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Filed under: Accounting, Book Reviews, Career Development, Estate Planning, Ethics, Financial Planning, iMBA, Inc., Insurance Matters, Portfolio Management, Practice Management, Practice Worth, Retirement and Benefits, Risk Management, Taxation | Tagged: CMS, david marcinko, Financial Planning, Health Economics, Health Insurance, HMO, Managed Care, medical endowments, medical risk management, medicare, physicians, Portfolio Management, PPO | 1 Comment »
Understanding Risks and Benefits
By Dr. David Edward Marcinko MBA CMP™
According to Wayne Firebaugh CPA, CFP®, CMP™ rebalancing a private physician’s portfolio or medical endowment contradicts conventional market “wisdom” that you allow your winners to run. Perhaps in speculation this is true, but for investing such a view can be deadly.
One Healthcare Case Example
Take, for example, the Cleveland Clinic’s experience with its endowment. In 1999, the Cleveland Clinic Foundation reported $1.2 billion in investments. Unfortunately, by the end of 2002, the Foundation’s investments were valued at $650 million, a loss of approximately 50%. Its losses reflected its substantial allocation into technology stocks during the technology boom of the late 1990s. As a result of these investment losses, the Clinic had to postpone a planned $300 million cardiology center and certain debt financing had to be restructured. In addition, both Moody’s and Standard & Poor lowered their ratings on the Clinic.
Definition
Since rebalancing by definition requires an endowment to take money from more successful investment classes and invest it into under-performing classes, it will always cause some measure of anguish. There will always be some reason why rebalancing should not take place. In 1987, the unprecedented single day decline in the market could have been presented as an argument against moving into equities. In 1998, the seemingly endless number of world financial crises could have provided a useful excuse to avoid rebalancing into emerging markets. So too; the flash crash of 2008!
Assessment
Current bond prices could provide similar reasons for not rebalancing into an appropriate fixed income position. However, since the whole reason for asset allocation policy decisions is to mitigate the negative impact that irrational behavior can have on a portfolio or an endowment’s investment performance, they should include a process for periodic rebalancing of its assets.
Conclusion
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Filed under: Investing, Portfolio Management | Tagged: Investing, medical endowments, Portfolio Rebalancing, Wayne Firebaugh | 3 Comments »
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