Surgeons should follow Warren Buffett’s top five investing rules
Click Here to Manage Email Alerts
Warren Buffett is widely considered the top investor of all time. During the 54 years he has overseen Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), Buffett has generated a 20.5% annualized return for his fellow shareholders. Despite this, the famed billionaire is best known for his ability to distill investment ideas into simple, memorable sound bites. Buffett’s homespun advice continues to ring true in the new year. In this month’s column, we show how his humble investment wisdom can be applied to the financial decisions orthopedic surgeons make every day.
“Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1.”
It is widely known that Buffett has famously lost billions of dollars many times over during his career, including a $23 billion loss during the financial crisis of 2007-2008. If this is the case, one may wonder why anyone should follow Buffett’s golden rule.
The purpose of this first principle is not to suggest you can’t ever lose money, but rather to underscore the need for capital preservation above all other priorities when allocating money. What Buffett is referring to is the mindset a sensible investor should cultivate when making financial decisions: Do not be frivolous by failing to do homework, do not gamble and, above all else, never go into financial decisions thinking it is okay to lose money.
For orthopedic surgeons who invest, capital preservation should be prioritized in all decisions that affect wealth or the health of your practice. For instance, when assessing personal or ancillary practice investment opportunities, any investment with a high upfront cost or associated fees with questionable return on investment should be scrutinized carefully.
Similarly, from a physician lifestyle perspective, this means keeping spending habits in check. Buffett, who still lives in a modest house worth 0.001% of his wealth, famously once said, “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”
Be mindful of what you and your family need and don’t need. Anything above that should be allocated for savings and investments as capital preservation will always be the most important factor in wealth creation.
Just as capital preservation is paramount to wealth creation, knowing when to cut your losses is equally important. Orthopedic surgeons often fall into the trap of doubling down on risky investments that simply do not perform as expected. Whether it is a bad stock pick or an ancillary service line for your practice that continues to draw money, don’t continue to throw good money after bad money if the investment continually loses money.
“Never invest in businesses you can’t understand.”
Buffett said, “Risk comes from not knowing what you are doing.” To an orthopedic surgeon, this rule should make a lot of sense. Whether it is choosing a stock, a partnership investment or a surgery center equity offering, always put your money in transparent investment choices you can understand fully and can articulate readily.
“If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”
Buffett said at a Berkshire Hathaway Annual Investor Conference, “our favorite holding period is forever,” and “the stock market is manic depressive.” For orthopedic surgeon investors, there are many benefits to this style of thinking when it comes to managing a wealth portfolio. For starters, buying and holding investments that do not incur taxable events allows the investor to reap the rewards of compounding more effectively. Secondly, think of each investment as a long-term partnership as Buffett does, which allows for effectively tuning out the day-to-day noise of the financial industry news.
“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
If you develop a long-term time horizon for your personal investments, you will quickly realize the truth behind this adage of Buffett’s. When Buffett made this statement, he was referring to lessons learned in value investing from his famed mentor, Benjamin Graham. The adage holds true because companies with fair prospects that are valued wonderfully will become poor investments once the valuation catches up—a one-time event. In comparison, a wonderful company valued fairly will continue to be a wonderful investment for years to come. In other words, investments that have built in advantages or “moats” will always win out in the long term.
Millennial orthopedic surgeons can apply this principle to any big investment decision they make, not just stocks. For instance, when purchasing a home, they should look for a property that has a long-term advantage, such as being in a good area or fast-growing part of town. When deciding in which practice to invest your time and skills, choose the job that has the best long-term prospects for your career and personal happiness instead of one that simply has the highest starting salary.
“It takes 20 years to build a reputation and 5 minutes to ruin it.”
Although Buffett is in the financial industry, his advice on reputation rings true for orthopedic surgeons and all physicians. Buffett once told his employees, “Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Your reputation as a physician is in many ways your brand. For millennial orthopedic surgeons, in practice, this means always appreciating how your decisions, both financial and non-financial, can impact your reputation. Just as a company’s brand will be vital to its success, an orthopedic surgeon’s reputation will play a pivotal role in how his or her career unfolds. Cultivate it and protect it as Buffett would do.
Despite being on a completely different career track than Buffett’s, orthopedic surgeons can learn a lot from the most famous investor of all time by applying his wisdom to decisions made every day.
- References:
- Rules That Warren Buffett Lives By. Available at: www.investopedia.com/financial-edge/ 0210/rules-that-warren-buffett-lives-by.aspx. Accessed Dec. 5, 2019.
- The 100 Best Warren Buffett Quotes. Available at: www.fool.com/investing/best-warren-buffett-quotes.aspx. Accessed Dec. 5, 2019.
- Wealth Protection Planning for Orthopaedic Surgeons or Wealth Management Made Simple are available free in print or by e-book download by texting OT19 to 555-888 or at www.ojmbookstore.com. Enter code OT19 at checkout.
- For more information:
- Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon at Northwestern Medicine in Warrenville, Illinois. He can be reached at email: sanjeevbhatia1@gmail.com.
- David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any strategy discussed herein. He can be reached at mandell@ojmgroup.com or 877-656-4362.
Disclosures: Bhatia reports he owns stock and options in Berkshire Hathaway. Mandell reports no relevant financial disclosures.