Are Physicians Poor Investors?

July 7, 2014

Making smart financial decisions differs greatly from making smart medical and treatment decisions.

"Physicians are bad at investing." I hear it in the investing community on a regular basis. There is some truth to the impression, but the reasons might surprise you.

Physicians live in a world of confidential information, of trust, and of quick, important decisions. Many doctors think that everyone else lives in the same world, which is a dangerous conclusion when they delve into the business of finance.

The naïve physician assumes that this well dressed financial adviser with a number of "degrees" on the wall (many from weekend seminars on how to sell more product), is dealing in a truthful fashion.

Wrong. The vast majority of financial "advisers" are salesmen, whose goal is to sell. Doing well by the client is often quite secondary. Yes, I mean especially the brokers in nice suits and marble buildings. The vast majority of brokers and insurance agents are paid by a third party, and this tends to put them in an adversarial relationship to the physician.

Making quick decisions in the medical world is often necessary, literally life and death in scope. But making quick decisions in investments is usually a mistake. There’s no rush most of the time. An investment process should be well thought out, disciplined, and monitored.

Physicians have to be confident in their decision making in medical practice, something that works against them in the investment world. The complexity of finance is in many ways equal to the rigors of medicine (I know a bit about both worlds). Assuming that making "As" in medical school leads to good investments is an expensive error. I can assure you that the literally millions of professional investors you invest against includes a large subset of very smart and experienced individuals. Having a broker or "adviser" that has perhaps a few weeks of education (much in how to make sales) is a recipe for failure.

In addition, if you make quick investing decisions that are not very carefully chosen out and followed, you are unlikely to react appropriately to market volatility. You are more likely to buy expensive and sell cheap.

All this is not to say that a physician can’t be a good and prudent investor. But it is to acknowledge the many factors that work against this being the case.