Elisabeth Kubler-Ross, a Swiss MD, came to the US in the late 1950s. She worked in a New York hospital and was horrified with how the dying patients were treated. Most were shunned and treated with a profound lack of respect. So she sat down and listened to them, and eventually started giving lectures on what they were telling her. This culminated in her classic book, On Death and Dying (1969) in which she outlined a 5-stage model on death and grief. Although the model is based on anecdotal evidence (not exactly air-tight from a “science” perspective…whatever the heck that means), I think it can be useful in helping us understand any kind of loss. In Part Two of My Worst Damn Investment Experience, Period! I’m going to apply the model to my shellacking at the hands of Laidlaw (click here for Part One). Let’s begin with the stage you know, you love, you can’t live without…

1. Denial

If you’re ever looking to get away from it all, especially the truth, take the vacation that is denial. Of all the stages of grief, this one has received the most empirical support. It involves trying to tell ourselves that nothing has changed and that all the bad stuff can’t be happening. While Laidlaw was going down, I ordered up one dandy dose of denial. Like so many others who have been burned, I stopped looking at the stock quote. And when the carnage was over, I acted as if it never happened. I didn’t tell anyone, not so much because I didn’t want them to know. It was more a matter of failing to acknowledge it myself.

The Market Guy has used denial after each of the following situations:

• Rick Monday’s game five home run off Steve Rogers, eliminating the Expos from the 1981 playoffs. This was my first sports trauma.
• Seeing the horrendous Highlander 2. To this day, I will never understand what Sean Connery was thinking when he agreed to be involved.
• Being in grade 7 and having a group of grade 8’s laughing at my pants. They were not flood pants. I was not wearing flood pants. No flood pants. Understand?

The denial also affected how I interpreted (or failed to interpret) all the bad news that kept coming and coming and coming in the months leading up to the bankruptcy filing. I decided not to think about it. As always, make sure to test-drive some denial first, just to make sure you like it. If it breaks down, you can always have some fun with…

2. Anger

In this stage, you’re angry at the person(s) who inflicted the hurt or at the world, for letting it happen. Sometimes you’re angry with yourself for letting the event take place, even if, realistically, nothing could have stopped it. Given the prevalence of the Laidlaw logo around town, I had many opportunities to express my anger. I especially enjoyed my expletive-filled tirade when a Laidlaw bus cut me off on campus. It was a modern version ofGeorge Carlin’s Seven Words You Can’t Say on Television. OK, so I muttered the whole thing and never really yelled. But it was satisfying nonetheless.

In the anger stage, Elisabeth Kubler-Ross (shown here) would have mowed down the daisies had she owned Laidlaw like the Market Guy

I was angry with management and also used a number of colourful descriptors when discussing them and their descendants. They misrepresented the facts and I regard them as nothing more than financial pirates, right up there will the motley assortment of characters we’ve seen over the past year being dragged away in handcuffs. OK, so I’m experiencing some anger residue. Note that it’s possible to move back-and-forth between stages. Finally, I was angry with myself, especially for what I did during the stage of…

3. Bargaining

Sometimes we try to bargain our way out of the negative situation. Often we enlist the services of a higher power…the “please (insert your favourite deity here) I’ll be a better person if you help me out of this jam” strategy. Although I didn’t pray, I did sing the song of the investing junkie: dollar-cost averaging. The idea is that if you buy more at a lower price, this will reduce the average cost. In the beginning of 2000, I added shares at $4.54 and then again at $1.70. Yes, I was trying to catch a falling knife and I was getting cut up bad. The stock was becoming increasingly volatile and some active trading recouped some of the losses. But the stock eventually continued its shameful march to zero and I maintained at least a portion of the position until mid-2001 and a final trade price of, get this, $0.55. I barely ended up with a dollar with my dollar-cost averaging.

In behavioural finance we speak of investors treating gains and losses quite differently. Recent Nobel prize winner Daniel Kahneman and the late Amos Tversky developed prospect theory which stated that when faced with a gain, people seek to minimize risk. That is, they do what is necessary to protect the gain. Conversely, when faced with a loss, people are willing to assume extra risk to try and reduce the loss. They will do this even if it means throwing good money after bad. Why do we do such irrational things? Well, it owes much to the fact that while we really enjoy our gains, we really, really, really, really dislike our losses. I suppose it’s a case of pain being more powerful than pleasure. In my dealings with Laidlaw, I behaved like a behavioural finance cliché.

When I finally eliminated the holding, I spent more in trading commissions than I received from the sale. Although this sounds irrational, if the stock went to zero (and it did), Laidlaw would have been etched for eternity on my account statements and I would have to pay my broker a fee to remove the stain. You might as well send me to the showers in the third season of the prison drama, Oz. I wonder how many people have Bre-X on their statements? Any of you long Air Canada? Watch it, Pedro. Because if you do, get ready for some…

4. Depression

“Like a fool, I fell in love with you, turned my whole world upside down…Laidlaw”   -As always, Clapton speaks the gospel

This reaction is, well, depressing. You feel numb, and the activities you used to enjoy no longer excite you. Typically there is a change in appetite and sleeping behaviour. Being in the field of psychology, I’ve taken many tests that are designed to capture aspects of my personality. Someday they’ll discover that personality tests cause cancer and then I’m really screwed. Among the findings that consistently emerge is that I have an optimistic way of looking at the bad stuff that happens. So I missed the depression stage completely.

Besides, the portfolio outperformed the Dow by over 20% in 2001 and 33% in 2002. In other words, the context didn’t allow for much self-loathing and made compartmentalizing the loss much easier. It was kind of like dating a girl that treats you like crap, getting dumped, and then finding yourself in a beach house with Uma Thurman on spanish fly. As always, such things really aid in…

5. Acceptance

“Let’s make the best of the situation, before I finally go insane…”   -Clapton brings us home

In this stage, we realize life has to go on. The anger and sadness have tapered off and we start to accept the reality of the loss. It’s a time of retrospection and hindsight. As part of the process, I initiated what social psychologists call, the attributional search. That is, I started asking the “why” question; as in, why did this happen? What could I have done differently? Keeping in mind, of course, that sometimes stuff just happens…

• I didn’t have any limits on how much punishment I was willing to take. I should have limited my downside to something like 20%, sold out and then just moved on. It’s kind of like my 10-minute rule for new sitcoms. If I don’t laugh in the first 10-minutes, I’m not watching the show again for a long, long time.
  
• As soon as we heard about accounting issues, that should have been my signal to get out of Dodge. Nothing good ever comes from accounting issues. There are so many other things to do with my money.
  
• I should have been wary of the demographic arguments in favour of the company. These arguments have such intuitive appeal and it’s easy to be persuaded by “the population is aging, so there will be all these boomers buying this or that” line of reasoning. Makes for some great discussion, but investing is way more complex than that.
• Beware the serial acquirer that takes on huge amounts of debt. Sometimes you need to eat what’s on your plate before grabbing seconds. I bought the stock in 1999 and at that time, few investors really cared about debt. It was all about growth in the top-line and who cared about the tab?
• On the plus side, it reinforced my philosophy of never dedicating more than 5% of the portfolio to a new position. Saved my bacon here.

Laidlaw recently emerged from bankruptcy protection and has resumed trading on the TSX. No reaction from me. In fact, I knew my acceptance was secure when I received a request to participate in a class-action lawsuit against the company. My reaction? I couldn’t be bothered. I just don’t care anymore. Or maybe I’m just back in denial?

The Market Guy is an Instructor with the Department of Psychology at Carleton University. He’s not a professional advisor. He’s just a guy who loves investing and talking about the markets. He just can’t see anything positive coming out of a Marlins-Yankees World Series. It’s like being asked to choose between having all your body hair pulled out and being hit in the groin with a steel-toe boot. Thank goodness for the NFL. There are always balls in the air at mail@marketguy.ca