Think about the systmatic process we use as physicians when we diagnose and treat patients.
Whether you're a surgeon, an internist, or pediatrician, you take a history, do a physical, come up with a differential diagnosis, and then choose the appropriate therapy. Sometimes this means waiting and seeing, other times it means prescribing a medication, and yet other times it means performing a diagnostic or therapeutic procedure.
The exception to this is the emergency department, where we tend to mix up the order of events. But hey, that's not our fault. We usually have very limited data and even less time before we have to make a decision. But even then emergency medicine physicians still have a systematic process for treating patients. (And for all you surgeons and hospitalists reading this, no we don't actually just admit everybody!)
After reviewing so many physician's investment portfolios, it's clear to me that many of you simply don't have a systematic process for managing this critical aspect of your life.
What's worse is that many of you have hired financial advisors and still don't have a systematic process!
You tend to focus on the things that simply don't matter much and ignore the few things that actually matter in generating investment returns.
So here's a REALLY simple way to determine whether you've got an investment process in place. It just boils down to asking yourself one question:
"Do I understand the purpose of every investment in every account across my entire portfolio?"
If you cannot answer this key question, then you likely have a problem on your hands--potentially a big problem on your hands.
Now, you might be thinking "Well, I've hired a financial advisor that's taking care of this and I trust him to answer that question for me."
Do yourself a favor. The next time you have a meeting with him, ask him to give you the specific reason why each investment was chosen in your account.
What were the criteria?
How does investment A in account #1 relate to invetment B in account #2?
What role does each investment play in my portfolio?
If any of the answers are like the following, then your internal fire alarm should be going off to the point where you've got tinnitus:
"Our research team has recommended..."
"The past performance of this fund has been...."
"This money manager has had a great track record..."
"I think the market will....so these investment should do well..."
Before you think I'm bashing financial advisors, if you're managing your investment portfolio by yourself, then YOU need to answer that critical question also.
There's just one problem.
The most common answer I get from physicians to that critical question is "I don't know."
Really? So you busted your butt through college, medical school, residency, and maybe a fellowship or two, and your daily career revolves around figuring out the reason why you order tests and recommend treatments to patients, but you don't know why your money is being invested the way it is?
And what exactly is the reason you're paying a fee to a so called financial "professional" if he can't tell you?
Don't worry. I can answer that one for you. See, most financial advisors simply aren't well versed in the academic invesment philosophy you should use to manage a portfolio.
So here's what I want you to do:
1. Write down every investment you own in one column
2. In the second column write down the reason, purpose, or role that invesment plays in your portfolio
If you can't do this, then it is absolutely time for you to get a second opinion financial consultation, which you can do with me right now by clicking here: