Face it: dentists are competitive and compulsive. We have to be to perform the miracles
of our daily work. When I tell the average person that tooth "preparation" is performed with
a drill running at 400,000rpm on a moving target within 1/16 inch or less of the nerve 90
percent of the time, I often hear, "No wonder you guys scare me to death!"
With that compulsive drive comes the idea that we can invest smarter than the average
Joe. Yet, according to noted author Larry Swedroe: "...the purchase by investors of individual
stocks… would seem to be the ultimate in controlling your own portfolio. However, in
pursuing this course, you create two problems. First, you likely cannot achieve the extensive
diversification that the use of mutual funds accomplishes. Second, the evidence tells us that
individual investors who select their own stocks underperform appropriate benchmarks by
significant margins."1
Financial planners who utilize academic-based strategy agree that individuals cause little
damage by actively trading a small portion of the portfolio (five to 10 percent) as long as the
great bulk of one's investments are in passive index funds. Nevertheless, many doctors
choose to actively trade a significant portion of their funds.
Since many of you will or already have taken the trading plunge, let's examine the basics,
then hear comments from a dentist who has done well since 2001 with active trading. Active
traders normally use fundamental analysis or technical analysis, and often both.
Fundamental analysis, according to Investopedia, "...is about using real data to evaluate a
security's value... For assessing stocks, this method uses revenues, earnings, future growth, return
on equity, profit margins and other data to determine a company's underlying value and potential
for future growth."2
Technical analysis, from Investopedia, "...is a method of evaluating securities by analyzing
statistics generated by market activity, such as past prices and volume."3 Technical analysts use
charts to study past performance with the hope to find patterns to predict the future. If you're
into candlesticks, dead cat bounces, Elliot waves, Fibonacci numbers, head and shoulders,
MACD, resistance or trend lines, you're a technical analyst.
For strong educational basics, I highly recommend joining the American Association of
Individual Investors (AAII) at AAII.com. It's nonprofit and costs a mere $49 to join. AAII
provides vast educational resources, including a monthly magazine, investing online classrooms,
e-books, asset allocation models, investment strategies, tax guides, and model stock and mutual
fund portfolios. For the active investor, there is ample information on fundamental analysis with
free stock screens and the sophisticated Stock Investor Pro stock screener used by professionals
and non-professionals. For technical analysis, AAII provides scores of educational articles covering
chart types, pattern analysis, and technical indicators. AAII lists FreeStockCharts.com and
StockCharts.com as the top charting web sites.4
Nerdwallet recommends several stock trading platforms, all of which come with educational
assistance:
Scottrade's Trading Website for Online Trading, TD Ameritrade's Thinkorswim, TradeStation,
E-trade Financial, Interactive Brokers and tradeMONSTER.
I've been in contact over the years with many active traders. Few have done well enough to
be financially free before age 65. One of the few is Dr. Donald Berger, who graciously volunteered
to be interviewed for Dentaltown Magazine.
Carlsen: When did you start actively trading and why?
Berger: In 2001 I decided I would learn to manage my finances after the market crash in
2000 as I lost a substantial sum of money in my personal and pension accounts. I decided to
become a self-directed trader for two reasons. The first reason is nobody cares about your
finances as much as you do. The second reason was to become educated and learn how to
become successful in a career after dentistry.
Please describe your training and how long it took before you became comfortable?
Berger: I began taking different classes about trading stocks, options, etc. Then I mentored
with an individual who was an educator and professional trader. The position sizes increased as
I gained more knowledge and understandings about the players in the market.
In 2008 I had no drawdown (decline) in the value of my accounts for the year. Preservation
of capital is the first objective of money management and small loses in relation to capital is second.
Note that anyone who lost 50 percent in 2008 would require a 100 percent gain to recover.
Tell us about your basic strategies.
Berger: Since the market has a bias to be long, the only two strategies are to buy strength or
buy weakness. Employ the strategy of buying strength at new highs for growth stocks or pick a
bottom and buy weakness for value stocks. I try to find opportunities to remain invested in the
stocks for three months to a few years. This is why I research the company and determine if the
business is an opportunity to invest in. I look at the fundamentals of the stock, and the managecontinued ment of the company. Then I review the charts of the stock on a daily, weekly, monthly, threemonth
and yearly time frame. It gives me a way to look at the price activity, and then employ a
statistical trading model. This allows me to recognize the trade and to see if it is traded at a fair
price or an undervalued price. That model might then define an opportunity for a buy point in
a declining market or building a trade around a rapidly growing market. Once the trade is
entered, money management is used. My focus is to actively manage the account, actively manage
the analytics and actively manage the position sizes to protect from capital loss.
What is your age, how well off are you today, and how do you plan to protect
your assets in retirement?
Berger: I am 65 years of age. I am financially sound. Management of my personal and
retirement assets enables me to use risk management and capital preservation, as it would relate
to any drawdown.
Dr. Donald Berger is registered with the Pennsylvania Security and Exchange
Commission. He offers individualized financial planning service to individuals,
corporations and institutions with advice tailored to an individual's financial situation
and risk tolerance. He also coaches individuals or groups who want to learn
how to manage their assets as self-directed investors. He can be contacted at
DBerger.org or donald@dberger.org.
Again, please realize that active trading involves significant downside risk and
is not recommended by academics for a significant portion of one's portfolio.
Finally, let's look at several gambits that dentists are seemingly drawn to like forks
to a disposal.
There are numerous online trading "academies, schools, and universities."
Buyers beware. Many of these sites will take your money and provide very little proper education.
Vet carefully before paying anything.
Many dentists are lured to foreign exchange trading (Forex). Traders are fooled by the promise
of high profit on the exchange. "The average individual foreign-exchange-trading victim loses
about $15,000, according to CFTC records."5 Investors are often promised huge gains within
weeks only to find that their money was never placed on the exchange.
Gold Scams: You purchased gold coins from a dealer. A $50 Gold Eagle in perfect uncirculated
(MS-70) grade is worth more than $2,500. Your coins might look to be in "mint" condition
and classified as MS-70, yet really be MS-68 and worth $1,500 or less. You also might
have the dealer "store" your bullion or coins for you, never having access to the gold that
never was purchased in the first place! Buy only gold stocks, mutual funds or ETFs.
Trading is risky business, docs. Prepping teeth is so much easier.
References
- Larry Swedroe, Investment Mistakes Even Smart Investors Make, McGraw Hill, 2012, p.24.
- 2. Downloaded from http://www.investopedia.com/terms/f/fundamentalanalysis.asp 9/12/ 2013.
- Downloaded from http://www.investopedia.com/terms/t/technicalanalysis.asp 9/12/2013.
- Find the full list at http://www.nerdwallet.com/blog/investing/best-online-brokers/day-trading-and-platforms/
- Downloaded from: http://forextrading.about.com/gi/o.htm?zi=1/XJ
&zTi=1&sdn=forextrading&cdn=money&
tm=10&f=00&tt=14&bt=0&bts=0&zu=http%3A//en.wikipedia.org/wiki/Forex_scam
on September 26, 2013.
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