[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Sign-in] [Mail] [Setup] [Help] [Register]
Status: Not Logged In; Sign In
|
Business/Finance See other Business/Finance Articles Title: Doctors' 8 Worst Investing Mistakes Medsape... Searching for That Winning Investment Physicians have long tried to maximize their earnings by making investments. Although many doctors have done well, others have ended up with huge losses. Some money-losing investments were truly due to bad luck. Even financial professionals failed to predict some real estate crashes or a market plunge at a particular time. And many investments that looked good on paper turned out to be losers owing to unforeseen events. In the survey fielded for Medscape's 2015 Compensation Report, we asked physicians to describe their worst investing mistakes. Thousands of respondents described how they lost money, and what went wrong. Here are the eight most common categories of mistakes. 1. Making Poor Stock Choices Some physicians chose companies that had bad management, or whose products were eclipsed by better products or more high-powered marketing; other stocks were from companies that did well at one time, but then took a nosedive and never recovered. "I bought WorldCom stock and it went to zero," said one respondent. "I bought penny stock that went belly up. It wasn't a lot of money, but it was a good learning experience." "I bought Apple stock at $45, sold it at $15." "I lost $1 million in the Internet bubble." "My financial adviser convinced me to invest in hedge funds; I lost $300,000." "I tried investing on my own and was not able to keep up with it on a day-to-day basis." "The market crashes wiped me out." "Every stock I've chosen has gone down to almost nothing." Still, those who lost a bundle in stocks were not in the minority. Realistically, almost no one—not even professional mutual fund managers—will always choose a winning stock. The difference, though, is that mutual fund managers have hundreds of stocks, and so if a couple are duds, these professionals can get rid of them, and hopefully their decline will be overcompensated by the winners. If you own only one or two stocks, you have a lot riding on that particular stock. Another problem is that nonprofessional investors tend to buy "hot" stocks that are getting publicity and are the center of "buzz." The problem with that approach is that their prices have already increased. Investors often purchase that stock at a high price, hoping that it will go still higher. But if the value is already elevated, the share price is more likely to either plateau or decline. "I always buy high and sell low," grimaced one physician respondent. Still, some tales of woe involved unfortunate timing rather than poor choice. "I am a very conservative investor, and just before the tech bubble (also called the 'dot-com bubble') burst in 2000, I moved assets into tech stocks and lost $40,000," said one physician. Which Investment to Choose, Which to Bypass? If a doctor is interested in a particular stock, either because she believes in the product or it's doing well, what should she look at before deciding to buy or not buy? "Many people, including many professionals, tend to make poor choices because of the twin elements of human nature, which are greed and fear," says Pran Tiku, CFP, with Peak Financial Management, Waltham, Massachusetts. "Sometimes the mistakes get compounded because doctors have limited time and are prone to acting expediently on the basis of their daily work life," says Tiku. "They also are accessible to many people with interesting investment and business stories to tell, from patients to pharmaceutical salespersons." "For example, a device or drug salesperson drops in to promote their product. If the doctor is impressed, the natural instinct might be to express it in the form of investing in the stock of the company," says Tiku. "Most of the time, doctors have very little time to do research on the company's finances, cash flow, sales, or other important metrics that would determine whether the company was on a solid footing. If there is no widespread acceptance of the product or service and how it was valued, then it would be difficult to understand the rationale for purchasing the stock, other than the casual conversation and cursory opinions." If a doctor (or any investor) is interested in a stock, it's wise to spend time looking in some depth into the investment merit of the company. If you don't have the time or interest in digging deeper, it may be helpful to discuss the prospect with your financial adviser. 2. Bad Real Estate Investments This category encompassed several types of problem. Many physicians were hurt by the real estate crash and were stuck with houses they had paid high prices for, and saddled with a high mortgage but decreased value. Others bought properties they planned to rent out, but unforeseen difficulties occurred. "I was in a real estate partnership that lost money." "I lost a large amount on a house that I bought because I had to move for a job change." "I made a poor rental property choice." "I invested in a timeshare, which I regret and I cannot terminate the investment." "My beach property devalued." "Owing to the crash of 2008, I lost my house investment on a short sale, and one on undeveloped property that is still worth less than my investments." "I short-sold my house for a $200K loss." Owning a rental property tempted many respondents, and for many, the venture turned out well. But there are lots of headaches and no guarantees. Some people had such high mortgage payments on the rental property that they couldn't meet the competitive rental prices in the local market. Either their property remained vacant, or the owners took a monthly loss. Others encountered problems with tenants: "We bought a rental property, but the tenants didn't pay their rent." "If one looks only at the potential returns in a real estate deal, they can look attractive," says Joel Greenwald, MD, CFP, with Greenwald Wealth Management, St Louis Park, Minnesota. "What folks forget is how much money, work, and time a busy physician may need to put into fixing up and maintaining a property. Stocks, exchange-traded funds, and mutual funds may earn the same or better return and don't involve replacing a boiler or difficult tenants who trash a rental." "I've had countless young physicians come to me with real estate properties that are draining them both emotionally and financially," says Greenwald. "They often bought properties when they were residents or fellows in the cities in which they were training, and then moved elsewhere to practice. With the drop in the real estate market, they've been left with underwater properties that they don't want to sell for a loss, and are trying to manage tenants and repairs at a distance while starting in medical practice and raising a family." But there's no reason to pass up a solid real estate investment. "One example of a great success is a retired doctor client whose former practice continues to pay him rent each month on the portion of the practice building he owns," says Greenwald. "This is a great supplement to his monthly income and has helped allow him not to have to tap his nest egg at all. Down the road, his former partners may decide to buy out his share. The return he is getting on his partial ownership of the practice building cannot be equaled through conventional investments or annuities, so this has been a great deal for him." Not Knowing When Enough Is Too Much More Opportunities for Investment Mistakes Editors' Recommendations The 10 Best Stocks to Buy Now Physicians, Debt, and Net Worth: Big Spenders or Big Savers? Medscape Physician Compensation Report 2015 The World Is Full of Frauds 3. Being Too Good-Hearted Sometimes a family member or close friend will approach you with what seems like an incredible idea, and a can't-miss opportunity. The problem is, it's easy to be buoyed by optimism when trying to help people you know, or be drawn into their enthusiasm. Sometimes these bad investments were made to help someone in need, or driven by your kind desire to come to the rescue of a friend or relative who is hurting. "My bad investments were helping family with home purchases and helping struggling people with questionable investments." "I let my partner's wife be the office manager; she failed to pay our taxes, and I lost a lot of money." "I invested in a family member's business that failed." "I loaned money to a friend who subsequently committed suicide." If you are going to invest with, or even just help out, a family member, experts advise always putting the arrangement in writing, including terms of repayment and stipulations for circumstances that could arise or actions to take if the contract is not fulfilled. Not all such circumstances, however, were legitimate. Some physicians were victim of a fraud. Sometimes the signs of a fraud or scam are obvious, and there's little excuse for falling for it. Other times, the scammers have their act down pat; their story is so well-prepared, it's hard for investors to know something is wrong. Plenty of careful and well-educated people have been defrauded. "I invested in a housing scam in South America; the primary owner of the company that built the houses died. Nobody knows where the money is." "I lost my deposit to a fraudulent preconstruction real estate project." "I invested in developing a new practice with a nonphysician. All the money was embezzled." "One real estate deal I was involved with turned out to be a Ponzi scheme, and I was sued to recover profit even though I lost money." With any business, it's wise to do a considerable amount of background research. One smart move is to have your financial adviser conduct due diligence on the venture and find out the background of the principals, the deal, and every other aspect of the venture. 4. Getting Involved in a Great-Sounding Venture This category brought the largest number of responses. Physician have apparently invested in everything, from a pizza franchise and a failed wine distributorship to a water park, a new casino venture, a delicatessen, a video company that went bankrupt, and a llama farm. A large percentage of doctors invest in side businesses. "In some cases, they have mastered their job as a physician and are bored and looking for the next challenge," says Greenwald. "They forget it that took them 4 years of medical school and 3-7 years of residency or fellowship to master medicine. They can't devote that amount of study and time to investing, so they wing it, often with bad results." Besides these ventures that didn't work out, there were a large number of start-up companies that never got off the ground, after siphoning off a significant chunk of investment capital. Start-ups have a notoriously high rate of failure, because there are many steps from inception to a successful company. As a result, many unexpected factors arise. "Rather than trying to hit an investment home run with a fantastic return on a single large investment or two, most MDs will reach their goals by earning their physician income; avoiding overspending or living beyond their means; and investing in a thoughtful, prudent manner," says Greenwald. "Investing in deals as a side business can be an expensive hobby and an expensive way to get stimulation." Not Knowing When Enough Is Too Much 5. Holding Onto a Stock Way Too Long Knowing when to sell a stock can be almost as important as choosing the right stock. As a stock price rises, many money managers recommend selling half the stock and locking in those gains. But instead, investors may keep holding the stock, hoping for more profit, until some event takes place and the stock comes crashing down, never to recover. Others see the stock decline yet hold for years, hoping to recover their investment, but never do so. "I bought a stock that kept going down, and did not sell as losses were getting worse," said one physician, describing his biggest investment mistake. "I failed to cash in on a large gain, and the stock collapsed," said another. Others echoed similar sentiments. Investment advisers say that one way to help avert this is to have a target price in mind when you buy a stock. On the basis of research, choose in advance a number that you realistically hope the stock can reach. Sell your shares—or at least half of them—when the stock reaches that target. Some professional stock-pickers say they sell their stock if it either rises or declines by 15%; they feel that amount is an adequate profit and also prevents too much loss. "When a person buys a stock, we recommend a disciplined strategy that should be determined at the outset of the investment," says Tiku. "Whatever that strategy is, they should stick to it, unless circumstances change. Preferably, it is based on when the stock reaches its intrinsic value; this is calculated using many different methods and metrics, so it may be difficult to judge. However, a strategy might be as simple as that if the stock loses more than 20%, the investor will sell or buy more of the stock. It is important that this strategy be developed ahead of time and not be influenced by big moves in the market that tend to cause people to react emotionally and make poor decisions." "It's also wise to make sure that portfolios are well diversified in keeping with long-term objectives while maintaining appropriate liquidity," says Tiku. 6. Purchased Whole Life Insurance Some people still feel that whole life insurance brings them benefits, but several physicians cited it as their worst investing mistake. "I lost my grandparental inheritance by buying life insurance," said one. "My mistake was to buy a variable adjustable life insurance policy. The fees exceeded the benefit, and I would have been better off in the market," said another. "I made a bad decision to invest in whole life insurance. And I backed out before being fully vested because of the potential for more loss." "As generalizations go, I concur that in most typical cases, spending money on a whole life policy is not a wise investment decision," says Tiku. "Whole life policies, also in some cases called 'universal life policies,' provide, in addition to death benefit, a cash value account that grows in time and has in many cases been sold by insurance agents as a forced savings account or a retirement plan. The alternative is term life insurance, which is a pure death benefit bereft of any cash value and is a fraction of the cost of the more expensive whole life policy option." "The fact remains that most people need life insurance in the early years before they have accumulated assets and have dependent children or liabilities, such as a mortgage. Some people may need to consider whole life policies, such as those who have long-term liabilities or dependents, or large assets that may result in estate tax liability. But that is a small fraction of the population," says Tiku. More Opportunities for Investment Mistakes 7. Oil and Gas Partnerships These partnerships were popular investments in the 1990s. But many physicians reported that they invested in these vehicles and were sorry. "My oil and gas partnership lost money," lamented one respondent. "I bought stocks in oil drilling; now the share price is $0.02," says another. "Limited partnerships have been notorious in making their sponsors and general partners rich at the expense of the actual investors, also known as 'limited partners'—who have limited or no rights," says Tiku. "So the best advice is to stay away. They tend to be illiquid investments and have been sold through shoddy sales practices in some cases." "A new class of master limited partnerships is now available in the marketplace. But a person will need to do a reasonable amount of due diligence in order to ascertain the true value and potential rewards," he said. "Some of them are liquid and somewhat transparent, but 'buyer beware' is still the watchword when it comes to oil and gas partnerships." Still, as with every category of investment, nothing is a sure thing. The fact that some of these ventures failed doesn't necessarily mean that all such investments were bad. 8. What on Earth Was I Thinking? Let's face it: Sometimes people make emotional, impulsive financial decisions. And looking back, they ask themselves, "What the heck was in my mind?" "I bought a second house that I didn't need," says one respondent. "I bought a boat that was a money pit between dock fees, repairs, gas, and everything else," "We joined a country club because we thought it was so important to be friends with certain people; it cost a fortune year after year, and in retrospect, it was ridiculous." Conclusion: Even financial professionals choose the wrong investments or stocks, so it's not unexpected that physicians and others who are not in the financial field will make mistakes. And some misfortunes were not at all preventable. Still, because so much hard work goes into earning your money, it's helpful to learn from the experiences of others, as well as to increase your chances of good results by conferring with a trusted professional. Poster Comment: A real estate fund doing well in Canada is one that leases buildings for doctors' offices/clinics according to the host of "Making Money" on CFCW Sunday's at 8 A-M. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest
#1. To: All (#0)
CFCW|Audio- Making Money www.cfcw.com/index.asp?mn=18&id=238&cc=5 Making Money. Ron Hiebert, Portfolio Manager and Director, Wealth Management at ScotiaMcLeod, teaches investment courses at Grant MacEwan, as well as ... Ron answers caller's investment questions on specific (high-priced) stocks during the radio show or sent in to: makingmoney@cfcw.com
|
||
|
[Home]
[Headlines]
[Latest Articles]
[Latest Comments]
[Post]
[Sign-in]
[Mail]
[Setup]
[Help]
[Register]
|
||