Freud stated that money is treated by modern men and women as they also treat sexuality, with prudishness and repression. In Dreams in Folklore, he described the mental processes by which children sublimate the pleasure inherent in the retention and expulsion of faeces and ultimately transfer their anality to gold or money. Freud analyzed the meaning of gold in dreams to represent faeces and anal pleasure. The developmental sequence is as follows. Because of powerful biological pleasures associated with the retention and expulsion of faeces, a small child reluctantly acquiesces to parental demands for toilet training in order to secure parental love. Spurred on by an introjection of parental super-ego, the child's first line of defense is a reaction formation against anal pleasure producing disgust or shame. Then, defending against the shame are the defenses of denial, sublimation, and repression. A common example of these dynamics is seen in the individual who is ashamed at receiving a large inheritance.
Of all the early analysts, the one name associated with the greatest theorizing about money is Karl Abraham.
Look at the progeny of the robber barons of the nineteenth century who not only established foundations to expiate their guilt, but even hired press agents to clear their names.
Other early analysts also wrote extensively about anality and its core meanings in relationship to money. Ferenczi in his 1914 article, “The Ontogenesis of the Interest in Money,” described the typical childhood developmental sequence of interest in fecal matter gradually sublimating to an interest in money by transitioning through making mud pies, followed by an interest in collecting coins, and finally money in general. Of all the early analysts, the one name associated with the greatest theorizing about money is Karl Abraham. His 1913 paper, “On the Anal-Character,” anticipated many of Freud's later opinions about money and its symbolic meaning of faeces. However, Abraham expanded the concepts to include unconscious anal sadistic themes, the penis as a faeces equivalent, security, and power.
Abraham also thought that money unconsciously represented a path to love. His idea was that in some anal characters there existed a repetition-compulsion desire to win parental love through the gift of faeces. There are many other analytical articles in the literature which describe a host of other possible unconscious meanings for faeces, but they tend to represent special cases rather than universal principles.
The significance of these theories is of enormous importance in behavioral finance, but to a certain extent is under appreciated because so much research in behavioral finance has been focused on finding heuristics, those erroneous cognitive rules that turn investors away from rational decision making. The amount of guilt and shame associated with money and its equivalents (stocks, bonds, etc.) represents a neurotic pattern seriously affecting the ability of many people to invest in the most effective ways. One very dramatic example of this was revealed in a study I performed in the late 1980s. From clinical observations of professional money manager patients in my practice, I developed the theory that obsessional investors tended to do the opposite of the Wall Street dictum, “Cut your losses short and let your winners run.” I assembled a study group of investors with strongly obsessional traits as measured by interviews and the Minnesota Multiphasic Personality Inventory (MMPI) results and a control group roughly matched for age who were normal with respect to their interviews and MMPI testing. All participants were men. The portfolios of all were followed over a five-year period. The results showed a significant difference in performance with the controls achieving a compound annual return of 3.5 percent greater than the study group. Most significant was that the controls sold losing positions much more quickly than the study group and that the reverse was true with respect to stocks rising in price. Here the controls held positions longer whereas the study group sold at the first sign of weakness often rationalizing “that you never go broke taking a profit.”
Upon follow up interviews, the obsessionals reported feeling depressed when stocks were down, but coped with their sense of failure by the thought, “I'll sell when it gets back to what I paid for it.” This represented the obsessional
John W. Schott, M.D., is a member of the Boston Psychoanalytic Society. He is director and portfolio manager at Steinberg Global Asset Management. He also publishes a monthly newsletter on investment psychology, The Schott Letter.
defense of undoing in order to help with the narcissistic injury suffered. The longer holding period of losing stocks also represented a form of moral masochism relieving unconscious infantile guilty feelings described by Abraham in connection with anal characters. The obsessional group, when holding rising stocks, experienced anxiety rather than pleasure and were quick to sell with a feeling of relief at the first sign of weakness in price.
These results are interesting when compared to recent studies done by the University of California Davis economics professor Terrence Odean who examined the results of 225,000 West Coast Charles Schwab investors. Odean was not studying personality or neurotic traits. He was comparing men and women. His study results showed women investors to achieve an approximately three percent compound a year better result than men. The selection of stocks did not account for the differences. Instead the difference stemmed from the holding period. Men held a stock on average only seven months while the women's average holding time was three and one-half years. The men hurt their performance through higher fees incurred and by the failure to let their winners compound. Interviews by Odean indicated men had higher levels of confidence about investing than the women and that they viewed investing as a competitive endeavor. In sharp contrast, women viewed investing as a long-term process to gather assets for specific purposes such as education of their children, the purchase of a vacation home, or retirement needs. If Odean were perhaps a psychoanalyst as well, he might have described the men interviewed as being more obsessional. We will never know, but it is not unreasonable to consider that possibility.
The title of this essay is “The Last Taboo.” Freud correctly saw the high level of neurotic conflict tied to money and wealth. My lectures to investment professionals and young students are met with interest, but also cause anxiety and confusion among them. I am often reminded of Freud's early efforts to teach psychoanalysis when he forewarned his audiences that they would not understand the material for defensive purposes. I will conclude with a personal anecdote apposite to this. Fifteen years ago I gave a lecture on investing psychology to a group of the highest producing brokers working for one of the largest financial firms in the country. To illustrate shame unconsciously attached to money, I asked an opening question in which all people in the audience with more than $3M were to stand up. I had done this many times before and no one had ever stood up. However, on this occasion a woman did arise only to become embarrassed when she realized that she was the only one standing. I invited the audience to discuss the interaction. The first to speak was a man with a pronounced southern drawl who said, “That was a rude question, sir.” then used that as a taking off point for my discussion on anality and money.
The following day, my friend and fellow psychoanalyst, Richard Geist, also addressed the same group. When we met later that day, he asked me, “What in the world did you tell that group?”
I responded by telling him that it was the same old lecture which he had heard several times. He then described a woman who dashed up to him when he arrived and asked him point-blank, “Are you going to talk about the same crap as that guy yesterday?”
Geist responded, “No, I don't think I'll be saying something like that,” to which she retorted, “Well, I showed that guy. When I went to my room yesterday, I took a $50 bill and ripped it up and threw it down the toilet!”