The Investment Scientist

Archive for April 2009

The following link contains the complete list of Chinese ADRs with fundamental scores calculated based on Piotroski’s methodology.  Chinese ADRs listed in OTC markets not having financial statements  are omitted. For more information about Piotroski’s methodology please read his research paper – “Value Investing: The Use of Historical Finanical Statement Information to Separate Winners from Losers.”

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Doctors need financial help

Doctors need financial treatment

Physicians have a significantly low propensity to accumulate substantial wealth.” – Thomas Stanley, author of The Millionaire Next Door

How come doctors fail to get rich? I’ve identified six reasons based on observations working with my physician clients.

A late start

By the time doctors finish medical school and residency, they’re typically in their middle or late thirties.  Many have families to feed, and substantial student loans to pay off. It will be years before they can even start accumulating wealth.

Challenging environment

It is increasingly challenging to practice medicine. With the Medicare Trust Fund slated to go bust in 2019, the Center for Medicare and Medicare Service (CMS) is increasingly resorting to cutting physician reimbursements and implementing bundled payments.

Lifestyle expectations

Society expects a doctor to live like a doctor, dress like a doctor, and drive like a doctor. Meeting social expectations can be quite expensive.

Time and energy

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Avoid conflicts of interest.” – David Swensen, Yale Endowment CIO.

Jose is the head of a ultra high-net-worth family. He has a number of accounts with Merrill Lynch (ML), the storied brokerage firm that paid their senior executives $4 billion in bonuses last year. Three of his accounts lost a great deal of money, not due to the market crash but to conflicts of interest.

Double dealing in Treasury

Jose has a Treasury account where his ML wealth manager[picture of double dealing, enable image to view] purchases Treasury bills, notes and bonds for him. Last year was a great year for Treasury securities – the market turmoil caused investors to flock to them, driving prices up more than 10%. Jose’s account, however, lost 3%. How could this happen? Conflicts of interest. ML is a primary dealer in the Treasury market. They buy Treasury securities and resell them to their customers at a markup. It looks like the markup is so high it takes away all the customer profit.

Churning stocks

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Out of curiosity, I took the S&P 500 annual return data since 1926, calculated the index’s moving 10-year returns and produced the chart below. Two things are worth noting:

1. The 10 years ending 2008 are the worst ever for the index, with a total return of -13%.

2. The S&P 500’s 10-year return dynamic seems to follow a periodic pattern. The second worst 10-year period ended  in 1938 (-9%); and the third worst 10-year period ended in 1974 (13%), almost right in the middle of 1938 and 2008. Serendipity?

The market is in a trough. A chart can not predict the future, but if it can, things can only get better from here.

S&P 500 10-year return dynamic

S&P 500 10-year return dynamic

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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