VALUATION: Approaches for Common Stocks

A BRIEF REVIEW FOR PHYSICIAN INVESTORS

By Dr. David Edward Marcinko MBA CMP™

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QUESTION: We are in near bear market correction territory – especially for tech stocks – so what are the 2 major types of valuation approaches for common stock?

UPDATE: https://www.msn.com/en-us/money/markets/stock-market-news-live-updates-sandp-500-dow-fall-amid-mixed-bank-earnings-retail-sales-miss/ar-AASL74g?li=BBnb7Kz

TECH: https://www.msn.com/en-us/money/markets/nasdaq-near-a-10percent-correction-isnt-the-sell-signal-you-probably-think-it-is/ar-AASL22m?li=BBnbfcL

ANSWER: There are basically two different approaches for common stock valuation; top-down and bottom-up.  Under either of the two fundamental approaches, a physician investor will have to work with individual company data.  In reality, each of these approaches is used by investors and security analysts when doing fundamental analysis.  

CITE: https://www.r2library.com/Resource/Title/082610254

With the bottom-up approach, investors focus directly on a company’s prospects. Analysis of such information as the company’s products, its competitive position, and its financial status leads to an estimate of the company’s earnings potential, and, ultimately, its value in the market.  Considerable time and effort are required to produce the type of detailed financial analysis needed to understand a firm’s standing. The emphasis in this approach is on finding companies with good long-term growth prospects, and making accurate earnings estimates. 

The top-down approach is the opposite of the bottom-up approach. Investors begin with the economy and the overall market, considering such important factors as interest rates and inflation. They next consider likely industry prospects, or sectors of the economy that are likely to do particularly well (or particularly poorly). Finally, having decided that factors are favorable for investing, and having determined which parts of the overall economy are likely to perform well, individual companies are analyzed.

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The Long and Short of Portfolio Construction

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Long-Short Portfolio Construction vs. Long-Only

[By Dr. David Edward Marcinko MBA CMP™]

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[Publisher-in-Chief]

Long-Short is an active portfolio construction discipline that balances long positions in high expected return securities and short positions in low expected return securities of approximately equal value and market sensitivity. This type of portfolio is “neutralized” or immunized against changes in value of the underlying market and, therefore, has zero systematic (beta) risk. If the selected securities perform as expected, the long-short positions will provide a positive return, whether the market rises or falls.

Misconceptions

While long-short portfolios are often perceived and portrayed as much costlier and much riskier than long-only, it is inherently neither. Much of the incremental cost and risk is either largely dependent on the amount of leverage employed or controllable via optimization. Those costs and risks that are not controllable—financial intermediation costs of borrowing shares to short, the trading costs incurred to meet long-short balancing, margin requirements, uptick rules, and the risks of unlimited losses on short positions—do not invalidate the viability of long-short strategies.

Long-Short Advantages

Compared with long-only portfolios, long-short portfolios offer enhanced flexibility not only in the control of risk and pursuit of return, but also in asset allocation. Basic market-neutral portfolios achieve a return consisting of three components: (1) interest on funds held as a liquidity buffer, (2) interest on the short sale proceeds maintained with the broker, and (3) the return spread between the aggregate long and aggregate short positions in the portfolios.

Disadvantages

Share borrow-ability and uptick rules make short-selling more difficult and costly than going long. Also, it may be legally or contractually restricted for some investors, such as mutual funds. Inefficiencies may be concentrated in overpriced stocks and, accordingly, short sales of the most overpriced stocks may offer higher positive returns than long purchases of underpriced stocks.

Assessment

Long-only portfolios are confined to altering the weighting of securities within an index in order to realize an excess return. Long-short portfolios are not constrained by index weights and, because they can short securities, they can “underweight” a security by as much as investment insights and risk considerations dictate. Long-short portfolios can be enhanced by “equitizing” them using stock index futures.

Note: “The Long and Short on Long-Short” by Bruce I. Jacobs and Kenneth N. Levy, The Journal of Investing, Spring 1997, pp. 73–86, Institutional Investor, Inc.

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Modern Portfolio Theory and Asset Allocation [Not Correlation]

THE CORRELATION HOT TOPIC

ACADEMIC C.V. | DAVID EDWARD MARCINKO

By Dr. David Edward Marcinko MBA CMP©

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Modern Portfolio Theory approaches investing by examining the complete market and the full economy. MPT places a great emphasis on the correlation between investments. 

DEFINITION:

Correlation is a measure of how frequently one event tends to happen when another event happens. High positive correlation means two events usually happen together – high SAT scores and getting through college for instance. High negative correlation means two events tend not to happen together – high SATs and a poor grade record.

No correlation means the two events are independent of one another. In statistical terms two events that are perfectly correlated have a “correlation coefficient” of 1; two events that are perfectly negatively correlated have a correlation coefficient of -1; and two events that have zero correlation have a coefficient of 0.

Correlation has been used over the past twenty years by institutions and financial advisors to assemble portfolios of moderate risk.  In calculating correlation, a statistician would examine the possibility of two events happening together, namely:

  • If the probability of A happening is 1/X;
  • And the probability of B happening is 1/Y; then
  • The probability of A and B happening together is (1/X) times (1/Y), or 1/(X times Y).

There are several laws of correlation including;

  1. Combining assets with a perfect positive correlation offers no reduction in portfolio risk.  These two assets will simply move in tandem with each other.
  2. Combining assets with zero correlation (statistically independent) reduces the risk of the portfolio.  If more assets with uncorrelated returns are added to the portfolio, significant risk reduction can be achieved.
  3. Combing assets with a perfect negative correlation could eliminate risk entirely.   This is the principle with “hedging strategies”.  These strategies are discussed later in the book.

Citation: https://www.r2library.com/Resource/Title/0826102549

BUT – CORRELATION IS NOT CAUSATION

https://medicalexecutivepost.com/2021/02/05/correlation-is-not-causation/

In the real world, negative correlations are very rare 

Most assets maintain a positive correlation with each other.  The goal of a prudent investor is to assemble a portfolio that contains uncorrelated assets.  When a portfolio contains assets that possess low correlations, the upward movement of one asset class will help offset the downward movement of another.  This is especially important when economic and market conditions change.

As a result, including assets in your portfolio that are not highly correlated will reduce the overall volatility (as measured by standard deviation) and may also increase long-term investment returns. This is the primary argument for including dissimilar asset classes in your portfolio. Keep in mind that this type of diversification does not guarantee you will avoid a loss.  It simply minimizes the chance of loss. 

In the table provided by Ibbotson, the average correlation between the five major asset classes is displayed. The lowest correlation is between the U.S. Treasury Bonds and the EAFE (international stocks).  The highest correlation is between the S&P 500 and the EAFE; 0.77 or 77 percent. This signifies a prominent level of correlation that has grown even larger during this decade.   Low correlations within the table appear most with U.S. Treasury Bills.

Historical Correlation of Asset Classes

Benchmark                             1          2          3         4         5         6            

1 U.S. Treasury Bill                  1.00    

2 U.S. Bonds                          0.73     1.00    

3 S&P 500                               0.03     0.34     1.00    

4 Commodities                         0.15     0.04     0.08      1.00      

5 International Stocks              -0.13    -0.31    0.77      0.14    1.00       

6 Real Estate                           0.11      0.43    0.81     -0.02    0.66     1.00

Table Source: Ibbotson 1980-2012

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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FINANCIAL PLANNING: Strategies for Doctors and their Advisors

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BY DR. DAVID E. MARCINKO MBA CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

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REVIEWS:

Written by doctors and healthcare professionals, this textbook should be mandatory reading for all medical school students—highly recommended for both young and veteran physicians—and an eliminating factor for any financial advisor who has not read it. The book uses jargon like ‘innovative,’ ‘transformational,’ and ‘disruptive’—all rightly so! It is the type of definitive financial lifestyle planning book we often seek, but seldom find.
LeRoy Howard MA CMPTM,Candidate and Financial Advisor, Fayetteville, North Carolina

I taught diagnostic radiology for over a decade. The physician-focused niche information, balanced perspectives, and insider industry transparency in this book may help save your financial life.
Dr. William P. Scherer MS, Barry University, Ft. Lauderdale, Florida

This book was crafted in response to the frustration felt by doctors who dealt with top financial, brokerage, and accounting firms. These non-fiduciary behemoths often prescribed costly wholesale solutions that were applicable to all, but customized for few, despite ever-changing needs. It is a must-read to learn why brokerage sales pitches or Internet resources will never replace the knowledge and deep advice of a physician-focused financial advisor, medical consultant, or collegial Certified Medical Planner™ financial professional.
—Parin Khotari MBA,Whitman School of Management, Syracuse University, New York

In today’s healthcare environment, in order for providers to survive, they need to understand their current and future market trends, finances, operations, and impact of federal and state regulations. As a healthcare consulting professional for over 30 years supporting both the private and public sector, I recommend that providers understand and utilize the wealth of knowledge that is being conveyed in these chapters. Without this guidance providers will have a hard time navigating the supporting system which may impact their future revenue stream. I strongly endorse the contents of this book.
—Carol S. Miller BSN MBA PMP,President, Miller Consulting Group, ACT IAC Executive Committee Vice-Chair at-Large, HIMSS NCA Board Member

This is an excellent book on financial planning for physicians and health professionals. It is all inclusive yet very easy to read with much valuable information. And, I have been expanding my business knowledge with all of Dr. Marcinko’s prior books. I highly recommend this one, too. It is a fine educational tool for all doctors.
—Dr. David B. Lumsden MD MS MA,Orthopedic Surgeon, Baltimore, Maryland

There is no other comprehensive book like it to help doctors, nurses, and other medical providers accumulate and preserve the wealth that their years of education and hard work have earned them.
—Dr. Jason Dyken MD MBA,Dyken Wealth Strategies, Gulf Shores, Alabama

I plan to give a copy of this book written
by doctors and for doctors’ to all my prospects, physician, and nurse clients. It may be the definitive text on this important topic.
—Alexander Naruska CPA,Orlando, Florida

Health professionals are small business owners who need to apply their self-discipline tactics in establishing and operating successful practices. Talented trainees are leaving the medical profession because they fail to balance the cost of attendance against a realistic business and financial plan. Principles like budgeting, saving, and living below one’s means, in order to make future investments for future growth, asset protection, and retirement possible are often lacking. This textbook guides the medical professional in his/her financial planning life journey from start to finish. It ranks a place in all medical school libraries and on each of our bookshelves.
—Dr. Thomas M. DeLauro DPM,Professor and Chairman – Division of Medical Sciences, New York College of Podiatric Medicine

Physicians are notoriously excellent at diagnosing and treating medical conditions. However, they are also notoriously deficient in managing the business aspects of their medical practices. Most will earn $20-30 million in their medical lifetime, but few know how to create wealth for themselves and their families. This book will help fill the void in physicians’ financial education. I have two recommendations: 1) every physician, young and old, should read this book; and 2) read it a second time!
—Dr. Neil Baum MD,Clinical Associate Professor of Urology, Tulane Medical School, New Orleans, Louisiana

I worked with a Certified Medical Planner™ on several occasions in the past, and will do so again in the future. This book codified the vast body of knowledge that helped in all facets of my financial life and professional medical practice.
Dr. James E. Williams DABPS, Foot and Ankle Surgeon, Conyers, Georgia

This is a constantly changing field for rules, regulations, taxes, insurance, compliance, and investments. This book assists readers, and their financial advisors, in keeping up with what’s going on in the healthcare field that all doctors need to know.
Patricia Raskob CFP® EA ATA, Raskob Kambourian Financial Advisors, Tucson, Arizona

I particularly enjoyed reading the specific examples in this book which pointed out the perils of risk … something with which I am too familiar and have learned (the hard way) to avoid like the Black Death. It is a pleasure to come across this kind of wisdom, in print, that other colleagues may learn before it’s too late— many, many years down the road.
Dr. Robert S. Park MD, Robert Park and Associates Insurance, Seattle, Washington

Although this book targets physicians, I was pleased to see that it also addressed the financial planning and employment benefit needs of nurses; physical, respiratory, and occupational therapists; CRNAs, hospitalists, and other members of the health care team….highly readable, practical, and understandable.
Nurse Cecelia T. Perez RN, Hospital Operating Room Manager, Ellicott City, Maryland

Personal financial success in the PP-ACA era will be more difficult to achieve than ever before. It requires the next generation of doctors to rethink frugality, delay gratification, and redefine the very definition of success and work–life balance. And, they will surely need the subject matter medical specificity and new-wave professional guidance offered in this book. This book is a ‘must-read’ for all health care professionals, and their financial advisors, who wish to take an active role in creating a new subset of informed and pioneering professionals known as Certified Medical Planners™.
—Dr. Mark D. Dollard FACFAS, Private Practice, Tyson Corner, Virginia

As healthcare professionals, it is our Hippocratic duty to avoid preventable harm by paying attention. On the other hand, some of us are guilty of being reckless with our own financial health—delaying serious consideration of investments, taxation, retirement income, estate planning, and inheritances until the worry keeps one awake at night. So, if you have avoided planning for the future for far too long, perhaps it is time to take that first step toward preparedness. This in-depth textbook is an excellent starting point—not only because of its readability, but because of his team’s expertise and thoroughness in addressing the intricacies of modern investments—and from the point of view of not only gifted financial experts, but as healthcare providers, as well … a rare combination.
Dr. Darrell K. Pruitt DDS, Private Practice Dentist, Fort Worth, Texas

This text should be on the bookshelf of all contemporary physicians. The book is physician-focused with unique topics applicable to all medical professionals. But, it also offers helpful insights into the new tax and estate laws, fiduciary accountability for advisors and insurance agents, with investing, asset protection and risk management, and retirement planning strategies with updates for the brave new world of global payments of the Patient Protection and Affordable Care Act. Starting out by encouraging readers to examine their personal ‘money blueprint’ beliefs and habits, the book is divided into four sections offering holistic life cycle financial information and economic education directed to new, mid-career, and mature physicians.

This structure permits one to dip into the book based on personal need to find relief, rather than to overwhelm. Given the complexity of modern domestic healthcare, and the daunting challenges faced by physicians who try to stay abreast of clinical medicine and the ever-evolving laws of personal finance, this textbook could not have come at a better time.
—Dr. Philippa Kennealy MD MPH, The Entrepreneurial MD, Los Angeles, California

Physicians have economic concerns unmatched by any other profession, arriving ten years late to the start of their earning years. This textbook goes to the core of how to level the playing field quickly, and efficaciously, by a new breed of dedicated Certified Medical Planners™. With physician-focused financial advice, each chapter is a building block to your financial fortress.
Thomas McKeon, MBA, Pharmaceutical Representative, Philadelphia, Pennsylvania

An excellent resource … this textbook is written in a manner that provides physician practice owners with a comprehensive guide to financial planning and related topics for their professional practice in a way that is easily comprehended. The style in which it breaks down the intricacies of the current physician practice landscape makes it a ‘must-read’ for those physicians (and their advisors) practicing in the volatile era of healthcare reform.
—Robert James Cimasi, MHA ASA FRICS MCBA CVA CM&AA CMP™, CEO-Health Capital Consultants, LLC, St. Louis, Missouri

Rarely can one find a full compendium of information within a single source or text, but this book communicates the new financial realities we are forced to confront; it is full of opportunities for minimizing tax liability and maximizing income potential. We’re recommending it to all our medical practice management clients across the entire healthcare spectrum.
Alan Guinn, The Guinn Consultancy Group, Inc., Cookeville, Tennessee

Dr. David Edward Marcinko MBA CMP™ and his team take a seemingly endless stream of disparate concepts and integrate them into a simple, straightforward, and understandable path to success. And, he codifies them all into a step-by-step algorithm to more efficient investing, risk management, taxation, and enhanced retirement planning for doctors and nurses. His text is a vital read—and must execute—book for all healthcare professionals and physician-focused financial advisors.
Dr. O. Kent Mercado, JD, Private Practitioner and Attorney, Naperville, Illinois

Kudos. The editors and contributing authors have compiled the most comprehensive reference book for the medical community that has ever been attempted. As you review the chapters of interest and hone in on the most important concerns you may have, realize that the best minds have been harvested for you to plan well… Live well.
Martha J. Schilling; AAMS® CRPC® ETSC CSA, Shilling Group Advisors, LLC, Philadelphia, Pennsylvania

I recommend this book to any physician or medical professional that desires an honest no-sales approach to understanding the financial planning and investing world. It is worthwhile to any financial advisor interested in this space, as well.
David K. Luke, MIM MS-PFP CMP™, Net Worth Advisory Group, Sandy, Utah

Although not a substitute for a formal business education, this book will help physicians navigate effectively through the hurdles of day-to-day financial decisions with the help of an accountant, financial and legal advisor. I highly recommend it and commend Dr. Marcinko and the Institute of Medical Business Advisors, Inc. on a job well done.
Ken Yeung MBA CMP™, Tseung Kwan O Hospital, Hong Kong

I’ve seen many ghost-written handbooks, paperbacks, and vanity-published manuals on this topic throughout my career in mental healthcare. Most were poorly written, opinionated, and cheaply produced self-aggrandizing marketing drivel for those agents selling commission-based financial products and expensive advisory services. So, I was pleasantly surprised with this comprehensive peer-reviewed academic textbook, complete with citations, case examples, and real-life integrated strategies by and for medical professionals. Although a bit late for my career, I recommend it highly to all my younger colleagues … It’s credibility and specificity stand alone.
Dr. Clarice Montgomery PhD MA,Retired Clinical Psychologist

In an industry known for one-size-fits-all templates and massively customized books, products, advice, and services, the extreme healthcare specificity of this text is both refreshing and comprehensive.
Dr. James Joseph Bartley, Columbus, Georgia

My brother was my office administrator and accountant. We both feel this is the most comprehensive textbook available on financial planning for healthcare providers.
Dr. Anthony Robert Naruska DC,Winter Park, Florida

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FINANCIAL INVESTING RISKS DOCTORS SHOULD KNOW

Types & Definitions

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Financial Investing risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent.

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BY DR. DAVID E. MARCINKO MBA CMP®

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SPONSOR: http://www.CertifiedMedicalPlanner.org

Understanding Financial Risk

Although broad investing risks can be quickly summarized as “the failure to achieve spending and inflation-adjusted growth goals,” individual assets may face any number of other subsidiary risks:

  • Call risk – The risk, faced by a holder of a callable bond that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate)
  • Capital risk – The risk an investor faces that he or she may lose all or part of the principal amount invested.
  • Commodity risk – The threat that a change in the price of a production input will adversely impact a producer who uses that input.
  • Company risk – The risk that certain factors affecting a specific company may cause its stock to change in price in a different way from stocks as a whole.
  • Concentration risk – Probability of loss arising from heavily lopsided exposure to a particular group of counterparties
  • Counterparty risk – The risk that the other party to an agreement will default.
  • Credit risk – The risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation.
  • Currency risk – A form of risk that arises from the change in price of one currency against another.
  • Deflation risk – A general decline in prices, often caused by a reduction in the supply of money or credit.
  • Economic risk – the likelihood that an investment will be affected by macroeconomic conditions such as government regulation, exchange rates, or political stability.
  • Hedging risk – Making an investment to reduce the risk of adverse price movements in an asset.
  • Inflation risk – The uncertainty over the future real value (after inflation) of your investment.
  • Interest rate risk – Risk to the earnings or market value of a portfolio due to uncertain future interest rates.
  • Legal risk – risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations.
  • Liquidity risk – The risks stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Risk Management Textbook: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

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What is a Stock Market Index IMPLIED OPEN?

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FINANCIAL TERMS AND DEFINITIONS FOR PHYSICIANS AND ALL INVESTORS

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By Dr. David E. Marcinko MBA CMP®

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SPONSOR: http://www.CertifiedMedicalPlanner.org

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The stock markets have been near all time highs, lately. Physician colleagues and clients are so excited that they are even checking the overnight status of favorite stocks and/or the domestic/overseas markets.

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Some colleagues are even becoming a bit OCD by checking the implied open of various markets the night before. But, what exactly is the Implied Open? How is it calculated?

DEFINITION: The Implied Open attempts to predict the prices at which various stock indexes will open, at 9:30am New York time. It is frequently shown on various cable television channels prior to the start of the next business day.

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EXAMPLE: Considering the DJIA as an example, the basis of calculating implied open is the price of a “DJX index option futures contract”. This is not the price of the DJIA itself but rather the current ticker price of an option issued by the Chicago Board Options Exchange.

CBOE: The Chicago Board Options Exchange, located at 400 South LaSalle Street in Chicago, is the largest U.S. options exchange with annual trading volume that hovered around 1.27 billion contracts at the end of 2014. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds.

CALCULATION: https://www.quora.com/How-do-you-calculate-the-implied-open-from-futures

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NOTE: We would like to remind you that new amendments adopted by the U.S. Securities Exchange Commission (SEC) have gone into effect as of September 28, 2021. These amendments restrict the ability of market makers to publish OTC quotations for those companies that have not made required current financial and company information available to regulators and investors.

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Understanding Risk Adjusted Portfolio Performance

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A Vital Feedback Loop for any Medical Professional’s Investment Program

By Dr. David Edward Marcinko MBA, CMP™

[Publisher-in-Chief]

While recently visiting the beautiful Johns Hopkins University and Medical School in Baltimore Maryland, I realized that investment portfolio performance measurement — much like an annual physical exam in the Spring — is an important feedback loop to monitor progress towards the goals of the medical professional’s investment program.

Performance comparisons to market indices and/or peer groups are a useful part of this feedback loop, as long as they are considered in the context of the market environment and with the limitations of market index and manager database construction.  Inherent to performance comparisons is the reality that portfolios taking greater risk will tend to out-perform less risky investments during bullish phases of a market cycle, but are also more likely to under-perform during the bearish phase.  The reason for focusing on performance comparisons over a full market cycle is that the phases biasing results in favor of higher risk approaches can be balanced with less favorable environments for aggressive approaches to lessen/eliminate those biases.

THINK: The “flash crash” of March 2009, and the DJIA now hovering near 12,000 of  late.

The Biases

Can we eliminate the biases of the market environment by adjusting performance for the risk assumed by the portfolio?  While several interesting calculations have been developed to measure risk-adjusted performance, the unfortunate answer is that the biases of the market environment still tend to have an impact even after adjusting returns for various measures of risk.

http://www.amazon.com/Financial-Planning-Handbook-Physicians-Advisors/dp/0763745790/ref=sr_1_1?ie=UTF8&s=books&qid=1276795609&sr=1-1

Assessment

However, medical professionals and their advisors will have many different risk-adjusted return statistics presented to them, so understanding the Sharpe ratio, Treynor ratio, Jensen’s measure or alpha, Morningstar star ratings, etc. and their limitations should help to improve the decisions made from the performance measurement feedback loop.

And, these are discussed elsewhere on this ME-P.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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UPDATE: The Markets, Crypto and Online Retailers

By Staff Reporters

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  • Markets: After booming stocks had their worst day of the year because of raging inflation, slowing economic growth, and a potential recession.
  • Crypto: Bitcoin and other major cryptos like ethereum also tumbled in the aftermath of the FOMC announcement. They’ve typically tracked the performance of growth stocks, which have gotten hammered on the prospect of higher interest rates.

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Almost every major online retailer reporting earnings with signs of a decline:

  • Wayfair shares cratered nearly 26% yesterday after announcing that its active customer count dropped 23.4% from a year ago.
  • Bed Bath & Beyond reported an 18% nosedive in online sales.
  • Etsy and eBay shares both dropped by double digits yesterday after giving weak guidance for the current quarter.
  • At least five senior executives from Meta’s fledgling e-commerce division have fled in the last six months.
  • Shopify shares plummeted about 15% on Thursday after posting much lower-than-expected earnings.

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PODCAST: How Modernized Self-Directed IRAs Help Democratize [Physician] Retirement

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In this podcast, host Dara Albright and guest, Eric Satz, Founder and CEO of Alto IRA, discuss how modern Self-Directed IRAs (SDIRAs) are democratizing retirement planning by providing all Americans with the ability to add non-correlated alternative asset classes to tax-advantaged accounts.

The single greatest – and free – investment tool is also disclosed.

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What are the Advantages of Rolling the Money of My Retirement Plan into an  IRA? - Protection Point Advisors, Inc.

Discussion highlights include:

  • How SDIRAs offer wealth building opportunities for “not-yet accredited investors”;
  • How SDIRAs have evolved to accommodate micro-sized alternative investments; 
  • Why alternative assets belong in retirement vehicles;
  • Three reasons most retirement savers are underweighted in non-correlated assets;
  • Trading cryptocurrencies without tax consequences; 
  • Why RIAs are looking to ALTO for clients’ crypto allocation;
  • How to open a cryptoIRA account.

PODCAST: https://dwealthmuse.podbean.com/e/episode-12-how-modernized-selfdirected-iras-help-democratize-retirement-1623424270/

Your comments are appreciated.

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RELATED TEXTS: https://medicalexecutivepost.com/2021/04/29/why-are-certified-medical-planner-textbooks-so-darn-popular/

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PODCAST: Economic Cycles in Healthcare

By Eric Bricker MD

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RATE OF RETURN [RoR]: Investments 2022?

By Staff Reporters

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DEFINITION: A rate of return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. When calculating the rate of return, you are determining the percentage change from the beginning of the period until the end.

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And so, according to Greg McBride CFA, before you invest your money, you’re likely wondering how much you’re going to earn. This is known as the rate of return. The rate of return is expressed as a percentage of the total amount you invested. If you invest $1,000 and get back your original investment plus an additional $100 in interest, you’ve earned a 10 percent return.

CITE: https://www.r2library.com/Resource/Title/082610254

However, numbers don’t always tell the full story. You’ll also need to think about how long you plan to keep the money invested, how your investment options have performed historically and how inflation will impact your bottom line.

Key return on investment statistics

When you’re trying to get the best return on your investment, you’ll likely start combing through loads of data. A good place to start is looking at the past decade of returns on some of the most common investments:

  • Average annual return on stocks: 16.63%
  • Average annual return on international stocks: 7.39%
  • Average annual return on bonds: 3.05%
  • Average annual return on gold: -0.21%
  • Average annual return on real estate: 11.72%
  • Average annual return on CDs: 0.40%

CD rate data is from internal Bankrate averages.

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ECONOMICS: https://www.msn.com/en-us/money/realestate/from-real-estate-to-inflation-heres-what-to-expect-from-the-economy-in-2022/ar-AASbBHN?li=BBnb7Kz

MARKETS: https://www.msn.com/en-us/money/markets/stock-market-outlook-were-going-to-get-an-explosion-to-the-upside-in-january-strategist-says/vi-AASbBih

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AT YOUR SERVICE: Invite Dr. Marcinko to Your Next Event, Video Conference or Blog-Cast in 2022

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ABOUT | DAVID EDWARD MARCINKO

BY ANN MILLER RN CPHQ

Dr. Dave Marcinko at YOUR Service in 2021

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

MORE: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

Corporate Stock REPURCHASE [Buy-Back] Programs

By Staff Reporters

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A stock buyback is when a public company uses cash to buy shares of its own stock on the open market. A company may do this to return money to shareholders that it doesn’t need to fund operations and other investments

Share buybacks can create value for investors in a few ways: Repurchases return cash to shareholders who want to exit the investment. With a buyback, the company can increase earnings per share, all else equal. The same earnings pie cut into fewer slices is worth a greater share of the earnings.

A stock buyback typically means that the price of the remaining outstanding shares increases. This is simple supply-and-demand economics: there are fewer outstanding shares, but the value of the company has not changed, therefore each share is worth more, so the price goes up.

CITE: https://www.r2library.com/Resource/Title/082610254

But, the practice has faced criticism from labor unions, the SEC, and even President Biden, who proposed stricter stock buyback regulations for company execs last week.

Nevertheless,

  • Stock buybacks from S&P 500 companies are expected to pass $1 trillion this year, after hitting a record $882 billion in 2021, according to Goldman Sachs.
  • In recent years, Starbucks spent $13.5 billion repurchasing shares.

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What is Tactical Portfolio Management?

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Re-Thinking Strategic Allocation

[By Dr. David Edward Marcinko MBA]

Dr. David E. Marcinko MBAMany successful physician investors, retirement account managers or endowment fund administrators will establish a “strategic” allocation policy that is intended to guide long-term (greater than one-year) investment decisions.

Thinking Long Term?

This strategic allocation reflects the endowment’s thinking regarding the existence of perceived fundamental shifts in the market. Most endowments will also establish a target range or band for each asset class. The day-to-day managers then have the flexibility to make tactical decisions for a given class so long as they stay within the target range.

Terms

The term “tactical” when used in the context of investment strategy refers to the investor or manager’s ability to take advantage of short-term (under one year) market anomalies such as pricing discrepancies between different sectors or across different styles.

Assessment

Historically, tactical decisions with respect to asset allocation were derided as “market timing.” However, market timing implies moving outside of the target ranges whereas tactical decision making simply addresses the opportunistic deployment of funds within the asset class target range.

So, what do you think?

Online MD investor

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES

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What are OTC “PINK” Sheets?

LOW PRICED “PENNY STOCKS?

By Dr. David E. Marcinko MBA CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

CMP logo

Pink sheets are an over-the-counter (OTC) market that connects broker-dealers electronically. There is no trading floor and the quotations are also all done electronically. Since there is no central trading floor or stock exchange like the New York Stock Exchange (NYSE), the pink sheet-listed companies do not have the same criteria to fulfill as the companies listed on national stock exchanges. Many stocks listed on the pink sheets are low-priced penny stocks that trade for under $5 a share.

CITE: https://www.r2library.com/Resource/Title/0826102549

Pink sheets got their name because the original pink sheets listing the stocks were actually printed and distributed on pink pieces of paper. Trading over-the-counter (OTC) refers to the process of how securities listed on the pink sheets are traded through a broker-dealer network.

MORE: https://en.wikipedia.org/wiki/OTC_Markets_Group

Pink Sheets | Explanation | Examples with Advantages and Disadvantages

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My Investing “Sell” Principle

The Renaissance of Pipelines

Vitaliy N. Katsenelson, CFA - YouTube

By Vitaliy N. Katsenelson, CFA

A client recently asked me whether there is a difference in our sell discipline between high and low growth companies.

Selling is one of the hardest parts of investing. I wrote a lot on the subject in the past, but let’s zoom in on how our selling practice differs between high-growth companies with long runways for compounding and slow-growth companies.

LINK: https://contrarianedge.com/our-sell-discipline/

AUDIO: https://investor.fm/the-renaissance-of-pipelines-and-our-sell-discipline-ep-113

Your thoughts are appreciated.

EDITOR’S NOTE: It has been a few years since I spoke with my colleague Vitaliy. But, I read his newsletters and blog regularly and suggest all ME-P readers do the same.

Dr. David E. Marcinko; MBA

[Editor-in-Chief]

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

BOOK: https://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

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Mature Company Stocks Are Not Bonds

Dividends bring tangible and intangible benefits

vitaly

By Vitaliy Katsenelson CFA

 

You can also listen to the article here, or by clicking on the buttons below:

Like many professional investors, I love companies that pay dividends. Dividends bring tangible and intangible benefits: Over the last hundred years, half of total stock returns came from dividends.

In a world where earnings often represent the creative output of CFOs’ imaginations, dividends are paid out of cash flows, and thus are proof that a company’s earnings are real.

Finally, a company that pays out a significant dividend has to have much greater discipline in managing the business, because a significant dividend creates another cash cost, so management has less cash to burn in empire-building acquisitions.

Mature Company Stocks Are Not Bonds

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[PHYSICIAN FOCUSED FINANCIAL PLANNING AND RISK MANAGEMENT COMPANION TEXTBOOK SET]

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

CONCLUSION: The Six Commandments of Value Investing

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Investing and Chess

By Vitaliy Katsenelson, CFA

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Conclusion: Investing and Chess 

I read somewhere that chess is a game of small advantages. When the game starts, the players are equal – both hold the same number of pieces in the same positions. But then every move either adds to your position (competitive advantage) or subtracts from it. These little decisions (resulting in a better pawn structure, a more secure king, a centrally positioned knight, and so on) that you make with every move accumulate into victory. 

Investing is not that much different, especially in today’s world where access to information has flattened. A mutual fund that manages $100 billion may spend $100 million on research, but that $100 million doesn’t buy any more than what a patient value investor can glean by reading financial statements. 

I am not talking about Warren Buffett either, who doesn’t even have a PC in his office. Ted Weschler and Todd Combs (Warren Buffett’s right-hand men) achieved phenomenal investment success without a fancy research department by simply reading carefully and following our Six Commandments. 

The key to succeeding in this irrational world is to actively ingrain each one of these principles into your investment operating system, improving your process just a little on a daily basis, and then success will follow. 

Finally, this would not be a worthy chapter if I did not contradict myself, just a little. Investing is also unlike chess. Investing affords us a luxury that few people appreciate: You can choose your own opponent. In chess tournaments, you don’t get to choose your opponent. Tournament organizers match you to someone with an equal rating; then as you win, you are progressively matched against better opponents. 

In investing, you are the “tournament organizer.” You get to walk into the room and, instead of choosing the geekiest opponent – the dude with thick glasses who hasn’t been on a date in years and has only thought and dreamt about chess – you can go for the muscular guy who spends five hours a day in the gym, and only joined the tournament because he lost a bet. 

Money doesn’t know how you made it. A hundred dollars made by solving easy problems (buying stocks where both your IQ and EQ were at their highest) buys as much as a hundred dollars that caused you to lose your hair. In investing, you don’t have to solve the problems that everyone else is solving. There are thousands of stocks out there, and your portfolio needs only a few dozen.

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The Active v. Passive Investing Dichotomy

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The Controversy Continues

LINK: http://www.CertifiedMedicalPlanner.org

[By Amaury S. Cifuentes CFP® CMP®]

Physician and all investors are often overloaded with information regarding this debate, and many advisors differ in the conclusion of which strategy is best.

Stock Picking

Stock picking is typically a waist of time and few investors or advisors demonstrate the constant ability in picking winning stocks. Timing the market also becomes difficult and typically has negative effects in a portfolio. Investors will also find that they will usually have very little luck finding money mangers that can consistently out perform the market. Investors over a long period of investing time horizon would benefit from passive investing vs. active trading, with some exceptions.

Active Investors

Active investors spend time analyzing stocks or mutual funds based on a mismatch of the price relative to its value. In an efficient market, there is little or no mismatch between the current price and the true value of the investment. Also, real cost and expenses of active management are rarely calculated;  some consider the stock market a zero sum game, if the total market returns eleven percent then the investors must deduct the cost of the transaction, which would lower their return relative to the market.

Mutual Fund Performance

For example, Mark Carhart’s comprehensive study of 1,892 mutual funds title “On Persistence in Mutual Fund Performance” showed that on average mutual fund manager under performs by 1.8% to their relative index.  In addition, William Sharpe Nobel laureate article “The Arithmetic of Active Management” stated that after cost, the return of active management dollars would be less than passive dollars.

Market Timing

Timing of markets is also very difficult. Timing the market can be defined by moving your asset from risky to non risky assets before negative events happen. The Random Walk Theory basically states that there are no patterns in the stock market prices. Basically, information moves the markets and information is random, so logic would suggest that timing the markets effectively is futile. Many reports demonstrate this effect, for example, a report form Javier Estrada, a finance professor at IESE Business School in Barcelona, Spain. He studied the DJIA form 1900-2008 and concluded that if you subtracted the ten best days from the market two thirds of the cumulative gains would disappear (10/29694 or .03%), almost impossible to predict even by the most astute investors. Much more extensive research showing that market timing does not work, Wei Jiang paper “A Nonparametric Test of Market Timing” concluded that timing ability on average is negative. There are countless of studies showing that there is no evidence that timing the markets can produce superior returns.

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Investing Difficulties Continue

To make thing even more difficult, investors that seek profession help cannot guarantee that the active managers they hire can consistently over long period of time outperform their benchmarks.  Obviously, it is evident that past performance is no indication of future results as advertised by all financial institution, and most active managers who outperform their bench market do not do consistently over long periods of time. John Boggle’s comprehensive study in 1992 of the Forbes Honor Roll title “Selecting Equity Mutual Funds” concluded that after commissions loads were taken into account the honor roll under performed the market between 1974 and 1990 by a difference of 193.75% cumulative.

Of Professor Burton Malkiel

Furthermore, investors over long periods of time will find that stock picking, timing the market and selecting active managers do not produce superior returns. John Stossel of ABC’s 20/20 interview Professor Burton Malkiel of Princeton University and stated in the interview that “All the information an analyst can learn about a company, from balance sheets to marketing material, is already built into the stock price, because all of the other thousands of analysts have the same information. What they don’t have is the knowledge that will move the stock, knowledge such as a news event, which is unpredictable and impossible to forecast.”

Assessment

Physicians and all investors may be better off concentrating on asset allocation, picking low cost investment, deciding on tactical or strategic rebalancing and implementing models like the three factor model as pioneered by Professor Eugene Fama and Professor Kenneth French in lieu active management.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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UPDATE: The Stock Markets and IRS Online Taxpayer ID

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By Staff Reporters

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MARKETS: The S&P 500 fell into a correction for the first time in two years, joining the NASDAQ Composite, as Russia sent troops into pro-Russian regions in Ukraine. The S&P 500 index ended down 1% at 4,304.76, below the correction level at 4,316.91, which would represent a 10% drop from its January 3rd record close. A correction is commonly defined by market technicians as a fall of at least 10% (but not greater than 20%) from a recent peak. The last time the S&P 500 entered a correction was February 27th 2020, when the market was being whipsawed by fears about the outbreak of the COVID pandemic.

And, this bearish market isn’t sparing 2021 winners like Home Depot, which fell the most in nearly two years after supply-chain bottlenecks squeezed its margins. HD was the Dow’s biggest gainer last year.

CITE: https://www.r2library.com/Resource/Title/0826102549

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IRS: According to a news release issued by the IRS, taxpayers now have the option to verify their identities during live, virtual interviews with agents. The agency stresses that no bio-metric data will be required for those interviews.

However, taxpayers once again have the option to verify their identity using ID.me’s facial recognition services. Addressing privacy concerns, the IRS says new requirements are in place to ensure that images provided will be deleted upon verification. That would apply to any new IRS accounts created and those where selfies have already been collected.

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INSIDER TRADING 4 ME: Stock Markets


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INSIDER TRADING FOR ME, BUT NOT FOR THEE
See the source image

By Richard Helppie

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Capital markets require confidence that all market participants have fair access to the same relevant information about a company and its prospects. Laws governing the trading of securities have been in existence since stocks were first traded. It seems as if each piece of legislation, from the Securities and Exchange Act of the 1930’s through to the 2002  Sarbanes-Oxley Law fought the prior corruption as successfully as preparing an army to fight the last war.

Curiously, the issue of insider trading by members of Congress is not a partisan issue. If behavior is any indication, certain Republicans and Democrats are fond of having the ability to profit from access to material, nonpublic information. Others of both parties are introducing legislation to block illegal insider trading.

Congress has passed laws that prohibit people with insider knowledge from trading on non-public information, and from sharing that non-public information with others who may trade stocks based on that information. The former is known as “illegal insider trading” and the latter as “tipping.” There exists legal insider trading, which is bound by rules of disclosure and third-party decision makers, but we will leave that for another day. Illegal insider trading is enforced through Federal Agencies including the Securities and Exchange Commission (SEC), Internal Revenue Service (IRS) and the Department of Justice (DOJ), as well as by regulations on major stock exchanges such as the New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotation Systems (NASDAQ).

While there is universal agreement that executives, board members, employees and others with access to non-public information may not use that information to trade stocks, members of Congress and their staffs face few practical barriers. And in more recent months, members of the Federal Reserve and their staffs have made questionable, if not downright suspicious trades of stocks.

History is littered with cases of both average citizens and celebrities like Martha Stewart being prosecuted for insider trading. Stewart was ultimately prosecuted and jailed for obstruction after denying insider knowledge.

There are members of both the US Senate and US House of Representatives who want to stop illegal insider trading by their peers. For example, in 2012, President Barack Obama signed the Stop Trading on Congressional Knowledge (STOCK) Act to prevent insider trading by members of Congress and Congressional Staff. However, there have been no prosecutions under this statute to date. The reason is that the “Speech and Debate” clause prohibits questioning an elected Senator or Congressional Representative.

Moreover, much of the disclosure of material, non-public information that would establish a foundation for illegal insider trading occurs outside the public eye. Members of Congress cannot act on information obtained from companies themselves. The difficulty arises in proving that a member of Congress or Congressional staff knew of material, non-public information acquired in a confidential congressional meeting. Let me rephrase that. There is no way of knowing what transpired in the confidential committee meeting so there is no provable path to a stock trade benefiting the member of Congress or their staff.

Suppose two publicly traded defense contractors were bidding on a new weapons system. In a confidential committee, a Department of Defense (DOD) recommendation to accept the bid of company A versus Company B was made and endorsed by the committee. At that point, everyone with access to the non-public information about the weapons system bid would know that it would be good for the stock of Company A and bad for the stock of Company B.

Take this a step further. Company A and Company B are notified about the confidential decision and advised to keep this material, non-public information protected. At this point, if any executive, board member or employee with that knowledge traded in the stock of Company A or Company B they would be subject to prosecution, including fines and imprisonment. Also, if any person at the company provided that material, non-public information to another person, including a member of Congress, that action would be subject to investigation and potential prosecution.

Now suppose a Senator, Congressional Representative or staff member, after receiving the news of the weapons system award went to their broker, computer or telephone and bought stock in Company A while selling (or shorting in another way) Company B. Or perhaps communicated to a friend or family member on a trade “suggestion.”  Relaying or exploiting information – material, non-public information —  behavior that would land any other person in an investigation and make them subject to prosecution, cannot be practically pursued because there is no way to use the committee deliberations as evidence.

When Senators Richard Burr (R-NC), Kelly Loeffler (R-GA) and Diane Feinstein (D-CA) were accused of insider trading, instead of being subjected to investigation and potential prosecution through the SEC, IRS, or DOJ, their actions instead were reviewed by the Senate Ethics Committee. The Senate Ethics Committee, made up of other US Senators, found no wrongdoing.  Let me rephrase that –  other US Senators, who might benefit themselves from insider trading – decided to give suspicious behavior a pass. Even if the conduct of the Senators was on the up-and-up, the optics do not inspire confidence.

The US Senate does not have a monopoly on suspicious trading. For example, Congresswoman Lois Frankel (D-FL), was accused of trading stocks of companies in the fossil fuel industry while a sitting on a Congressional subcommittee that oversees funding for the Department of Energy.

Legislation to Block Insider Trading by Congress and the Federal Reserve

US Senators and Congressional Representatives have made proposals to improve public perception of their ranks with more practical solutions and stiffer penalties. Pre-eminent among the reformers is Senator Elizabeth Warren (D-MA), a person with a strong background in financial matters. Senator Warren appears to be the leading voice in calling for members of the Federal Reserve and their staffs to also be subject to laws prohibiting illegal insider trading and tipping. These restrictions are long overdue, as statements by the Fed has caused wild gyrations in the prices of securities. Senator Warren’s ideas are recommended reading on her web site at

https://www.warren.senate.gov

. Enter “Insider Trading” on the search bar of the Senator’s web site for 61 references.

Senators Jeff Merkley (D-OR) and Sherrod Brown (D-OH) have offered the “Ban Conflicted Trading Act.”  Under the legislation, elected persons and their staffs would be required to either sell or freeze their stock holdings, or put them in a blind trust. Introduced in 2018, the legislation has stalled. Last winter, Representative Alexandria Ocasio-Cortez (D-NY) and others have indicated they would introduce the same legislation in the House.

Earlier this month, Senators Jon Ossoff (D-GA) and Mark Kelly (D-AZ) introduced the Ban Congressional Stock Trading Act. If it becomes law, every member of Congress—as well as their spouses and dependent children—would be required to place their stock portfolios into a blind trust. One benefit of an outright ban or blind trusts would mean that clerical matters would no longer be a concern of those elected. Kelly himself, according to news reports, did not make a timely disclosure about a stock option exercise.

Senator Josh Hawley (R-MO) announced he will introduce the Banning Insider Trading in Congress Act. Wryly pointing out that politicians manage to outperform the stock market year after year, Hawley’s bill would prohibit members of Congress and their spouses from buying and trading individual stocks. Those who violate it would have to disgorge their profits.

Congress: Keep it simple and fix this

The singular, clear way to avoid abuses of insider information is to ban the trade of individual stocks and industry-specific Exchange Traded Funds (ETF) by members of Congress, Congressional staffs, members of the Federal Reserve and their staffs. Double blind trusts (where neither the owner or trustee knows identity of the other) would be an acceptable form of investing. Finally, add stronger criminal penalties for tipping insider information.

This is one of the few things that seem to enjoy bipartisan support, and would seemingly be welcomed by nonpartisans and those on the political poles as well.

Of course, like everything political, proposals of these types do not enjoy absolute, clear-cut support. As House Speaker Nancy Pelosi (D-CA) said about her opposition to such restrictions “We are a free market economy,” Pelosi, purported to be one of the 25 wealthiest members of Congress, continued, “They (Congress) should be able to participate in that.” Pelosi’s recent financial disclosure is said to have 48 transactions made by her family valued at a total of some $50 million so she is sympathetic to serving in Congress and participating in trading.

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SEC REPORT: https://www.seclaw.com/insider-trading/

MADOFF: https://www.msn.com/en-us/news/world/convicted-fraudster-bernie-madoffs-sister-husband-found-dead/ar-AAU6px4?li=BBnbfcL

FRAUD: https://www.msn.com/en-us/money/companies/founder-of-collapsed-dollar17-billion-mutual-fund-charged-with-fraud/ar-AAU3PEF?li=BBnb7Kz

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Product Details

CITE: https://www.r2library.com/Resource/Title/082610254

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ALTERNATIVE MINIMUM TAX: Physicians Beware!

By Staff Reporters

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Alternative Minimum Tax

DEFINITION: The alternative minimum tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. As of tax year 2018, the AMT raises about $5.2 billion, or 0.4% of all federal income tax revenue, affecting 0.1% of taxpayers, mostly in the upper income ranges.

CITE: https://www.r2library.com/Resource/Title/0826102549

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See the source image

Key Takeaways

  • The alternative minimum tax (AMT) ensures that certain taxpayers pay their fair share of income taxes.
  • However, the structure was not indexed to inflation or tax cuts. …
  • For those subject to AMT, there are certain strategies that can be employed to reduce your exposure to this tax.

MORE: https://www.forbes.com/sites/kellyphillipserb/2020/09/11/your-first-look-at-2021-tax-rates-projected-brackets-standard-deductions–more/?sh=119ff37413ba

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PORTFOLIO: How to Build One for Today’s Crazy Stock Markets

Insights For Doctors and All Investors

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Amazon.com: Vitaliy Katsenelson: Books, Biography, Blog, Audiobooks, Kindle

By Vitaliy Katsenelson CFA

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NOTE: This piece is a little more technical, and contains a bit more stock-market jargon, than most essays you get from me. While how we build portfolios is important to us and our clients, we realize that the puts and takes might bore many readers.

CITE: https://www.r2library.com/Resource/Title/082610254

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What are FRACTIONAL STOCK SHARES?

Information that Physician Investors Should Know?

By Staff Reporters

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DEFINITION: Fractional shares are partial shares of a company’s stock. Instead of owning one or more full shares of the stock, you own a portion, or fraction, of one. In the past, investors generally would end up with fractional shares only after a stock split, since brokers allowed the purchase of full shares only.

CITE: https://www.r2library.com/Resource/Title/082610254

  • A fractional share is a portion of an equity stock that is less than one full share.
  • Fractional shares often result from stock splits, which don’t always result in an even number of shares.
  • Mergers or acquisitions create fractional shares, as companies combine new common stock using a predetermined ratio.
  • Fractional shares can make it easy to buy very small stakes in many different companies. But, if your brokerage charges commissions, you might wind up paying a lot of fees due to the temptation to invest in many different companies.

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Stock too Pricey? Try Partial Shares. - WSJ

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READ: https://www.mybanktracker.com/blog/investing/fractional-shares-310822

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ALPHABET GOOGLE: Stock Splitting!

By Staff Reporters

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DEFINITION: A stock split or stock divide increases the number of shares in a company. For example, after a 2-for-1 split, each investor will own double the number of shares, and each share will be worth half as much. A stock split causes a decrease of market price of individual shares, but does not change the total market capitalization of the company: stock dilution does not occur.

CITE: https://www.r2library.com/Resource/Title/082610254

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EXAMPLE:

Google parent company Alphabet said it would split its stock 20–1. That means in July 2022, Alphabet shareholders will receive 19 more shares for every one that they own. It doesn’t mean they’ll be 20x richer—the price of the stock they hold will drop a proportional amount. If the stock split were to happen now, Alphabet’s share price would fall from $2,865 to $143.

Image result for stock split

Why does it matter?

In many ways, it doesn’t. A stock split does not change the value of the company. It’s simply a way to increase the number of shares outstanding.

Think of it like slicing a pizza. At a share price of almost $3,000, Alphabet’s slices were a wide a monstrosity. With the stock split, it’s cutting company ownership into smaller portions. But, in the end, the pizza isn’t growing—there are just more slices to be shared.

So why do it? By making the slices of its company smaller, it hopes that more people will look at them and say, “Well I guess one couldn’t hurt.” Alphabet said the goal of the stock split is to attract more small-time investors who might have been intimidated by buying in at such a steep share price.

  • Only 27 other stocks in the S&P 500 have share prices above $500 besides Alphabet.

And, there’s evidence this bit of corporate inception can be effective. To see why, let’s look at what happened when two other tech giants, Tesla and Apple, split their stock recently.

  • When Apple split its stock 4–1 in July 2020, retail investors upped their purchases from $150 million per week to nearly $1 billion, according to Vanda Research.
  • When Tesla split its stock 5–1 in August 2020, retail investing jumped from $30–$40 million/week to $700 million.

There may be another play for Alphabet here—and that is to pad its resume for inclusion in the iconic Dow Jones Industrial Average. Because the Dow is weighted by share price (an antiquated system, to be sure), Alphabet at its current price would overwhelm all of the companies. It would become the Alphabet Industrial Average. At $247, it becomes a much more attractive candidate for the Dow.

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FOR DOCTORS ONLY: Secure an Unbiased Second Advisory Fiduciary Opinion

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Dr. David Edward Marcinko MBA CMP®

Certified Medical Planner®

SPONSOR: http://www.CertifiedMedicalPlanner.org

CMP logo

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FINANCIAL PLANNING

CAREER DEVELOPMENT

MEDICAL PRACTICE BUY IN / OUT

INVESTMENT ANALYSIS

PORTFOLIO MANAGEMENT

MERGERS AND ACQUISITIONS

PRACTICE APPRAISALS AND VALUATIONS

RETIREMENT PLANNING

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CONTACT: Ann Miller RN MHA

EMAIL: MarcinkoAdvisors@msn.com

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What is an INTERVAL FUND?

By Staff Reporters

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An interval fund is a type of closed-end fund with shares that do not trade on the secondary market. Instead, the fund periodically offers to buy back a percentage of outstanding shares at net asset value (NAV). The rules for interval funds, along with the types of assets held, make this investment largely illiquid compared with other funds.

Related: https://medicalexecutivepost.com/2021/11/22/what-is-an-interval-mutual-fund/

MORE: https://www.investopedia.com/terms/i/intervalscheme.asp#:~:text=An%20interval%20fund%20is%20a%20type%20of%20pooled,time%2C%20or%20intervals%2C%20if%20the%20shareholder%20so%20chooses.

CLOSED FUND: https://medicalexecutivepost.com/2021/11/22/what-is-a-closed-end-mutual-fund/

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PODCAST: Value Investing with Vitaliy Katsenelson CFA

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Amazon.com: Vitaliy Katsenelson: Books, Biography, Blog, Audiobooks, Kindle

By Vitaliy N. Katsenelson, CFA

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EDITOR’S NOTE: In this interview with investment website @GuruFocus, my colleague Vitaliy shares the full gamut of how he invests, where and why. He touches on the role of being eclectic when investing, how to invest abroad, and how value investors should think about macro-economics and finance, among many other important topics. Enjoy this fun and wide-ranging interview! It is very timely with the S&P 500, DJIA and NASDAQ just posting their 4th straight day of gains while Facebook rattled investors by posting a rare profit decline, driven by the company’s heavy spending on its vision for a so-called Metaverse and simultaneously confronting advertising challenges on its existing services.

Dr. David Edward Marcinko MBA CMP®

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PODCAST: https://www.youtube.com/watch?v=eTSTbF0GwVw&t=69s

VALUE STOCKS: https://www.msn.com/en-us/money/markets/value-stocks-just-had-their-best-month-since-the-peak-of-the-2001-dot-com-bubble-%e2%80%94-and-theres-still-more-upside-to-come-bank-of-america-says/ar-AATpt1m?li=BBnb7Kz

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On OIL Investing for Physicians?

WHAT IT IS – HOW IT WORKS – WHY?

UPDATE: Hits $90 dollars/barrel

By Staff Reporters

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What it is: Exactly what it sounds like. The North American crude oil benchmark, known as West Texas Intermediate (WTI), is one of three main oil benchmarks used around the globe. While WTI is sourced primarily from Texas, it’s considered one of the highest-quality oils and is often refined into gasoline.

How it works: WTI is the physical commodity behind oil futures contracts traded on the New York Mercantile Exchange. Oil futures = financial instruments that allow investors to buy “abstract oil.” When the futures contract expires, that investment is converted into IRL oil, cashed out, or rolled into a future futures contract.

Why it matters: Oil prices are affected by economic conditions, supply and demand, and geopolitical forces. The coronavirus pandemic caused a historic collapse in prices this spring, and while prices have stabilized, the outlook is shaky.

CITE: https://www.r2library.com/Resource/Title/082610254

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Stock Investing for Physicians?

WHAT IT IS – HOW IT WORKS – WHY?

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Noteworthy Socks

What it is: A stock is a little sliver or “share” of a company that you can purchase and own. They usually take the form of “common” shares (which have voting rights that can influence some corporate decisions) or “preferred” shares (which don’t have voting rights, but do offer an edge when it comes to receiving dividends, or quarterly payments made to shareholders).

How it works: Companies sell shares on a stock exchange through an initial public offering; an IPO helps raise money to fuel more growth. Companies can also sell extra batches of stock to raise even more money later on and lower share prices; many end up selling millions or billions of shares in total. In the market, share prices usually fluctuate based on supply and demand.

Why it matters: Stocks can move with the broader market, but isolated events from earnings reports to product unveils to C-suite shakeups to Elon Musk tweeting can also affect how investors see a company’s future growth potential, thus sending prices up or down. We’ll occasionally highlight individual stocks and explain what happened to excite or spook investors.

CITE: https://www.r2library.com/Resource/Title/082610254

MEMES: https://medicalexecutivepost.com/2021/07/02/what-is-a-meme-stock/

UNICORNS: https://medicalexecutivepost.com/2021/06/30/unicorns-successful-private-companies/

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MARKET UPDATE: Five Items to Watch this Upcoming Week

By Staff Reporters

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Markets: The stock market was closed for Martin Luther King Jr. Day. Maybe a day off is just what the market needs to score its first winning week of 2022. But … For many stocks, 2022 was a real bear of a year. More than 220 US-listed companies with a market cap of $10+ billion are down at least 20% from their peaks. And things are even worse in the tech-heavy NASDAQ, where 39% of companies have dropped at least half from their all-time highs.

Economy: A combo of Omicron disruptions, higher inflation, and shortages of everything has caused forecasters to lower their projections for economic growth this quarter. Analysts surveyed by the WSJ dropped their Q1 forecast to 3% annual growth from 4.2% back in October.

Banks and Bitcoin: Big Bank earnings underwhelm; retail sales fell; Bitcoin has significant outflows. https://www.msn.com/en-us/video/peopleandplaces/brn-sunday-big-bank-earnings-underwhelm-retail-sales-fell-bitcoin-has-significant-outflows/vi-AASPR74

China: World shares were mixed after China reported that its economy expanded at an 8.1% annual pace in 2021, though growth slowed to half that level in the last quarter. And, Paris, Frankfurt, Tokyo and Shanghai advanced while Hong Kong and Seoul declined.

5 ITEMS TO WATCH: https://www.msn.com/en-us/money/markets/top-5-things-to-watch-in-markets-in-the-week-ahead/ar-AASPAb5?li=BBnb7Kz

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Will Mr. Market Eat Too Much Pi?

By Vitaliy Katsenelson CFA

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This Holiday, Will Mr. Market Eat Too Much Pi?
You can also listen to a professional narration of this article on iTunes, Google & online.

Mr. Market was less than kind to our portfolio over the last few months, and especially the last few weeks. I cannot tell you how little it worries us what Mr. Market thinks about our stocks at any particular point in time. We love* our portfolio even if the Mr. Market doesn’t fancy it today.

Also, before we take Mr. Market seriously, let us tell you about the rationality of Mr. Market lately. The World Health Organization (WHO) names each variant of the Covid virus by going to the next letter of the Greek alphabet. After Delta, which is currently the most predominant variant of the virus ravaging the world, there must have been nine others that were not important enough because we never heard of them. Why nine? Because when the latest variant of concern was found in South Africa, it emerged that the letter Nu was supposed to be applied to it. But Nu sounds a lot like new. WHO didn’t want to confuse people, so it skipped to the next letter in the Greek Alphabet, which is Xi – oops, that’s the Chinese supreme dictator. So, for the sake of global political stability, that letter was skipped, too.
This brings us to Omicron, the name of the latest variant.

This is where this story gets a bit more interesting.

The one disruption that really puzzles me is the labor shortage. There are millions of jobs going unfilled today. I hear stories of Starbucks stores being closed due to a lack of workers. Every service that has a heavy labor component has gotten worse – be it restaurants, ride-sharing, or pharmacies. There happens to be a cryptocurrency, one of thousands, that is also named Omicron. I still cannot grasp the logic behind it, but that cryptocurrency was up 900% on the day the South African variant was christened. There must have been a trading algorithm or a lot of bored investors looking for the next gamble, to drive something seemingly worthless up 900%.

That is the drunken Mr. Market that is pricing our stocks today.

I am going to repeat what you will find me saying several times in the letter: We own businesses that are priced, not valued, by Mr. Market thousands of times a day. We have done a lot of work on each company in the portfolio, and through diligent research we have reached the conclusion that each is worth more than the price it is changing hands at today. Are we going to be right about each and every stock? Of course not. This is a numbers game. But we use a time-tested methodology centered on common sense and the cash flows these businesses generate. Also, this is not our first rodeo. We’ll go on making small tweaks, taking advantage of Mr. Market’s manic-depressive moods, at least when it comes to anything that generates cash flows.

Of course, we could change our investment process and load up on the cryptocurrency called Pi Coin, which happens to take its name from the letter in the Greek alphabet that follows Omicron. But I think we all agree we should stick to our knitting, buying high-quality businesses that are significantly undervalued. (Anyway we already loaded up on pie during Thanksgiving.)

Our advice – enjoy this holiday season. Spend time with your loved ones; don’t look at your portfolio. Let us worry about it – after all, we own the same stocks you do.

We wish you joyful and safe holidays.

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12 INVESTING MISTAKES of Physicians to Avoid in 2022

A MEDICAL “TREATMENT PLAN” APPROACH

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By David Edward Marcinko, MBA, CMP®

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SPONSOR: http://www.CertifiedMedicalPlanner.org

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Product Details

MEDICAL TREATMENT PLAN: A detailed plan with information about a patient’s disease, the goal of treatment, the treatment options for the disease and possible side effects, and the expected length of treatment.

CITE: https://www.r2library.com/Resource/Title/082610254

COMMON INVESTING MISTAKES

Fees are down, expenses are up and the days of fat profit margins for physicians are over. Managed care in some form is here to stay. The tidal wave of baby boomers approaching retirement suggests the pendulum will not swing back to the “good old days” of fee-for-service medicine. Even the venture capitalists are laying off doctors because of the corona virus pandemic. And, the ACA and U.S. government, the payer for more than 50 percent of the covered population, continues to ratchet down reimbursement. Accordingly, many doctors are now working harder than ever. Unfortunately, they are also prone to irrational investing behavior and making more investment mistakes than ever before.

Here are the Institute of Medical Business Advisors’ “dirty dozen” investing blunders of physicians. Indeed, we see these common miscues among a variety of medical professionals.

Mistake 1: Having No Investment Policy Statement
Just as one would not think of treating a patient without a careful history and physical examination, you should not embark on investing your hard earned capital without an investment policy statement (IPS). This important document separates do-it-yourself investors, financial salesmen, stockbrokers and amateurs from true financial professionals.

An IPS is a document specifically detailing what you want your money to do for you with an understanding of who is to do what and how they are supposed to do it. It may be three to five pages long for an individual physician, 10 to 15 pages for a small medical group retirement plan or dozens of pages for a clinic or hospital endowment fund.

Treatment plan: A properly written IPS should contain the following:
• Statement of purpose
• Statement of responsibilities
• Investment goals and objectives
• Proxy voting policy
• Trading and execution guidelines
• Asset mix guidelines
• Social policies or other restrictions
• Portfolio limitations
• Performance review benchmarks
• Administration and fee policy
• Communication policy
• Reporting policy

Mistake 2: Not Diversifying Portfolio Objectives
Although the media frenzy of a few years ago has subsided, anecdotes of easy money still abound and doctors may forget that investment portfolios serve a specific purpose (e.g., retirement, college funding, etc.) within the content of a broader financial plan. Moreover, a single investment may become too large or too small a portion of the portfolio. This may be due to market growth in one component or slack in another.

Treatment plan: Diversify, monitor your holdings and select components with your risks and goals in mind. Time horizon and risk tolerance are likely to change as will the investment environment. One key contribution of modern portfolio theory (MPT), according to the 1990 Nobel Prize winner Professor Harry Markowitz, PhD, is the understanding that diversification can reduce portfolio risk. Indeed, the specific risk of a single stock may overwhelm any justification for failing to diversify.

Consider investing in sectors like basic materials, capital goods, communications and services, technology, consumer cyclicals and non-cyclicals, healthcare, energy, financial services and utilities. Investors can purchase most as individual securities, in mutual funds or as exchange traded funds (ETFs) or worldwide equity benchmark shares. Do not forget about cash equivalents, treasuries, zero coupon and municipal bonds and international securities.

Mistake 3: Forgetting The Investing Risk/Return Tradeoff
Some physicians fall into the trap of chasing “hot” securities like hedge funds, limited partnerships, non-registered securities or alternate investments promising high returns. High returns are associated with increased investment risk. Accordingly, it is important to understand the risks embedded in an investment before it becomes an exposed reality.

Treatment plan: Beware of projecting historic averages going forward. The stock market is inherently volatile. While it is easy to rely on past historic averages, there are long periods of time where returns regress from their long-term historic mean. On the other hand, slumps eventually correct themselves so you should continue a prudent investing plan.

Do not confuse investing with trading or speculation. According to Gene Schmuckler, PhD, the Director of Behavioral Finance for the Institute of Medical Business Advisors, Inc., there are momentum-driven market periods when investors start to believe profits are easy and there is always a “greater fool” to buy at a higher price. Such trading has more in common with gambling than investing. Avoid market timing and the urge to jump in or out at every economic hiccup.

Mistake 4: Not Factoring In The Impact Of Taxes
The desire to avoid capital gains and other taxes as a result of solid investment returns may lull some doctors into a false sense of security. An attractive investment and a slick sales pitch sometimes hide the underlying tax costs of the investment, especially when the investment is questionable. This leads doctors to give up a significant portion of the long-term growth of their assets.

Treatment plan: Income tax brackets, rates and estate taxes are almost at an all-time low in the U.S. This good fortune is due in part to the Taxpayer Relief Act of 1997, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Job and Growth Tax Relief Reconciliation Act of 2003, among other tax credits and deductions. Some mutual funds, for example, are not tax efficient while some ETFs may be tax efficient. Strive for legitimate tax reductions and avoidance but remember that tax evasion is illegal.

Mistake 5: Not Factoring In Fees And Expenses
Front-end loads, back-end loads, disappearing and hidden loads, 12-b1 fees and commissions, and advertising and sales expenses can all have a significant impact on a particular investment program.

Treatment plan: Monitor the costs of your investment program to ensure that total costs are known, reasonable for the services provided and are not consuming a disproportionate amount of the investment returns. Carefully consider full-service versus discount brokerages.

Take care using discretionary assets under management (AUM) accounts where you pay a percentage for personalized money management. More often than not, these one-size-fits-all accounts are aggregated under a larger automated umbrella to harvest economies-of-scale automatically. Indeed, the mistaken notion that the advisor “is sitting on the same side of the investment table as you” starts deteriorating on critical reflection. Do not fall for the siren sales pitch (“If I make money, you make money”). Excessive risk taking, purchases and sales activity may be at your expense.

Carefully consider whether golf balls, seminars, football game tickets, pens or quarterly meetings with your “advisor” are worth the price you may ultimately pay for these minor trinkets and services.
For example, in a 2 percent AUM program of $1 million, you may pay $20,000 annually, which is automatically deducted from the account. Are these “perks” worth $200,000 over the course of a decade? During the “golden age of medicine” in the ‘80s or the ranging bull market of the ‘90s, some doctors may have thought it was worth it. What about during a bear market or the projected market of lower than average returns that may be upon us?

Other problems with AUMs include: a higher fee to managed stocks than bonds, creating an equity bias; bias against paying of the mortgage, practice or acquiring real estate; bias against gifting initiatives or charitable intent. These are all problematic for the same reason that over-weighted equity classes increase advisor compensation while these other equally important considerations do not.

Mistake 6: Inappropriate Risk-Management Techniques
Traditionally, physicians protected their families with life, disability, malpractice and business interruption insurance yet insurance products are not investment vehicles. They merely indemnify against catastrophic economic losses that are typically extinguished over time. Behavioral economists like Daniel Kahneman, PhD, of Princeton University, and Vernon L. Smith, PhD, of George Mason University, warn us to use these insurance products carefully since we tend to experience financial losses more intensely than gains and evaluate risks in isolation.

Additionally, a comprehensive risk management plan for doctors must acknowledge risks such as sexual harassment risks; workplace violence risks; Medicare documentation, recoupment and compliance risks; and the economic risks of divorce. There is also a plethora of acronymic risks such as the Health Insurance Portability and Accountability Act (HIPAA), the Occupational Safety and Health Administration (OSHA) Act, and many others.

Treatment plan: Be willing to abandon ancient thoughts and remain open to new ideas that identify and provide solutions to the contemporaneous insurance problems of physicians. As an example, in 2001, economist Christian Gollier, PhD, of the University of Geneva, asked, “Should one even buy personal insurance since the industry itself is so skilled at exploiting human foibles?”

Mistake 7: Inappropriate Insurance Agent
It is no surprise that goaded physicians might prefer insurance vehicles like the guaranteed minimum death benefit of variable annuities or traditional cash value life insurance policies despite their high costs, huge commissions and lower returns. Agents sell these products and they work for the insurance company, not for you. Basic insurance agent credentials include the chartered financial consultant and chartered life underwriter designations, but they may remain product salesmen.

Treatment plan: Always beware the fear-mongering insurance agent salesman as the flowing coverages may be unnecessary, too expensive, provide only minimal benefits or be duplicated in other insurance policies. These include credit life or home mortgage insurance (decreasing term), life insurance for children or the elderly, accident policies for students, hospital indemnity policies, dread disease insurance, credit card insurance, pet, flight or funeral insurance, prepaid legal insurance, trip cancellation, flood, earthquake and termite insurance, and most appliance extended warranties.

Instead, consider a licensed insurance advisor or insurance counselor who sells no products, accepts no commissions and charges by the hour, all while shopping for the best companies and rates for the risk being researched. A fiduciary focused Certified Medical Planner® may be even better.

Mistake 8: Selecting The Wrong Accountant
When asking for the value of a practice, ask specifically for the fair market value (FMV). One podiatrist who consulted us asked her accountant for the “value” of her practice and received its lower “book value” rather than the higher fair market value as a profitable ongoing concern. The MD lost tens of thousands of dollars in a subsequent sales transaction. Unfortunately, although the CPA produced correct figures for exactly what she requested, the doctor did not differentiate between the two terms. Later legal mediation determined that neither was responsible for the linguistic error as both parties acted in good faith. Of course, the doctor paid dearly for her mistake.

Treatment plan: Dr. Gary L. Bode, CPA, MSA, a former medical practitioner and CFO for iMBA, Inc., suggests that you take the time to discuss wants and needs with your accountant. Those from the National CPA Healthcare Advisors Association (www.hcaa.org) or the Healthcare Financial Management Association (www.hfma.org) may also increase your comfort level through additional medical expertise. Better yet, contact an experienced medical practice valuation expert or healthcare economist.

Mistake 9: Not Having Your Practice Professionally Valuated [not appraised]
The sale or purchase of a medical practice may be the most important investment decision of your life. We have observed neurotic purchasers who spend far too much time, money and energy researching a fairly priced and modest practice to no avail (paralysis of analysis). Others have purchased exorbitantly priced practices for over $1 to $2 million on a handshake and promise. Accordingly, give this complex task the gravitas due, and run from those who would broker your sale with a “free” or “Internet-based valuation,” or provide “finance participation” schemes for purchase as a young practitioner.

According to IRS Revenue Ruling 59-60, the value of any medical practice is generally based upon the following:
• level of expected distribution and future cash flows;
• time of expected distributions and cash flows; and
• uncertainty of the expected cash flows and distributions.

Moreover, one should recall that a valuation is not a source document audit. Know specialty and industry economic conditions, trends, operating history, physician bonuses, dividends, distributions and comparable practice sales. A commission or percentage-based fee is considered unethical and may be illegal.

Accounting book value is not the same as a fair market valuation. Do not use back-of-the envelope trade magazine “multiplier methods” and obtain only Uniform Standards of Professional Appraisal Practice (USPAP)-styled valuations, which were first issued by the IRS in 1994-1995.

Combine the recognized USPAP-IRS valuation methods: income method with discounted cash flow analysis, market method and cost approach. Be sure to adjust financial statements in order to normalize each line entry. You must do the discounted cash flow analysis (DCFA) on an after-tax basis and base proper assumptions on physician compensation market rates.

Understand the intangible difference between personal and business goodwill, major premiums and minority control discounts.

Doing a walk through of the practice is mandatory for your protection. Trust but verify tangible assets and liabilities, estimates of practice risks, economic assumptions and future earning capacity.
Obtain a separate and independent real estate appraisal if necessary.

Make sure the valuation is written, substantiates value, supports conclusions and is signed by an appraiser who will defend the valuation in court as a qualified expert witness if necessary. This certification is formally known as an “opinion of value” and the only type we perform.

Remember to obtain two independent valuations, one for the buyer and one for the seller, and pay for each separately.

Treatment plan: Have the financing lined up before you buy a practice. The three major impediments to loan acquisition are school loan debt, a home mortgage and an automobile note in that order So, strive to reduce or eliminate them before applying for a loan. Hire licensed appraisal professionals with publishing, teaching and/or academic experience. Do not hire brokers or commissioned agents.
Organizations that accredit businesses but not necessarily medical practice appraisers include:

• The Institute of Business Appraisers (www.go-iba.org) awards the certifications of certified business appraiser and business valuators accredited in valuation.
• The National Association of Certified Valuation Analysts (www.nacva.com) awards the designations of certified valuation analysts and accredited valuation analysts.

Well-known medical practice and healthcare system appraisers include the big 10 consulting firms for hospitals and national healthcare systems. However, the Arthur Andersen debacle confirms that “bigger is not always better.” Medical practice niche players include Health Capital Consultants, LLC, (www.healthcapital. com), which provides large- and medium-sized practice valuations.

The Institute of Medial Business Advisors Inc, (www.MedicalBusinessAdvisors.com) specializes in small to medium practices, emerging healthcare organizations, clinics and ambulatory surgery center valuations and confers the designation Certified Medical Planner® on its independent consultants, appraisers and advisors.

Mistake 10: Selecting The Wrong Attorney
Consider the bizarre tale of the two fledgling internist partner/classmates who signed an attorney-prepared, buy-sell agreement upon creation of their nascent practice 30 years beforehand. The agreement stipulated that upon departure or dissolution, the remaining partner’s ownership would be determined not by some periodically updated valuation formula or appraisal process, Instead, it would be determined by a “matched and lost” process, also known as the “flip of a coin” for a medical conglomerate now worth over $1 million.

Treatment plan: Select a health law attorney and not your brother-in-law. More importantly, experience in the medical arena counts. Consult iMBA, Inc. or the American Health Lawyers Association (www.healthlawyers.org) as a referral resource.

Mistake 11: Blind Trust Of Wall Street And Financial Advisors
Stockbroker salesmen and the big brokerage houses that underwrite and recommend stocks may have credibility problems and some physicians get burned with the adrenaline rush of “self-directed” portfolios. Presently, both the Security Exchange Commission (SEC) and National Association of Securities Dealers are investigating far too many insurance companies and major wire houses for reverse churning (charging a fee on assets for which the stockbroker is providing virtually no services) and/or double dipping (charging an ongoing fee on mutual funds on which the client already paid a substantial commission).

No one knows for sure how to mitigate such shenanigans since human nature and self-interest are involved. Rest assured that the economic cycle will never be repealed and you must beware the four most dangerous words on Wall Street: “This time, it’s different.” Yet some believe the answer may lay with the independent fee-only advisor who charges by the hour, by the engagement, or pro re nata for advice.
Beware of taking the advice of a financial advisor carte blanche. The prime duty of a financial advisor should be to clients. Yet the very term “financial advisor” has no real academic or consistent meaning in the industry. The only hurdle to becoming one is passing a simple securities industry or state insurance sales licensing examination. Most are brokerage and agency employees with a duty to their respective firms, not you.

Treatment plan: Commissioned stockbrokers are fine to use if their fees are transparent and they offer value to you. However, be aware that Wall Street sales mavens and large broker-dealers (wire-houses) recently lobbied Congress not to be responsible to you after the sale. The Financial Planning Association is suing the SEC over this proposal to exempt the nation’s largest wire-house brokerages from certain fiduciary responsibilities associated with investment advisory regulations.

To avoid selecting the wrong financial advisor, choose an independent advisor who takes pride in fiduciary responsibility, knows the medical profession and eschews product sales commissions whenever possible. Such a professional is more than deserving of a fee. Do not hesitate to pay it.

To determine if your current advisor is the right choice, just ask to see the documents below:
• form ADV parts I and II;
• sample investment policy statement;
• registered investment advisor or series #65 investment advisory license
• CMP® license number;
• ethics requirement or attestation statements; and
• advanced degrees and designations, etc.

Some CMPs® and fee-only financial advisors possess these professional certifications as required. Stockbrokers, salesmen, intermediaries and insurance agents may not. All monikers suggest but do not guarantee impartiality and a lack of bias. Also make sure your financial advisor is experienced in the rapidly changing healthcare industrial complex.

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

ORDER TEXTBOOK: https://www.routledge.com/Risk-Management-Liability-Insurance-and-Asset-Protection-Strategies-for/Marcinko-Hetico/p/book/9781498725989

Mistake 12: Lack Of A Complete Financial Plan
While many doctors have an investment portfolio, few have a comprehensive personal financial plan, especially one designed for medical professionals.

Treatment plan: Typically such plans consider the risk tolerance and time frame of several standard components such as insurance, taxation, investing, retirement and estate planning. Today’s practicing physicians should direct attention toward practice enhancement, economic risk management, valuations, charitable giving and succession planning. All should be interrelated in an economically sound manner and not be counterproductive to individual components of the plan.

In Conclusion
Often, successful investing and avoiding a life of economic servitude is simply a matter of delayed gratification and mistake avoidance rather than investing acumen. A good rule of thumb is to pursue fundamentals over fads and seek wise counsel when required.

About the Author

Dr. Marcinko is a Certified Financial Planner and Certified Medical Planner® and CEO for www.MedicalBusinessAdvisors.com, sponsor of the Certified Medical Planner charter designation program. He can be reached by phone at (770) 448-0769 or by e-mail at MarcinkoAdvisors@msn.com.

References:

References
1. Marcinko DE. Financial planning for Physicians and Advisors. Jones and Bartlett Publishers, Sudbury, Mass., 2005.
2. Marcinko DE. Insurance and Risk Management Strategies for Physicians and Advisors. Jones and Bartlett Publishers, Sudbury, Mass., 2005.

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