Recognize the Three Faces of Wall Street

Physician's Money Digest, October 2005, Volume 12, Issue 14

Once physician-investors set about buildingan investment portfolio, they come face toface with the investment industry, otherwiseknown as Wall Street. The face of Wall Street is acomplex one or, to use an old Clint Eastwood filmtitle, it is truly "The Good, The Bad, and The Ugly."

The Good: Buy and Lend

The good part of Wall Street is how its infrastructureand procedures allow physician-investorsa simple, inexpensive way to share in the fortunesof great American companies. Think about that. Ina split second, and for just pennies a share in commissions,we can all become owners of the bestmanaged, most profitable companies in the worldby hitching our financial wagons to the businesspeople, engineers, scientists, and financial whizzesthat run these businesses. Want to be in oil? In a fewseconds, you can own Exxon. Captivated by thepromise of biotechnology? For a $19.95 commission,own a stake in Amgen. The hard part, ofcourse, is deciding where to invest. But we shouldnever take for granted the ease of investing madepossible by Wall Street's systems and regulations.

Another vital tool Wall Street gives us is the abilityto be a lender and not just a borrower. Lendingmoney is a great way to diversify your financial holdings.Without Wall Street and, specifically, the bondmarket, our choices for lending money would beseverely limited, perhaps to that questionable newbusiness of your brother-in-law. The bond marketand, by extension, fixed-income mutual funds allowus to lend money to General Electric, the State ofNew York, or the US government. The decision as towhen and how much to lend remains crucial, but theflexibility of buying bonds as well as stocks is a fundamentalpart of portfolio strategy.

The Bad: Commissions

The bad part of Wall Street is the culture of salesthat permeates the business. Sales means commissions,both visible and hidden, and it is these commissionsthat do the most harm, often causing brokersand advisors to tilt clients to investments thatoffer a better payoff for the advisor. Recent scandalsinvolving the financial services industryrevolve around people selling out clients' interestsin return for money or other favors. Physician-investors,therefore, need to be on constant guardto protect their own interests.

The Ugly: Dumb Money

The ugly part of Wall Street is reflected in theterm "smart money" and in its connotation thatthose physician-investors not included in this termare the dumb money—the ones to whom overpricednew stock issues, the junk bond, or thathigh-fee variable annuity are sold. Don't be thedumb money. Buy only stocks of sound companies,use bonds to build a diverse portfolio, and steerclear of investments too good to be true. That way,we can use the good part of Wall Street to our ownadvantage, build a secure financial future, and bethe smart money after all.

Jay A. Rosenberg is the principal at Arrival Capital Management

LLC. He welcomes questions or comments at jay@arrivalcapital.com. This article was reprinted with permission from the

Southern Ulster Times.