"The White Coat Investor" -- A Gem

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Taylor Larimore
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"The White Coat Investor" -- A Gem

Post by Taylor Larimore » Wed Feb 19, 2014 9:03 pm

Bogleheads:

Jim Dahle, MD, practices emergency medicine and runs a website to help physicians achieve their financial goals. His book, The White Coat Investor, is written primarily for doctors; nevertheless, its Boglehead Philosophy is valuable for ALL investors. These are excerpts:
From the Forward by Wm. Bernstein, MD:

“You have probably already been taken advantage of by an insurance agent, a stockbroker, a financial planner, a realtor, a banker, or a lender once or twice in your life due to your lack of financial knowledge.”

“Even if they are a distinct minority, there are still plenty of good advisors out there, and this book will teach you how to find them and hire them at a fair price.”

“Your high income alone will not automatically lead to financial success. You must convert your high income into a high net worth in order to become financially independent.”

“Most physicians, no matter what their specialty, labor under the illusion that because they were smart enough to get into med school, that talent somehow carries over to investing. Rest assured it doesn’t.”

“Finance academics have been collecting and analyzing data on financial forecasting for more than eight decades, and they have concluded that no one—no one—has ever been able to consistently call market direction.”

“Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”

By the author, Jim Dahle, MD:

“The classic case of so-called ‘reversion to the mean’ was William Miller’s Legg Mason Value Trust, which beat the S&P 500 for fifteen straight years, before giving all of that outperformance back in the five subsequent years.”

“The biggest enemy you’re liable to face is staring out at you from the mirror.”

“No matter how much you learn and plan, nothing prepares you for the trauma inflicted by the first bear market you encounter.”

“Money isn’t the most important thing in life, but mismanaging it can sure make you miserable.”

“The Trinity Study famously demonstrated that you can spend about 4% of your retirement portfolio each year, adjusted up for inflation, and expect to have the money last throughout your retirement.”

“In generaI I’m not a big fan of annuities, but I make an exception for a single premium immediate annuity (SPIA).”

“I took a couple of years off in college to be a missionary and do not consider a minute of it wasted.”

“Pay yourself first, and then spend the rest.”

“The first dollars you save also have the longest amount of time for compound interest to work on them.”

“Most calculations of a break-even period demonstrate that it typically takes three to five years just to break even when comparing buying and renting a house.”

“Plan on spending 5% of the value of the home to buy it, 10% to sell it, and 1%-2% a year to maintain it.”

“Term life insurance is essentially a commodity, and by using an online service such as http://term4sale.com you can quickly compare prices.”

“Never worrying or fighting about money is an important part of living the good life.”

"Show me what happened to the money you made in your first year out of residency and I can predict your financial future with surprising accuracy.”

“In personal finance, there is little that is more important than you and your spouse being on the same page.”

“Pay off any high-interest debt (>8%) such as credit cards, car loans, expensive private student loans, etc. This is a fantastic guaranteed investment return.”

“The good life is not making payments on a mansion and two luxury cars upon residency graduation. The good life is having a job you love where you are making an important contribution to society.”

“At a minimum, force yourself to read one book on personal finance or investing each year of residency and throughout your career.”

“The truth is that putting only 5%-10% of your gross income toward retirement probably isn’t going to provide a very nice retirement.”

The Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double.”

‘Expect your money to grow at a rate of just 3%-7% after taxes, expenses, and inflation.”

“You have limited control over your income, your investment returns, and how many years you have to save for retirement, but you have a great deal of control over your savings rate.”

“Taylor Larimore, one of the authors of The Bogleheads’ Guide to Investing, is fond of saying, ‘There are many roads to Dublin.’”

“Focusing your investment efforts on five factors that are within your control-- risk, diversification, investment expenses, taxes and your own behavior, will keep you on the Motorway to Dublin.”

“Do not put money into the stock market that you need anytime soon.”

“Risks include: market risk, individual security risk, sector risk, manager risk, credit risk, default risk and interest risk. After market risk, the most important risk to keep in mind is the risk of not meeting your investment goals.”

“You want to take enough risk to meet your goals, but no more.”

“The simplest way to decrease risk is to avoid putting all your eggs into one basket (diversification).

“One of the biggest contributions made by Jack Bogle, founder of Vanguard, was to point out that, in investing, you get what you DON’T pay for.”

“Costs matter and they matter a lot: If two investors make the same 8% per year before expenses on a lump sum investment and the first is paying 2% per year in investment expenses and the second is paying 0.1% per year, then after thirty years the second investor will have 70% more money than the first.”

Numerous studies show that very few mutual fund managers can outperform an index fund when expenses are taken into account, and those few who will outperform cannot be identified in advance.”

“Investing is a constant battle against inflation, investment expenses, and taxes.”

“Perhaps the best way to minimize investment-related taxation is through the use of retirement accounts.”

“The wise investor will take advantage of lower long-term capital-gain tax rates, qualified dividend tax rates, tax-loss harvesting opportunities, charitable donations, and the step-up in basis at death.”

“Investors are notorious for investing with their emotions and chasing performance by repeatedly buying high and selling low.”

“It is better to have a less-aggressive plan with lower expected returns than to have a plan that will self-destruct due to your inability to control your own behavior.”

“Retirement accounts and low-turnover index funds minimize your tax bill and investment costs.”

“A good portfolio is broadly diversified, low cost, mostly or completely passively managed, and appropriately risky.

“Managing your behavior matters more than optimizing your asset allocation.”

“In times of market turmoil, you merely need to refer to your written investment plan and follow it. You can go for literally months without looking at your investments or investment-related news.”

“Rebalance your portfolio back to your original allocation once a year.”

“You can be financially successful without investing in anything but a handful of index funds.”

“The worst part about real estate investing is that it is a combination of an investment and a second job.”

“As a general rule, mixing insurance and investing is not a good idea.”

“80% or more of those who buy whole life insurance get rid of it prior to death.”

“Investors will generally find they will be much better off covering their life insurance needs with an inexpensive term policy and investing the difference into a portfolio of index funds.”

“In investing, like baseball, hitting singles and avoiding errors is a better strategy than swinging for the fences.”

“Unfortunately, the vast majority of those who bill themselves as financial advisors neither charge a fair price nor give good advice. More than any other market I know, the market for financial advice is ‘let the buyer beware.’”

“A stockbroker’s incentive is to generate as many fees and commissions as possible. Instead of having his goals aligned with yours, he is incentivized to do exactly the opposite of what you need.”

“The best mutual funds are sold as ‘no-load funds through such companies as Vanguard, DFA, Bridgeway, Fidelity, and T.Rowe Price.”

“If you know nothing about this ‘financial stuff’ and are willing to pay a significant fee rather than learn it, then the advisor can provide a lot of value for you.”

“The main difficulty with choosing an investment advisor is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own.”

“The financial advisor credentials are a sea of alphabet soup. There are really only three designations that deserve any significant respect: CFA; CFP; and ChFC.”

“If your advisor thinks he can pick winning stocks, choose winning actively managed mutual funds, or time the market -- steer clear!”

“Investing in cash value life insurance or complex annuities is inappropriate for the vast majority of people, including physicians.”

“Most who call themselves financial advisors are commissioned stock brokers, mutual fund salesmen, or insurance agents in disguise.”

“If you need or want a financial advisor, be sure to hire a fee-only financial advisor.”

“Tort law, that portion of the law concerned with civil suits such as malpractice and personal liability, is state specific.”

“In most states, 100% of the contributions and earning of your 401(k) and Roth IRAs are completely protected from your creditors.”

“Retirement accounts pass to your beneficiary outside of probate and can be ‘stretched’ by your heirs, providing exceptional estate planning benefits.”

“The biggest risk to a physician’s assets is divorce. Marry the right person the first time. Put at least as much effort into your marriage as into your practice.”

“Many doctors fall prey to expensive state planning solutions provided by unscrupulous insurance agents to help them avoid estate taxes that they won’t have to pay anyway. In 2014, the federal estate tax exemption is $5,340,000 ($10,680,000 married).”

“If you are lucky enough, or stupid enough, to die without giving away all your money above the estate tax limits, then the federal government takes 40% of the amount above the exemption.”

“Giving assets away prior to death is a good way to reduce estate tax, but holding on to asset until death is the best way to reduce income tax.”

“Everyone needs a will, especially if you have any significant assets, or any minor children.”

“As an emergency doctor, I have been involved with many end of life decisions, and I do not recall a single one where a living will or a healthcare power of attorney was of much use.”

“I would encourage you to do your own taxes at least once. You will be surprise how much you learn about money, the tax code, and how our government works.”

“It is important to understand the difference between a tax deduction and a tax credit – credits are better than deductions.”

“It is critical to understand the difference between your marginal tax rate and your effective tax rate (the effective tax rate is much lower).”

“As Bill Bernstein has famously explained, ‘If you assume that every financial professional you interact with is a hardened criminal, you’ll do okay.’”

“The White Coat Investor blog regularly posts as many as three posts a week written by yours truly. Sign up at http://feeds.feedburner.com/TheWhiteCoatInvestor"

“Being in control of your financial life means you can control your own destiny, and isn’t that what we all want?”
Thank you, Jim Dahle, MD

MORE INVESTMENT GEMS

Best wishes.
Taylor

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Last edited by Taylor Larimore on Thu Apr 28, 2016 7:19 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "The White Coat Investor" -- A Gem

Post by LadyGeek » Wed Feb 19, 2014 9:22 pm

EmergDoc's book is now in the wiki: Taylor Larimore's Investment Gems

His blog has been in the wiki for quite some time: News and blogs - Bogleheads
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: "The White Coat Investor" -- A Gem

Post by friar1610 » Wed Feb 19, 2014 10:21 pm

“The Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double."

Before I retired from the Navy I went to a retirement seminar run by the Navy and intended to help folks transition into retirement. One of the attendees was a Navy guy who was already working part-time as a "financial planner" and who was going to do it full-time once he retired. (I think he was with Ameriprise but my memory may have failed me and it could have been another company.) He apparently approached the seminar facilitator, told him of his great wisdom and was offered half an hour to speak. He was, of course, trolling for clients although since he was still on active duty, he was legally prohibited from having any financial relationships with anyone junior to him. (He would, of course, be happy to refer anyone who was interested to his boss who was not military and had no such restrictions.) One of the things this guy made a big point of was "The Rule of 72." He asked if anyone knew what it was. Since I had been doing my financial homework for several years, I knew what it was, raised my hand and answered the question. This guy was blown away that any mere mortal (someone who was not a "financial planner") would have any idea about such complex topics.

Although I had already figure out that I didn't need a financial planner, his reaction showed me that if he and his ilk had nothing more to offer than teaching the Rule of 72, I was correct in my assessment that I didn't need them.

I remain now, as I was then, a happy index investor and Boglehead.
Friar1610

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Re: "The White Coat Investor" -- A Gem

Post by MathWizard » Wed Feb 19, 2014 11:08 pm

friar1610 wrote:“The Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double."
I was watching my kids at a park when a man sat down at my picnic table.
Trying to drum up some financial business, he asked me if I knew about the Rule of 72.

When I said yes, and offered to derive the approximation for him, he slowly made
his way from the table. I suppose that was not being friendly, but I was not really interested in
a cold call solicitation at a public park.

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Re: "The White Coat Investor" -- A Gem

Post by patriciamgr2 » Wed Feb 19, 2014 11:42 pm

I find the Dr's blog very worthwhile and many of us have benefited from his posts here on the Forum. I have suggested his new book to several of my friends who are physicians; other busy, high-earning professionals who face liability issues & are inundated with "financial advice" may also benefit from this work. Congratulations to EmergDoc & his Family on publication of the book.

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Re: "The White Coat Investor" -- A Gem

Post by travellight » Thu Feb 20, 2014 12:21 am

Great quotes, Taylor.

Congratulations, emergdoc!
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Re: "The White Coat Investor" -- A Gem

Post by jackpullo997 » Thu Feb 20, 2014 4:14 am

MathWizard wrote:
friar1610 wrote:“The Rule of 72: Divide the interest rate into 72, and the result is the number of years it takes your money to double."
I was watching my kids at a park when a man sat down at my picnic table.
Trying to drum up some financial business, he asked me if I knew about the Rule of 72.

When I said yes, and offered to derive the approximation for him, he slowly made
his way from the table. I suppose that was not being friendly, but I was not really interested in
a cold call solicitation at a public park.
Can you derive it here?

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Re: "The White Coat Investor" -- A Gem

Post by inbox788 » Thu Feb 20, 2014 5:25 am

jackpullo997 wrote:Can you derive it here?
If I had more time or inclination, I might have thought about figuring it out, but these days it so easy to be lazy, so I Googled it:
Now, we need to find how long it takes to double — that is, get to 2 dollars. The equation becomes:

1 * (1+R)^N = 2

Basically: How many years at R% interest does it take to get to 2? Not too hard, right? Let’s get to work on this sucka and find N:

1: 1 * (1+R)^N = 2
2: (1+R)^N = 2
3: ln( (1+R)^N ) = ln(2) [natural log of both sides]
4: N * ln(1+R) = .693
5: N * R = .693 [For small R, ln(1+R) ~ R]
6: N = .693 / R
There’s one last step: 69.3 is nice and all, but not easily divisible. 72 is closeby, and has many more factors (2, 3, 4, 6, 12…). So the rule of 72 it is. Sorry 69.3, we hardly knew ye. (We could use 70, but again, 72 is nearby and even more divisible; for a mental shortcut, go with the number easiest to divide.)
http://betterexplained.com/articles/the-rule-of-72/

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Re: "The White Coat Investor" -- A Gem

Post by ObliviousInvestor » Thu Feb 20, 2014 9:08 am

Here's a link to the actual book, by the way:
http://www.amazon.com/The-White-Coat-In ... 991433106/
Mike Piper, author/blogger

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Re: "The White Coat Investor" -- A Gem

Post by White Coat Investor » Fri Feb 21, 2014 3:38 am

Thank you for your kind words Taylor and others. I've been pleasantly surprised at the impact the book has made that the blog never did, even though much of the material covered is similar.

I'm very grateful to Bill Bernstein for his willingness to write the foreword. It definitely improved the book as did the extensive pre-publication comments and criticism received from Bogleheads and others who follow the blog and assisted with it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: "The White Coat Investor" -- A Gem

Post by bondsr4me » Fri Feb 21, 2014 6:47 am

Hey Doc, I plan on getting your book...sounds like a good read to me.
I may end up getting one for my own M.D., whom I greatly respect and admire.
No, I am not a Doctor, just a financial guy myself.
All this Boglehead stuff is REALLY having an impact on the way I think about investing, my clients and the way I do business.
I wish, and I really do mean this, that ALL financial advisors had to be "fee-only"; NO COMMISSIONS period.
This would certainly eliminate the "whats in it for me" mantra that is so prevalent in the business.
I believe that I, just as you, should be paid for "services rendered" and NOT "financial products sold"( I do hate that description ) .
Thanks Doc, Taylor, and ALL Bogleheads.

Don

ps...Doc, would you mind sharing which broker you use? Thx.

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Re: "The White Coat Investor" -- A Gem

Post by White Coat Investor » Fri Feb 21, 2014 2:49 pm

bondsr4me wrote:Hey Doc, I plan on getting your book...sounds like a good read to me.
I may end up getting one for my own M.D., whom I greatly respect and admire.
No, I am not a Doctor, just a financial guy myself.
All this Boglehead stuff is REALLY having an impact on the way I think about investing, my clients and the way I do business.
I wish, and I really do mean this, that ALL financial advisors had to be "fee-only"; NO COMMISSIONS period.
This would certainly eliminate the "whats in it for me" mantra that is so prevalent in the business.
I believe that I, just as you, should be paid for "services rendered" and NOT "financial products sold"( I do hate that description ) .
Thanks Doc, Taylor, and ALL Bogleheads.

Don

ps...Doc, would you mind sharing which broker you use? Thx.
Which broker? I guess I buy ETFs in my 401K through Schwab and in my HSA through TD Ameritrade. I buy funds at Vanguard, Bridgeway, in the UESP, and in the TSP.

Which advisor? None.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: "The White Coat Investor" -- A Gem

Post by rotorhead » Fri Feb 21, 2014 6:37 pm

What a great post, Taylor.

Thank you, EmerDoc; for providing a great service to your fellow medics, and to all of us with his investing advice.

I especially like this item:
“I would encourage you to do your own taxes at least once. You will be surprise how much you learn about money, the tax code, and how our government works.”
I harp on this a lot; it is not not complicated, unless you have an extraordinarily complex financial situation. With software available today, all you have to do is answer the questions. It's really easy; and as the good Dr. says, it's educational as well.

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Re: "The White Coat Investor" -- A Gem

Post by czeckers » Sat Feb 22, 2014 1:10 pm

I (finally) received the book in the mail yesterday (because of ground shipping) and am already half way through it.

I'm finding it to be an outstanding book. It is very well organized and written. The topics receive the through in-depth treatment that we have become accustomed to from Dr. Dahle both here as well as on his blog. I particularly enjoyed the numerous real world dollars and cents examples that are used to drive his points home. I also appreciate the frankness with which he discusses the many financial issues. For physicians, there is a bit of a taboo about talking about financial topics. We are often made to feel that, because of a high income, we shouldn't have any financial issues, yet more often than not, this couldn't be further from the truth.

A heartfelt "thank you" for all the work you put into this.

-K
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

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Re: "The White Coat Investor" -- A Gem

Post by White Coat Investor » Sat Feb 22, 2014 9:48 pm

You're welcome.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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