Doctors are the single most likely occupation to reside in the top one percent of household earnings. Physicians should get excellent returns. They have high IQs, a science background, they understand statistics, and they are used to making highly consequential risk/benefit decisions. Yet doctors are notoriously bad investors.
Why don’t doctors get the results they should?
Doctors are overconfident. The self-assurance that works so well for them professionally trips them up when they invest. They believe that the force of their brains and personalities will let them power through any obstacle. They are accustomed to making fast decisions that are usually correct. Investing sounds like an entertaining and highly profitable hobby. After all, their stockbroker is an idiot and he seems to be rich. Because they’re smart, they think they can win this game on their own terms. But they are prizefighters operating in a wrestling ring. They get taken and shaken down accordingly.
Doctors are incredibly busy. Simple economics dictates that they use their time practicing medicine, not on some sideline investing. They don’t have the time to make a proper study of the field. Their attention is constantly being pulled in fifteen different directions. Yet the people they trade against have minds that are clear and focused like a laser.
Doctors assume that finance professionals have expertise like their own. Since doctors undergo arduous study and training to score their professional shingles, they assume that people who hold themselves out as finance professionals are masters of some similar body of knowledge. Physicians are used to telling it like it is, not holding back with the bad news, and they assume that other professionals will display the same level of honesty and plain dealing. They are unaware of the flimsiness of most professional certifications in finance, or the trivial entrance requirements to the field. Wealth managers are the ‘B’ students. If they were ‘A’ students, they’d be running hedge funds. Or, they’d be…doctors.
Doctors are a targeted high-risk group. Because their contact information is easily harvested by marketers, physicians are surrounded by sharpies eager to take their money. Worse, doctors are always on the lookout for some angle where they won’t have to pay taxes. Good luck. When it comes time to invest, top-of-mind awareness goes to the glossy brochure with the scheme to extract gold from seawater, not the Financial Analysts Journal in the library.
This means doctors can go from one dodgy idea to the next without ever alighting on a sensible approach that puts them in the way of making money. The silver lining is that physicians work in a field that is inherently low beta and low volatility. Other things equal, doctors can usually profit from a higher allocation to equities. Their lifetime net worth can be very high, provided they don’t mismanage the investing piece and are careful whom they marry.