Table: Psyching Out the Market
Stock trading during the dot-com meltdown and slowing economy can be high-stress. James W. Gottfurcht, president of Psychology of Money Consultants in Los Angeles, identifies six psychological money traps that people often fall into. Beware, he says, of the RAPIDS.
Rationalization: Trying to explain away bad situations, such as a big tech-stock drop, rather than changing behavior.
Avoidance: Delaying actions, like selling a plummeting stock that has little chance of recovering--a trap that can turn losses into greater losses.
Projection of blame: Blaming someone else for bad financial choices, like lousy timing on buying a stock that later tanks.
Idealization: Putting too much faith in something, like a particular stock or a charismatic financial guru.
Denial: Blocking out upsetting facts, like the market plunge, which could lead to making risky decisions about future stock purchases.
Splitting: Suddenly, taking a totally negative attitude, like deciding never to participate in the stock market again after suffering a big loss.