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Book Dr. David Edward Marcinko CMP®, MBA, MBBS for your Next Medical, Pharma or Financial Services Seminar or Personal and Corporate Coaching Sessions 

Dr. Dave Marcinko enjoys personal coaching and public speaking and gives as many talks each year as possible, at a variety of medical society and financial services conferences around the country and world.

These have included lectures and visiting professorships at major academic centers, keynote lectures for hospitals, economic seminars and health systems, keynote lectures at city and statewide financial coalitions, and annual keynote lectures for a variety of internal yearly meetings.

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Investment Lessons Learned from the Poker Table

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“I don’t know”

vitaly

               By Vitaliy Katsenelson CFA                   

These three words don’t inspire a lot of confidence in the messenger and probably will not get me invited onto CNBC, but that is exactly what I think about the topic I am about to discuss. I received a few e-mails from people who had a problem with a phrase in one of my blog posts this fall.

In that article I examined various risks that other investors and I are concerned about. The phrase was “the prospect of higher, maybe even much higher, interest rates.” These readers were convinced that higher interest rates and inflation are not a risk because we are not going to have them for a long, long time, that we are heading into deflation. These readers basically told me that I should worry about the things that will come next, not things that may or may not happen years and years down the road. I am pretty sure that if that phrase had addressed the risk of deflation and lower interest rates ahead, I’d have gotten as many e-mails arguing that I was wrong — that we’ll soon have inflation and skyrocketing interest rates, and deflation is not going to happen. I don’t know whether we are going to have inflation or deflation in the near future.

More important, I’d be very careful about trusting my money to anyone holding very strong convictions on this topic and positioning my portfolio on the basis of them. Any poker player knows that the worst thing that can happen is to have the second-best hand. If you have a weak hand, you are going to play defensively or fold (unless you are bluffing) and likely won’t lose much.

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But, if you’re pretty confident in your hand, you may bet aggressively (god forbid you go all-in) — after all, you could easily have the winning cards. Four of a kind is a great poker hand unless your opponent has a straight flush. Generally, the more confident you are in an investment, the larger portion of your portfolio will be placed in that position.

Therefore superconvinced inflationists will load up on gold, and superconvinced deflationists will be swimming in long-term bonds. If their predictions are right, they’ll make a boatload of money. If they’re wrong, however, they will have the second-best-hand problem — and lose a lot of money. The complexity of the global economy has been increased by monetary and fiscal government interventions everywhere. There is no historical example to which you can point and say, “That is what happened in the past, and this time looks just like that.” When was the last time every major global economy was this overlevered and overstimulated? I think never. (Okay almost never, but you have to go back to World War II.) What is going to happen when the Fed unwinds its $4 trillion balance sheet? I don’t know.

Also the transmission mechanism of problems in our new global economy is so much more dynamic now than it was even a decade ago. Just think about the importance of China to the global economy today versus 2004. That year U.S. imports from China stood at $196 billion. Just in the first eight months of 2014, they were $293 billion. China was single-handedly responsible for the appreciation of hard commodities (oil, iron ore, steel) over the past decade as it gobbled up the bulk of incremental demand.

Now, I don’t want to sink to the level of the one-armed economist — but conversation about inflation and deflation is just that, an “on one hand . . . but on the other hand” discussion. Just like in poker, second-best hands may be tolerable if, when you went all-in, you did not leverage your house, empty your kid’s college fund or pawn your mother-in-law’s cat. Even if you lost your money, you will live to play another hand — maybe just not today.

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th

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In the “I don’t know” world, second-best hands when you bet on inflation or deflation are acceptable on an individual position level (you can survive them) but are extremely dangerous, maybe fatal, on an overall portfolio level.

Investing in the current environment requires a lot of humility and an acceptance of the fact that we know very little of what the future holds. I’d want the person who manages my money to have some discomfort with his or her economic crystal ball and to construct my portfolio for the “I don’t know” world.

Assessment

As a writer, you know you are in trouble when you have to quote both Albert Einstein and Mahatma Gandhi in the same paragraph, but when I ask readers to do something as difficult as I am in this column, I need all the help I can get. “It is unwise to be too sure of one’s own wisdom,” Gandhi said. “It is healthy to be reminded that the strongest might weaken and the wisest might err.” Einstein took the idea a step further: “A true genius admits that he/she knows nothing.” Smarter and humbler people than me were willing to say, “I don’t know,” and it is okay for us mortals to say it too.

Repeat after me . . . 

Conclusion

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Dr. David Edward Marcinko, editor-in-chief, is a next-generation apostle of Nobel Laureate Kenneth Joseph Arrow, PhD, as a health-care economist, insurance advisor, financial advisor, risk manager, and board-certified surgeon from Temple University in Philadelphia. In the past, he edited eight practice-management books, three medical textbooks and manuals in four languages, five financial planning yearbooks, dozens of interactive CD-ROMs, and three comprehensive health-care administration dictionaries. Internationally recognized for his clinical work, he is a distinguished visiting professor of surgery and a recipient of an honorary Bachelor of Medicine–Bachelor of Surgery (MBBS) degree from Marien Hospital in Aachen, Germany. He provides litigation support and expert witness testimony in state and federal court, with medical publications archived in the Library of Congress and the Library of Medicine at the National Institutes of Health.

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The third quarter for 2015 was a REAL humdinger!

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The Markets – Update
Art

By Arthur Chalekian GEPC

[Financial Consultant]

Well, the third quarter for 2015 was a REAL humdinger!
                                            ***
It began with the first International Monetary Fund (IMF) default by a developed country (Greece) and finished with Hurricane Joaquin possibly headed toward the east coast. In between, China’s stock market tumbled, the Federal Reserve tried to interpret conflicting signals, and trade growth slowed globally. After such a stressful quarter, we may see an uptick in the quantity of alcoholic beverages consumed per person around the world. That number had declined (along with economic growth in China) between 2012 and 2014, according to The Economist.
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No Grexit – for now
Despite defaulting on its IMF loan, rejecting a multi-billion-euro bailout plan, and closing its banks for more than two weeks, Greece was not forced out of the Eurozone. Instead, Europe cooked up a deal that left the IMF unhappy and analysts shaking their heads. The Economist reported the new deal for Greece was an exercise in wishful thinking. The problem is the deal relies on “the same old recipe of austerity and implausible assumptions. The IMF is supposed to be financing part of the bailout. Even it thinks the deal makes no sense.” It’s a recipe we’re familiar with in the United States: When in doubt, defer the problem to the future.
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A downturn in China
Despite reports from the Chinese government that it hit its economic growth target (7 percent) on the nose during the first two quarters of the year, The Economist was skeptical about the veracity of those claims. During the first quarter.
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“Growth in industrial production was the weakest since the depths of the financial crisis; the property market, a pillar of the economy, crumbled. China reported real growth (i.e., after accounting for inflation) of 7 percent year-on-year in the first quarter, but nominal growth of just 5.8 percent.”
***
That statistical sleight of hand implies China experienced deflation early in the year. It did not.
On a related note, from mid-June through the end of the third quarter, the Shenzhen Stock Exchange Composite Index fell from 3,140 to about 1,716, according to BloombergBusiness. That’s about a 45 percent decline in value.
***
Red light, green light at the Federal Reserve
Green light: employment numbers. Red light: consumer prices, inflation expectations, wages, and global growth. Late in the quarter, the Federal Reserve decided not to begin tightening monetary policy.
According to Reuters, voting members of the Federal Open Market Committee (FOMC) decided uncertainty in global markets had the potential to negatively affect domestic economic strength. They may have been right. The Wall Street Journal reported, although unemployment remained at 5.1 percent, just 142,000 jobs were added in September. That was significantly below economists’ expectations that 200,000 jobs would be created. The Journal suggested the labor market has downshifted after 18 months of solid jobs creation.
***
Global trade in the doldrums
The global economy isn’t as robust as many expected it to be. According to the Business Standard, the World Trade Organization (WTO) lowered its forecast for global trade growth during 2015 from 3.3 percent to 2.8 percent. Falling demand for imports in developing nations and low commodity prices are translating into less global trade. Expectations are trade growth will be 3.9 percent in 2016, which could help support global economic growth.
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Coming Change
America’s share of the global economy is potent. Our country accounts for 16 percent (after being adjusted for currency differences) of the world’s gross domestic product (GDP) and 12 percent of merchandise trade.
Again, according to The Economist, we dominate “the brainiest and most complex parts of the global economy.” Our presence is strong in social media, cloud computing, venture capital, and finance. In addition, the dollar is the world’s dominant currency. While the view from the top is pleasing, we may not be there forever. The Economist explained:
***
“In the first change in the world economic order since 1920-45, when America overtook Britain, [America’s] dominance is now being eroded. As a share of world GDP, America and China (including Hong Kong) are neck and neck at 16 percent and 17 percent respectively, measured at purchasing-power parity. At market exchange rates, a fair gap remains with America at 23 percent and China at 14 percent … But any reordering of the world economy’s architecture will not be as fast or decisive as it was last time…the Middle Kingdom is a middle-income country with immature financial markets and without the rule of law. The absence of democracy, too, may be a serious drawback.”
***
It may be hard to believe, in light of recent economic and market events in China, but change is on its way. Regardless, the influence of the United States should continue to be powerful well into the future.

Conclusion

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On Hospital Endowment Fund Management

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A Case Model Example

[By Dr. David Edward Marcinko MBA]

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Just as the field of medicine continuously changes, so too does the field of endowment management.

Endowment managers continue to increase their knowledge of the science and expand their skill in the art.

However, successful endowment managers will continue to focus on the areas that they can control in order to minimize the risk of the areas they cannot.

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So, here is a case model to show you how it is done.

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Endowment Fund

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Conclusion

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About the INSTITUTE OF MEDICAL BUSINESS ADVISORS, Inc.

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The Institute of Medical Business Advisors, Inc provides a team of experienced, senior level consultants led by iMBA Chief Executive Officer Dr. David Edward Marcinko MBA CMPMBBS [Hon] and President Hope Rachel Hetico RN MHA CMP™ to provide going contact with our clients throughout all phases of each project, with most of the communications between iMBA and the key client participants flowing through this Senior Team.

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Understanding the “Least” Important Issues for Physician-Investors

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A Dimensional Fund Advisors Survey

By Rick Kahler MS CFP® http://www.KahlerFinancial.com

Rick Kahler MS CFPIn this ME-P, I will focus on the three least important things investors want to know. The rankings came from a survey of investors, funded by Dimensional Fund Advisors, conducted in March 2014 by Advisor Impact.

All three deserved to be much higher on the list. In my experience, they are what most physicians and all investors really need to know.

The factors

These three factors are:

  • What are the chances the investment will lose money? Only 10% of investors thought it was important to ask about factors that contributed to historic performance. Just one-third thought it important to even ask about historical performance in general.
  • What type of volatility can they expect? Only 17% of investors considered this important.
  • How and why did the advisor select the investment for their portfolio? Only 21% of survey respondents thought this was important, and just 8% asked about the investment managers chosen.

Drilling Down and Going Granular

Some of these factors may seem difficult to understand, but they do matter. Give your financial advisor a chance to explain them; it can help you become a more informed investor.

ME-P Physicians

  1. Chances of losing money

This factor could be better addressed by asking about the specific factors that influenced historic performance of the security over various long-term economic climates. True, looking at the past performance of an investment is never a guarantee of future performance.

Yet, if the historical periods evaluated contain a variety of economic conditions (high inflation, various economic cycles, various political influences, etc.) and long-term holding periods (at least 10 years or more), looking backward may give you a reasonable idea of what future performance might look like.

  1. Volatility

Most investors will cognitively agree they fully understand that most investments that carry any chance of real (after inflation) significant long-term return will fluctuate. I say “cognitively” because, once that fluctuation happens on the downside, all cognitive understanding sometimes goes out the window and the emotional brain takes control.

One way of internalizing the potential fluctuation of an investment is to ask about its volatility. Specifically, it’s standard deviation. This measure of the amount of variation from the average is something an advisor can easily find out for almost every bond, stock, and mutual fund. Take the standard deviation times three, then subtract that number from the average return. This is the amount of value over one year your investment could drop (or rise) in 99% of all years. Stated conversely, there is only a 1% chance your investment would drop further in any one year.

  1. Portfolio Fit

I recently sent back a shirt that hung on me like a tent. While it would have been perfect for a larger guy, it was not a fit for me. Investments are similar. While some are perfect matches for one portfolio, they can be lethal in another. An over-allocation to emerging market stocks may make perfect sense for a newborn, but it could be a retirement disaster for a 90-year-old.

Pensive Financial Advisor for Physicians

Assessment

It’s important to ask why an investment belongs in your portfolio. You want investments (asset classes) that complement one another by tending to fluctuate independently of each other.

In an ideal balance of investments, when some decrease in value the other half increase an equal or greater amount, and all of them earn a real return over time.

Conclusion

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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

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