With the holiday festivities behind us anda new year ahead of us, now is the timeto make a New Year's resolution. Thisyear, resolve to become a wise physician-investor,putting your financial house in order. Surprisingly,to accomplish this goal you will have to tuneout Wall Street and the media. Instead,turn your attention to the facts.
Today we have the results of 3decades of high-quality scientific researchin investing—results that arealmost universally accepted by the academicresearch community and haveearned their researchers Nobel prizes ineconomics. The large institutional investors(eg, pension funds and endowments),who have enormous resourcesand access to all the information, haveincreasingly been accepting these researchresults and investing accordingly.
Unfortunately, much of the investmentadvice you receive from Wall Streetand the media is contrary to theseresults. Wall Street's advice can often beself-serving, overly expensive, and sometimesnot just wrong, but dangerous. It isnot in their best interest, or the media's, to tell youthe whole truth and nothing but the truth.
In reaction to the recent stock market disaster,regulators have embarked on a reform binge. Someof the reforms being proposed or implemented areessential and will help investors. But a lot are goingto be wasteful, even counterproductive,and almost none will help you achieveyour 2003 New Year's resolution.
Therefore, it's your responsibility asa physician-investor to educate yourselfabout investing the right way. This taskmay seem overwhelming atfirst, so you may want tolook to wise investors for anexample. Their methods canprovide you with a how-toguide on becoming the wiseinvestor you want to be inthe new year. But who exactly is a wiseinvestor? A wise investor is someonewho fulfills the following criteria:
• Invests steadily based on a well-thought-out, long-term plan, with fullunderstanding of why they are investingthe way they are investing instead ofblindly jumping from one investmentstrategy to another based on advice ofdubious value from various sources.
• Invests based on scientific findingsinstead of Wall Street myths and fantasiesabout investing.
• Invests with realistic expectations instead ofchasing the latest investment fad in the hope ofgetting rich quickly.
• Understands that their own behavior hasmore influence on their investment success thanalmost anything else, and strives not to let fear,greed, and other detrimental emotions influencetheir investment decisions.
• Has learned the lessons of thehistory of investing and is able to continuelearning from their own andother people's mistakes.
THE PHYSICIAN FACTOR
No one can claim that becoming awise investor is easy. In fact, over theyears there have been few truly wiseinvestors. But, as you will see, it is notthat difficult to become a much wiserphysician-investor than you are today.The rewards of making the effortto become one can be enormous.
As a physician, you have a particular advantageas an investor: a scientific education. You're trainedto evaluate results of scientific research, separatefacts from fiction, and follow established procedureswith discipline—a large portion of what ittakes to become a successful investor.
However, you also have to be aware of a disadvantageyou have as a physician: the tendency torely on other experts in matters that lie outsideyour expertise. Most physicians, who believe thatinvesting is too complex or do not have the time orbackground to become experts in investing, naturallyturn to investment experts for help. But don'ttake the expertise of any investment expert forgranted. Even if you ultimately decide to rely on anexpert, you will have to learn enough about investingto be able to distinguish between the realexperts and false experts, and between advice thatis in your best interest and advice that is primarilydesigned to make money for the advisor.
author of The Only
Proven Road to Investment
Wiley; 2002), currently
teaches finance at the
Graduate School of
Business and consults
with individuals on
financial planning and
questions or comments