a significant other or coping with an important loss, such as a divorce, go through a series of predictable stages.

For the sake of answering your question, if we stretch the intention of her model a bit by relating these stages to the devastating fall of the market and investors' reactions to the loss of their money, we have something that might look like this:

1. Denial: A refusal to see what is really happening, and using rationalization (excuse-making) to blot out the truth. "Buy the dip -- everything will come back, just as it has so often before. This time it's different -- what goes up doesn't necessarily have to come down. The boomers will prop up the market with all their retirement savings. The Internet stocks will keep the wild bull ferocious forever. Just so long as companies keep making their numbers, everything will be fine."

2. Anger: As the defense mechanism of denial slowly proves inadequate to blot out the cruel reality of a steep reversal in the market's trend, denial changes into anger. "How can this be happening to me? How dare the market change direction so quickly and so violently. How could I be so stupid to buy at the top and not set stop-loss limits? It's the fault of the conniving analysts, brokers and media. They all lied to me and stole my money. I hate this sickening market and will never invest again!"

3. Bargaining: "OK, look, maybe if I sacrifice some of my winners and throw them into the fire as offerings to the stock gods, things will turn around. If we get a strong rally going, I promise to sell my positions and stay out as soon as I get back to even. There are always good stocks to make money on, and by God, I'm going to find them; at least I'm still ahead from my gains from the last three years, so I can afford to lose some."

4. Depression: "Oh my God, who could have imagined it could ever get this horrible? I can't even bear to watch CNBC -- even looking at Maria makes me sick. I'm in shock, and I've lost so much of my savings that I will have to work an extra five years before I can retire. I keep obsessing about how that money could have been spent, and now it's gone."

5. Acceptance: "At least I have my health and family. It's a terrible loss, but it's not the end of the world. It was my stupidity and greed that got me into this, and I'll just have to accept that I underestimated the risk of the market. At least I have time to earn back some of my loss and make sure I never take that kind of risk again. After all, it's only money."

Grieving Losses vs. Nailing the Perps

Now, to answer your question about where I think we are in the stages: It is useful to differentiate between where investors are with regard to their losses vs. where they are with regard to holding people accountable for those losses.

In terms of the grieving stages, I would say that most investors have gone past anger, which was the predominant stage about a year to a year and half into the downward spiral, and are now closer to resignation and acceptance. Sept. 11 jarringly put financial losses into a larger perspective.

Most individual investors have had plenty of time to mentally digest the pain and suffering of the last 28 months, which is not to say that renewed flashes of fear and anger do not return if they continue to have exposure to the market. But I think it is primarily those with more recent losses, for example, those who have tried to buy the false recoveries in the last six months or so, who would not have progressed past the anger stage.

When we talk about the unwinding of the bubble, part of that unwinding is systematically bringing to justice those who helped cause it and who benefited illegally from it. So the arrests of corporate officers that are now occurring are part of that gut-wrenching, gradual unwinding.

Psychologically, seeing the perps being whisked away in handcuffs with their heads hung in shame helps us cope with our own losses. It also aids the slow process of regaining faith and confidence in the capitalist system and the market complex in particular.

Although we need to feel some righteous indignation and anger to play out this drama of apprehending the wrongdoers, most investors are doing it from a place of acceptance that they very well may never see much of their lost money again.
Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 26 years, investing for the last 20 years, and actively trading online as a position trader and long-term investor since 1996. He is the author of The Disciplined Online Investor and maintains a site at www.hendlin.net. He is pleased to receive your comments and questions for publication in his public forum columns at steven.hendlin@thestreet.com, but please remember that he is unable to provide personal counseling or psychotherapy through the mail.

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