I’ve had the pleasure of working with many different clients over the years, but some of the most interesting from a planning perspective have been physicians. After spending considerable time working with doctors at various stages in their medical careers, I have noticed some interesting similarities in their educational process and the ideal learning process of investors.
If we could learn to invest like our doctors learn to practice medicine, then I believe we could prevent an enormous amount of investor pain while giving ourselves a much better chance to achieve our investment objectives.
See if you notice the similarities
- Year One (M-1): “How It Works” Students are immersed in the process by first learning what makes up the human body and how it functions.
- Year Two (M-2): “What Could Go Wrong” After learning how the body works, this year is about learning what can cause the body to not work or function properly.
- Year Three (M-3): “How To Fix It” At this point students will begin clinical rotations which is the hands-on approach to diagnosing and fixing medical problems.
- Year Four (M-4): “Specialize” In their final year students will consider what areas of medicine they enjoy, to what areas they feel called, and how they can best use their personality and skill set to serve the patients.
- Step One: “How It Works” Investors should focus on understanding the basic types of accounts, how they’re taxed, and the different types of investments that go inside those accounts.
- Step Two: “What Could Go Wrong” At this stage, investors should be learning the components of different investment strategies while clearly understanding the pros, cons, and risks involved.
- Step Three: “How To Fix It” By now, investors are becoming more experienced. They have learned from their past mistakes and are now making better financial decisions. Like Buy Low, Sell High even when everyone else is doing the opposite. Or owning some of every asset class even when a popular few are knocking it out of the ballpark.
- Step Four: “Specialize” A mature investor understands his/her personality and can now take full advantage of their strengths because they have learned how to control any emotional weaknesses.