If a doctor does self-invest, then he is his own investment manager. He is the manager and client, which is beneficial because he clearly has his own interests in mind.
It is well known that investors can save money by buying passively managed index funds. With these vehicles there is no active fund manager being paid to pick stocks, and more returns are left for the client.
This concept is supported by well-respected data. A commonly cited statistic is that, on average, 80% of passively managed index funds outpace actively managed in any one year. If a longer time frame is taken, passive funds outperform active funds by even more. Private managers’ fees are almost always higher than managed mutual funds and their results are opaque and thus cannot be directly calculated. Nevertheless, their fees eat away at any positive performance, just like the managed mutual funds.
Now, savvy investors are pulling money from actively managed funds and placing it in passive index funds. We know this because the latter gained significant market share in the last 10 years.
Investors accomplish this task by following uncomplicated investing procedures. In order to form a basic strategy of what sectors and types of funds to buy, new investors often seek the help of consultants who charge by the hour, rather than those who take over a portfolio and charge a percentage of assets. This approach is much less expensive.
Also, appropriate methodologies can be found on the internet on a variety of websites (such as The Motley Fool). Time and diligence are required, of course, but more and more people are finding the positive results worthwhile. They are surprised by how easy it is to invest their own money once they have done some research.
Should today’s doctors join the self-investing revolution?
My answer is “Yes,” though 20 years ago this might have been more problematical because there were more so-called celebrity doctors. With recent changes in medicine, being a celebrity doctor is less likely.
Today, physicians have largely lost their superstar status and are sadly treated more like a commodity. Luckily, though, many hospital-employed physicians have more available time than they did 20 or 30 years ago. Therefore, in general, they are able to use some of that time to learn how to invest.
If a doctor does self-invest, then he is his own investment manager. He is the manager and client, which is beneficial because he clearly has his own interests in mind. Another positive is that he can balance income pressure by saving any money he would pay a professional investment advisor.
Profile of the celebrity doctor
Expertise in one area (i.e. medicine) does not necessarily transfer into investing acumen. This is true for all groups of professionals, but we know this especially for doctors because Bailard, Biehl and Kaiser Communications Group held a study in the late 1980s that categorized individuals depending on their investing characteristics.
At the time, the grouping that physicians most often fell into was called “celebrity.” These were individuals whose schedules were hectic, but they still wanted to “beat the market” when investing. Without time to figure out a coherent plan, they would latch onto whatever hot topic came their way, whether it was from a friend, over the radio, on television or in a newspaper. They took what they thought were hot tips and acted on them (entertainment personalities were also in this group).
The difficulty for the physician, or anyone who has more confidence than prudent judgment, is that it ultimately leads to losses. He thinks he can beat the market because he believes he can pick stocks that are winners. Therefore, he overtrades.
Finance professors Brad Barber and Terrance Odean have shown that, overall, men make less in the stock market than women because men buy and sell stock more often. These researchers attributed this male characteristic to overconfidence. If this happens to a physician, his expendable income is dissipated, not by the ever-present threat of a lawsuit, but by the MD’s excessive manipulation of his own stock portfolio.
There couldn’t be a more ideal time for a physician to take control of his investable money. Doctors today are no longer celebrity; they are largely hired employees like most everyone else. Coupled with that, now there is a host of passive index funds available — 80% of which beat actively managed funds. That means finding a way to make more money is not only possible, but virtually a necessity.
Doctors who are inclined to do this, have the time to do it and are willing to be educated can take charge of their own money. The way I see it is that ultimately their lives will be freer and richer in several ways.