37 Pieces of Financial Advice from the American Journal of Medicine | White Coat Investor

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The American Journal of Medicine published a “review article” without references or apparent peer review of any kind last year. It was written by an older doctor (I assume, given his claim of investing in the stock market for 50 years) by the name of William C. Roberts. It was brought to my attention by none other than Bill Bernstein.

“This is hilarious. I’m sure someone must have pointed this out to you, but just in case . . .I don’t have the energy to respond to this in the AJM, but maybe you do!”

It turns out he actually does have the energy based on a follow-up email:

“Against my better judgment, I contacted the Journal’s editor and offered to write a followup article, tactfully pointing out to him that the piece contained no references, which I’m guessing is close to a first for his August publication.”

I hope the editor takes him up on it. But in the meantime, this article deserves a response right here on The White Coat Investor blog.

 

Thank You

The first thing I want to do is to thank Dr. Roberts (a cardiac pathologist at Baylor) for writing the article and the American Journal of Medicine for publishing it. Doctors certainly need more financial information, not less. While there are plenty of nits to pick in this article, at least there is something to nit-pick!

 

The Importance of Acquiring Financial Security for Physicians

The article was titled The Importance of Acquiring Financial Security for Physicians (The American Journal of Medicine (2020) 133:1403−1405). Dr. Robert’s motivation for writing it was exemplary: He wants doctors to be so financially secure that they can always do the right thing for their patients. I wholeheartedly agree. He then gives 37 tips of financial advice. I thought it would be a good idea to go through them one by one.

# 1 Save Money

Hard to disagree with this one. However, some of the specific tips may be a little extreme such as “don’t hire a babysitter”. I think that’s penny-wise and pound-foolish since date night is your greatest asset protection move. Score 1 for Dr. Roberts.

# 2 Invest in the Stock Market

Also hard to disagree with this one, although those who prefer real estate or entrepreneurship may disagree with his statement that “the stock market is the best place to increase one’s monetary worth over a long period”. Personally, I do all three. It’s a judgment call, but I’m going to give him another point for this one.

# 3 Build an Emergency Fund

I think this is a good idea. However, he then recommends you invest your emergency fund into a stock index fund. Say what? Then he launches into a crazy argument about stock picking.

“A low-fee Standard and Poor’s Stock Index Fund might be considered. This fund provides ready diversity, but it also includes purchasing the bad stocks as well as the good ones. It is also probably better than buying individual stocks for one not really interested in spending the time necessary to become relatively savvy with stocks. A preferable alternative might be Warren Buffett’s Berkshire Hathaway, a collection of about 80 companies plus shares in a variety of companies not managed by Berkshire Hathaway. In contrast to the Standard & Poor’s collection of stocks, Buffett has few bad stocks!”

You can’t make this stuff up, but it kind of makes it difficult to take seriously anything else he says in the article.

• First, index funds based on S&P indexes, in general, are relatively inferior to other index makers.
• Second, he likely meant an S&P 500 index fund, which is generally inferior to a total stock market index fund.
• Third, even if you’re interested in spending time picking stocks, you’re still likely to do better with an index fund.
• Fourth, even the man with the record for “beating the stock market” (aka Warren Buffett) tells you to use index funds.
• Fifth, Warren Buffett is not outperforming the market in any recent time period. Sure, he’s beaten “the market” (as measured by the S&P 500) in 37 of the last 55 years. But over the last 15? From 2006 through 2020, Berkshire Hathaway has posted a 15 year annualized return of just 9.59% per year. The Vanguard Total Stock Market Index Fund (you know, the one that buys all those bad stocks) had an annualized return of 10.08% over that same 15 years. The 5 and 10-year numbers are even worse (11.92% versus 15.42% and 11.21% versus 13.78% respectively).
• Sixth, Warren Buffett certainly has been known to pick a bad stock from time to time. Dexter Shoes, Conoco-Phillips, and US Airways. He also regrets not buying Amazon and Google.
• Finally, emergency funds belong in something far safer than stocks. Stocks are for money you don’t need in the next 5 years, not money you may need next week.

At any rate, while I’m mostly a fan of emergency funds for the non-financially independent, this one was a miss for Dr. Roberts. Besides, talking about investing in individual stocks just makes you look dumb. Warren Buffett tells you not to do it for a reason.

# 4 Learn Patience

Again, who can argue against patience? However, this statement is problematic:

“Most stock owners buy stocks when they are too high and sell them when they are too low. Doing the opposite is the way to make money.”

No, the way to make money is to buy the whole market every month using a low-cost, broadly diversified index fund portfolio and quit trying to time it.

While I like the advice to not panic, I don’t like the market-timing advice, so this one is a miss.

# 5 Diversify

Again, hard to argue with the title. It’s the advice below the title that can lead investors to make mistakes:

“Try to buy stocks in the [sector] that is down for the moment.”

Do yourself a favor. Just buy them all. Then you’re really diversified. Another miss.

# 6 Favor Stocks That Pay Dividends

Total miss here. It’s hard to reconcile his advice under # 3:

“A preferable alternative might be Warren Buffett’s Berkshire Hathaway”

with his advice here:

“Favor stocks that pay dividends.”

This is mostly bad, but perhaps just mistaken, advice. There are lots of reasons to avoid a dividend focus when buying stocks.

He also says here that “one potentially loses money only when the stock is sold”. No, while that justification may help someone avoid selling low, it isn’t actually true. When stocks go down in value, you actually did lose money. It might not matter to your personal life, but you still lost it.

# 7 Recognize the Beauty of Compound Interest

Yes, knowing how compound interest works is a good thing and most investors should learn.

# 8 Limits

It’s a little hard to tell what he is recommending here. He may just be recommending you use limit orders instead of market orders. Fine, no harm done there, but there is certainly little harm in using a market order on a typical day when you’re buying stocks the right way, through a highly liquid ETF, much less a traditional mutual fund. But he also seems to be again recommending individual stocks, so we’re going to call this another miss.

# 9 Goals

Hard to argue with the 8 words here. Yes, I think goals are good and yes, you’ll need to stick to them. But a few more words about reasonable or SMART goals probably would have been helpful. It’s only like the most important part of the whole process. Like # 7, he didn’t actually say anything wrong, so I’ll give a point here.

# 10 Beware of Stock Tips

Again, like the title, don’t like the advice under it.

“Have a good reason for purchasing or selling a particular stock.”

Look folks, just having a reason isn’t good enough. You either need to somehow magically know it will outperform the market, or you need to just buy the market. Another miss for advocating stock picking.

# 11 Avoid Mutual Funds and Annuities

“The fees are too high,” he says. I dunno, FZROX has an expense ration of 0.00% and no other fees. I’m not sure how much lower they can be. You can assemble an entire portfolio without any holding costing you more than 10 basis points a year. Unfortunately, it’s like he learned to invest 50 years ago and never updated his knowledge. Total miss here.

# 12 Never Buy or Sell All at Once

More bizarre stock picking advice here.

“Start buying slowly. If the price falls, buy more; if the price rises, do not feel obligated to chase it.”

How’d that work out for you with Enron or Worldcom or Bethlehem Steel? I think you can still get Sears stock for $0.23 a share! Another miss.

# 13 Have a List of Stocks to Watch

“When the price falls sufficiently, jump on it.”

What he means is when a stock is about to go up, you should buy it. Sounds a lot like Will Roger’s advice:

“Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”

It doesn’t sound any smarter when you read it in the American Journal of Medicine. The fact that this article got past an editorial staff of any kind is pretty remarkable. Obviously a miss. You don’t need a list of stocks to watch. You don’t need to watch stocks at all.

# 14 Avoid Shorting Stocks 

I’ll give him this one, but I wish he hadn’t added the caveat “unless you become a knowledgeable pro” becomes it seems to suggest that if you would just learn enough that shorting stocks somehow becomes smart.

# 15 Never Borrow Money to Buy Stocks

I’ll give him this one too, although it’s not terribly different from carrying a mortgage or student loans while investing in stocks.

# 16 Survey Your Stocks Daily

This may be the worst advice in the entire article. Imagine someone like me who thinks a good time is to disappear into the wilderness for a week or two without cell coverage. It’s hard enough for docs to get away from their work, the last thing they need is to not be able to get away from their investments. The best part is how he recommended you diversify back in # 5. Then he says this:

“The correct number of stocks to own varies with one’s interest in keeping up with them.”

Guess what? If that’s the case, the correct number for most docs is zero. You certainly don’t need to be a stock picker to be a successful investor. In fact, it’s likely to hurt your efforts.

# 17 Be More Conservative as You Get Older

Okay, that seems like reasonable advice.

# 18 Beware of Bonds. They Are for Old People.

Uhhhh…..So were we supposed to be more conservative or not? I’m going to give two solid misses for #s 17 & 18 for squandering such a great opportunity to discuss asset allocation.

# 19 Beware of Trying to Time the Market

Wait a minute, back in # 4, # 12, # 13, and # 16 you told me to time the market and now you’re telling me not to. Which is it? I would have given you a point for this one except you recommended the old “dry powder” strategy, so another miss.

# 20 Invest for the Long Term

Great advice.

# 21 Learn About a Stock Before Buying It

Again, what seems like reasonable advice on the surface actually turns out to be bad advice because even if you learn all kinds of things about the stock, you should still buy them all. Another miss.

# 22 Look Favorably at Stocks Warren Buffett Owns

I’ll bet you a dollar Dr. Roberts has made at least one trip to the Berkshire-Hathaway annual meeting in Omaha. But the strategy he advocates here is pretty silly:

“Consider [purchasing] as soon as you learn what companies or stocks [Buffett] has recently purchased.”

Look, if you want to own what Warren owns, buy Berkshire Hathaway. It’s really quite easy. But as we showed under # 3, that might not be such a great idea. Better to do what Buffett told you to do—buy an index fund.

# 23 Listen to Business Channels

There is almost nothing worthwhile on “business channels” whether on TV, the radio, or anywhere else that is going to increase your investing return. He doubles down on it though:

“Learn if your instincts are good and, if so, go with them.”

I love what is left unsaid. What if your instincts are bad? No advice for you.

# 24 Buy Stocks in Companies You Believe In

Look folks, the stock doesn’t know you own it, much less understand your religious devotion to it. Listen, I believe Southwest is a better company than United Airlines, but if you give me a low enough price on United, I’ll take it over Southwest. He also gets into an interesting ESG advocacy position:

“Refrain from buying stocks in companies that produce products not good for your health, tobacco companies or fast-food chains, for example.”

So arms manufacturers, casinos, and oil and gas are all fine, but don’t you buy any stock in McDonald’s. Another miss.

# 25 Subscribe to WSJ and Barron’s

WSJ publishes a lot of entertaining articles, but if you think you’re going to be able to identify a good stock by reading newspapers and magazines, I think you misunderstand the advice their columnists like Jonathan Clements and Jason Zwieg actually give. He also says you can “deduct their subscription costs from your taxes”. Really? Did you miss the Tax Cuts and Jobs Act? Those deductions (which were subject to a 2% floor anyway) disappeared in 2017. I bet Dr. Roberts was never legally able to deduct his WSJ subscription given his likely career income. Another miss obviously.

# 26 Do Not Ignore Recent Trends and Try to Get Out Early

All kinds of interesting stock picking and market timing advice here. Again, impossible to reconcile with # 19.

# 27 Stay Out of Debt

While I generally agree with this (and give him a point for it), his explanation of amortization is somewhat bewildering:

“Try to obtain a mortgage loan that allows the paying of next month’s principle with the present month’s principle plus interest. Then, the next month’s interest is nullified.”

First, it’s principal. Second, yes, the interest on the additional principal paid is “nullified”. But not just for a month. If you pay extra, you never pay interest on that money again.

# 28 Try Not to Divorce

It’s a good tip. I agree. The pre-nup recommendation and the recommendation to marry someone frugal are also not bad.

# 29 Beware of Sales

What he really meant to say was don’t buy stuff you don’t need or even want just because it is on sale. I agree with that.

# 30 Do Not Confuse Price with Value

After that quick break to discuss debt, divorce, and sales, we’re back to the stock picking advice. Contradictions, market-timing advice, and bizarre advice (don’t buy stocks with a price under $5.00 a share) abounds. Miss.

# 31 Have a Monthly Budget

I like that one. I wish he had recommended a 20% savings rate for his physician readers instead of 10%, but overall I’ll give him a win for this one. My favorite line in the entire paper was here though:

“Call your credit card company at year’s end for a summary of your year’s spending.”

Or you could, you know, go online and look at it.

# 32 Avoid Retiring Early

The FIRE folks are going to love this one. You would think advice like that would be followed by some sort of explanation. But no. It just goes right on into other advice like:

“Start saving early for retirement. Do not procrastinate. Wasting less time usually leads to wasting less money.”

I don’t get it. Why start early and avoid wasting money if you don’t want to retire early? You can start pretty darn late if you are willing to work until 70. A miss here for leaving out any sort of argument against early retirement.

# 33 Calculate Stock Profits Annually

I think he’s saying track your return. I agree. I wish he’d also told you to compare it to a reasonable index fund and see if you’re beating it long term. He then spends a paragraph explaining how percentages work in case you missed that part of your 5th grade education (yes, a gain of 40% does not make up for a loss of 40%).

# 34 Don’t Be Fooled by the Splitting of a Stock

Long paragraph here explaining how stock splits work. I’ll go one better. Don’t bother even knowing if your stocks ever split because it doesn’t matter if you just buy them all. Random information, but not inaccurate, so I’ll give him a point.

# 35 Study the 1929 US Stock Market Crash

I agree that understanding financial history makes you a better investor, so I’m giving a point for this one.

# 36 Own Some Gold

He recommends 5-10% of your portfolio be put into gold coins in a bank safety deposit box. If you really want to, knock yourself out. I’ll give him a point for not recommending anything higher than 10%. The key with “investing” in speculative assets like gold or bitcoin as some sort of a hedge is to limit the investment. The bulk of your portfolio needs to be in productive assets.

# 37 Stay Healthy and Live Long

I was going to give a point for this one, but he added a P.S. advocating for more individual stock picking. So a miss.

Final score: 15/37. Pretty disappointing. I appreciate seeing a financial article in a medical journal but wish this one had gotten some peer review. If you’re a medical journal editor considering publication of something like this, Dr. Bernstein and I would be more than willing to do a little pro-bono peer review for you.

What did you think of the article? Did you like it? Did it do more harm than good? Comment below!