Take Fiscal Advice from a Fellow Doctor

Physician's Money Digest, April30 2003, Volume 10, Issue 8

BusinessWeek

If only all physicians were as financially savvy as William J. Bernstein, MD. This practicing neurologist from Oregon has been dubbed a "financial guru" by columnist Robert Barker, has written 2 books on investment advice, and is a principal in Efficient Frontier Advisors (www.efficientfrontier.com), a money management firm based in Eastford, Conn.

A self-taught investor, Dr. Bernstein gained a following when he started offering advice through a quarterly newsletter posted on his Web site. The site, according to Barker, attracted a "a peculiarly '90's group: well-educated, Internet-powered people intent on investing well—and with minimal ‘help' from professional Wall Street."

DOCTORS AND INVESTING

The Four Pillars of Investing

In his most recent book, ($27.95; McGraw-Hill; 2002), Dr. Bernstein puts forth his investment theories and also writes about physicians as investors. "Practicing physicians, among whom I still count myself, have a richly deserved reputation as miserable investors," Bernstein explains in the book. "The real reason that physicians are rotten investors is that it never occurs to them that finance is a science, just like medicine."

So what scientific advice does Dr. Bernstein recommend to his fellow physicians? It all begins with the right mix in a portfolio. "If over the past 10 or 20 years you simply held a portfolio consisting of one quarter each of large US stock indexes, small US stocks, foreign stocks, and high-quality US bonds, you would have beaten over 90% of all professional money managers and with considerably less risk," he says.

THE RIGHT PRESCRIPTION

Of course, there's plenty of other advice in the book that today's physician-investor is sure to find helpful. The following are some other useful tips Bernstein offers:

• About 90% of what happens in the financial markets—the success of this stock or that company, this asset class or that fund manager—is noise. In the long run, what makes the difference is your overall asset allocation and attention to expenses.

• Do not confuse a good company with a good stock. Most often, a good company is a bad stock, and vice versa, for the simple reason that good companies tend to become grossly overpriced, and bad companies significantly underpriced.

• The only way to make money trading, as opposed to holding for the long term, is if you know more than the person on the other side of the trade. Stock trading is like a tennis match where you can't see your opponent. What most small investors don't realize is that most of the time, they're playing the Williams sisters.

So, if you're a doctor in need of an investor pick-me-up (ie, a prescription for investor confidence), check out what your colleague has to say about investing. By the time you're done, you should be feeling better.