By Adam Safdi, WCI ColumnistWelcome to today’s financial M&M conference! For those readers who are not in the medical field, an M&M conference is not a fun gathering where candy-coated chocolates are distributed. Instead, it stands for Morbidity and Mortality, and these conferences are (usually) where a presenter goes over a medical error, near-miss, or perhaps a fatal error. The intent of M&M conferences is not to assign blame or shame but to recognize that “to err is human” and that we must learn and grow from our mistakes. Many M&M conferences also focus on system issues—is there a way to update the framework of our workplace (the system) so that medical errors are less common?
Today, I'm writing about a financial “mistake” I made and reviewing the psychology and actions that led me to this mistake.
Please note that I will be intentionally vague about the stock I bought and instead try to focus this column on the psychology behind the purchase. I’m also taking some liberty with the timeline of events.
My story might be familiar to other medical professionals.
First, a little about me.
I am one of the 53.4% of WCI survey respondents who have a written financial plan. Our (my husband's and mine) current asset allocation is as such:
- 70% US Total Stock Market (VTSAX)
- 30% Total International Stock Market (VTIAX)
This pure 70/30 split isn’t exactly true of our entire portfolio since we have some bond exposure in our Target Date Funds through our respective 401(k) plans. But our periodic investing in our joint taxable account follows this 70/30 split exactly, and we rebalance once a year. Reflecting a desire to have less stock and more bond exposure as we approach our late 40s, our written plan calls for us to change to the following allocation in 2025.
- 65% US Total Stock Market (VTSAX)
- 25% Total International Stock Market (VTIAX)
- 10% Undetermined bond fund (likely a municipal bond fund)
When I wrote the plan several years ago, I knew I would want bond exposure soon, but I gave my future self some homework. 2025 is here, so I better start figuring this out. As usual, I’ll look to Dr. Jim Dahle for help first. Perhaps I will invest in some bond funds in our taxable account, or perhaps I’ll adjust our Target Date Funds to an earlier target year so that they hold more bonds compared to stocks in our 401(k) plans. I haven’t decided yet. My spouse and I have this on our agenda for our July 2025 family financial date night. (Any comments on how others first started to incorporate bonds into their portfolios are welcome!)
As you'll notice from these asset allocations, our investments are all funds and no individual stocks. When we wrote our financial plan, we didn’t even entertain having a section about what to do with individual stocks. This leads me back to the story.
The Encounter
I recently attended my specialty’s annual conference. In the exhibit hall, I was surrounded by multiple vendors, showing off their latest drugs, devices, or machines. Some of the booths had only one person staffing them; other larger booths had multiple staffers with elaborate displays of large-scale models or long lines of people waiting to take part in a virtual reality experience. Some conference attendees were like me—wandering and observing. Others flitted from one exhibit to the next, interacting with multiple vendors.
I walked through the exhibit area, mostly observing and not interacting. I, of course, took advantage of the free coffee/tea service, because polyphenols are healthy, right? I walked through the poster exhibits—impressed by the students, residents, and fellows—and I smiled while seeing the passion of the next generation of attendings.
Fully caffeinated and ready to get things going, I wandered to the plenary session for that day’s presentation of society awards and the “State of the Art” lecture. The lecture that day came from a physician outside of my specialty. He had the obligatory financial disclosure slide and then presented his research and how he intended to shake up the tried-and-true treatment regimen for a common condition in his specialty. I was absolutely floored by his presentation. He had little data to show, but the data he did have was stupendous. He mentioned how he branched out from academic research and founded a company to take his vision further. He openly presented the setbacks his research team encountered and what it's doing to move forward and mitigate future setbacks. I thought to myself, “He’s right! If he can get this to work, it will change the field of [specialty] as we know it, and it might have implications for my own specialty.”
For the rest of the conference, I attended various lectures, sessions, and symposia, but my mind kept going back to that “state of the art” lecture. I called my not-in-the-medical-field husband and told him about it, and even he said, “Yeah, that sounds pretty neat.” The conference ended, I traveled home, and I got back to my regular work life.
More information here:
Picking Individual Stocks Is a Loser’s Game
The Purchase
I was busy that next week, seeing hospital consults, and my mind shifted its focus to the job at hand. Mid-week, both of my colleagues were in the clinic seeing outpatients while I was using the clinic office space to write consult notes on the inpatients (we’re a small group of only three sub-specialists). During the lunch break hour, one of my colleagues asked about the conference. I told them of some of the latest advances I had heard about, and I told them of the “state of the art” lecture that I thought was so groundbreaking. One of my colleagues looked up the company that the lecturer had founded, and while I sat at my desk eating lunch, I was peppered from behind with comments such as “Huh!,” “That’s interesting,” “Impressive CV,” and “Wow, looks like lots of smart people.” Then, my colleague loudly declared, “Yikes, the investors don’t seem to agree with you, Adam. The stock price has gone way down.”
He had the company’s stock ticker pulled up on his phone. He showed me the five-year market summary, and it did not look great at first glance. The stock price started at around $40 a share, peaked within six months at around $80 a share, and then followed a sawtooth pattern slowly downward to around $5 a share over the next few years into the present.
Up to that point, I had simply admired the lecturer’s research and drive to change the world. I had not considered his company. I had not considered the money involved. I had not considered investing in it myself; I didn’t even know it was a publicly traded stock until my work colleague showed me the five-year market summary.
I thought back to the presentation and if I could see the reason behind the fall in valuation. The presenter had shown their first drug innovation that had great outcomes in animals. When human trials started, the results were very good, but they came with unacceptable side effects. The first drug trial was halted. The presenter talked about going back to reformulate the drug so that there would be fewer side effects and that human trials with the second drug would start soon.
The valuation pattern seemed to make sense. In the beginning, there was a lot of hope and hype for a groundbreaking new drug. As the side effects of the original drug caused the first trial to be shut down, I imagined how that would coincide with a loss of investor confidence and a loss in valuation of the company. What I saw with the presenter’s introduction of the revised drug formulation, though, was hope for a second chance—a chance that could hit big.
Up to this point, I had never purchased an individual stock before. It had always been mutual funds. But I opened my trusty Vanguard app on my phone to see if it was something I could do. Turns out, it’s pretty easy. Here's a demo of how to buy 10 shares of Apple stock at market price (using data from Nov 5, 2024).
I thought of the famous Warren Buffett quote—the investment goal is to attempt “to be fearful when others are greedy and to be greedy only when others are fearful.” I entered a number of shares that added up to a mid-four-figure amount of money. I clicked “Preview order” and then “Submit order” on the next screen. There was no confetti on the screen, no fanfare, just a boring confirmation on the next screen.
I had done it. I purchased an individual stock. At first, I was excited. I dreamed of the company’s drug being a blockbuster and becoming hugely popular. I dreamed of my investment returning on itself 10-fold; 100-fold; or heck, even 1,000-fold. Then, the financial nerd part of my brain said, “You have to hold this for at least one year so you can take advantage of long-term capital gains rather than short-term.”
Sometimes, even a long-time hardcore index funder can get swept up in a get-rich-quick idea. I daydreamed again. I imagined what my life would be like if I “won the lottery.” Would I cut back to part-time? Would I quit? Would I move towns and live closer to family? Would I hire a butler? (That last one was a very brief daydream).
The Fallout
Then, reality sank in. I just spent money. I just gave away a chunk of change that I might get back in the future or that might disappear. The amount of money I invested was not insignificant. I had just spent what some couples might spend for their annual vacation budget. Since I did this in our taxable account, I suppose if the stock went down to pennies, I could tax-loss harvest and use the sale to buy more VTSAX and/or VTIAX as our investment plan says.
I steeled my yo-yo-ing brain and got back to work for the rest of the day.
Later that night over dinner, I told my husband what I had done. I knew I had acted out of the norm, and I tried to explain my thoughts around my action. He was surprisingly understanding and not judgmental. He said he could understand how I saw the opportunity to be greedy and took it. We calculated that the amount I invested in this individual stock was small compared to our whole portfolio, less than 1%. To be equitable in our relationship, I asked if there was an individual stock or company that he would like to invest in, but he laughed and said:
“No, let’s just stick with this one individual stock and get back to investing according to our plan. Talk to me first if you feel a desire to buy an individual stock again, and I’ll talk to you if I want to buy an individual stock. Let’s just talk to each other before deviating from the plan in the future.”
I breathed a sigh of relief and realized he was right—stick to the plan.
Reflecting on my actions, I think of all the WCI podcasts I’ve listened to where callers ask what to do with an individual stock—either purchased earlier in life or inherited. I realize I’m one of those people now. Our financial plan will need to be updated with what to do with this individual stock. We will need to write a section to include if we are presented with another investment opportunity outside of our written plan in the future. I suppose we could call it our “play fund.” I’m realizing that this play fund comes with some work.
I have added this individual stock ticker to the Stocks app on my phone. I might check it occasionally and fret over it going up or down. (In the three months or so since first purchasing the stock, the stock price has been essentially flat, as of this writing.) Or maybe I’ll try to ignore it completely for a year. I asked Siri to “remind me in one year to figure out whether to sell or keep the individual stock.”
More information here:
Do I Need to Come Out of the Closet to My Patients?
Clinic-Based Doctors: This One Move Can Make You an Extra $10,000-$70,000 per Year
The M&M Conference
Let me try to sum up my psychology along this journey.
- When I first heard the “state of the art” lecture, I was inspired, amazed, and maybe a little jealous.
- Those feelings were probably ruminating for days after the lecture and upon my return home.
- My colleague showed me the stock prices, and because of my financial education, I became greedy instead of becoming fearful.
- The greed overwhelmed my calm and boring investment plan, and it led to an impulse investment purchase.
From a systems standpoint, I’m asking myself, “Was it too easy to buy that stock?” I think the answer is no—there is one button to preview the order and another button to submit the order on two separate screens with some lag time (seconds) between the two. I don’t think Vanguard makes investing any more exciting than it needs to be. The excitement was all in my brain, not on the screen.
My greatest support system is my spouse. If either one of us has a desire to buy an individual stock again, we will need to check in with each other before doing so. There’s nothing physically stopping either one of us from clicking “submit order,” but I hope that our emotional bond and trust in each other is stronger than when greed sings its siren song in the future.
To conclude our M&M conference, I urge all the participants today to realize that greed and temptation can, and likely will, pop up and throw a wrench into your investment plan. In life, there are many unknowns, but we will all probably at some point be presented with a “can’t-miss opportunity.” The opportunity might take the form of a stock, a friend’s startup company, or a rental property down the street. Write into your investment plan what to do when these opportunities pop up.
There are very few things that require an immediate decision—life isn’t Shark Tank. Write into your plan some sort of check against greed or temptation. It could be your spouse, a financial advisor (if you use one), or an interval of time (24 hours, one week, etc.). I urge you, the reader, to not repeat my mistake. Thank you for your attendance.
Have you been tempted by something that seems like it can't miss? What happened? How did it affect your investing plan? Or is it OK to have a little fun with your portfolio?
Sage?
Hello Adam, what a great experience to share! I like Dr. Dahle’s IPS that indicates a 3-month wait before making any changes to it. This is kind of like a “timeout” in the OR- it forces you to pause and reflect and not do anything hasty. For your bonds, I would consider a bond tent. You can just direct new savings towards slowly expanding your bond % rather than making an abrupt shift or having to sell anything else to rebalance. https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/. This is what we did in the 3 years prior to retirement. If you’re 10+ years from retirement and don’t mind the volatility, I’m not sure you need bonds, but I tend to be pretty aggressive and bond-averse. It’ll be interesting to hear about your single stock investment progress in a year or two!
Thanks Erik for your comment. My struggle with when to introduce bonds into my portfolio is that I don’t know when I want to actually retire. I want to be “work optional” by the time I’m 50, but I’m not sure I want to actually retire at 50, so it makes it difficult to plan the bond tent.
Vanguard allows you to re-direct dividends and capital gains from vanguard mutual funds to another vanguard mutual fund. If you currently reinvest capital gains/dividends, you could switch those to reinvest in your bond fund. That would move a little over 1% of total stock and 3% of international to bonds each year
Interesting. Didn’t realize that was an option. Not sure I’d use it, but it’s good to have choices.
That’s a neat feature! Does this work only in taxable accounts or does it work in retirement accounts at Vanguard as well?
It works in retirement accounts. FYI, you must already own some shares of the mutual fund(s) you want the distributions to be transferred to for that fund to be an option to recieve the transfers. Also, it doesn’t work for etfs (either on the way out or in) for whatever reason.
I had something of a similar experience a couple of years ago, though I bailed well before 1 year. I had read a couple of articles about the company Palantir and thought to myself (politics aside), as an investment it seemed pretty good – AI/data management meets Dept of Defense, what’s not to like? Plus the stock price had just tanked on an earnings miss. I owned no other individual stocks, but still I’m pretty proud of myself for buying low and scooping up something like 500 shares at something like $10 a share. Problem was, I then spent the next several weeks obsessing over every minute by minute price fluctuation for this one stock. I would check the ticker between patients. I would talk about it at dinner. I would think about it in bed at night. At some point I realized that spending 99% of my investing attention span on <1% of my net worth was insane. I sold it at par – mischief managed. I have never again been even tempted to buy an individual stock. Nor have I even thought about Palantir since… Until today reading this article. It is $100 / share now! Oh well, I have no regrets. It could just as easily have tanked and my peace of mind over the past 2+ years is worth a lot to me.
Valuable experience you had there.
Thanks for sharing your experience. I don’t know if it’s just my personality or stubbornness to avoid checking, but I have successfully avoided checking my individual stock ticker between the time I wrote this in November 2024 and now. So maybe I’ll hold out for the whole year (or longer) without the stress you described. Here’s hoping!
Similar experience. Have avoided single stocks for all the right reasons. In 2016 I purchased a single stock because of its advanced chips used in gaming. It languished for about three years and I gave up selling it for a small loss, vowing I had been correct to sell. Then two years later it split 4 to 1 and two years after that it split 10 to 1. My $10k would have been worth $500k. Yes Nvidia would have been a great stock to own, and honestly I do have regrets, but it proves my point. I did buy the one in decade winner and didn’t know enough to keep it. I’m sure my next ten would likely be losers so I’ve not been back, although Amazon and Apple were my other two stocks purchased and sold at the same time.
Older and already retired, and here’s my gripe about bond funds: because other owners of the fund go in and out of the fund it has to sell some bonds, some times, at lower than your face value, so aside from whether or not the bonds will be opposite the movement of the stock market (not always true), they may be worth even less than you put in! Therefore, aside from suggesting you investigate whether a real estate fund might be something you should have a small percent in, I suggest you own individual government bonds through Treasury Direct online or wherever (you might want to go into corporate etc bonds but from your current portfolio doubt you want to do that research). I haven’t actually done that myself- aside from putting a pittance into I bonds (now over 5% of our net worth years after starting to get them) I am using CDs instead of bonds since 5 years is a long enough time line for me. However were I your age (from my guess from your picture) I’d be buying 30 year bonds at issue and from the market a few bonds which will mature earlier than that to have a nice ladder of bonds maturing when you might be retired. Worst case scenario would be that you or your heir(s) have to sell before maturity, sort of a risk already built into bond mutual funds even when you DON’T choose to sell. Perhaps someone smarter than me on bonds can explain how else to get around this risk: put in $10,000 and then might have only $9,500 anytime you sell even decades from now.
Building your own bond ladder is the way around that issue with bond funds. Whether it’s worth the hassle or not is in the eye of the beholder. We’ve done it both ways and we’re leaning toward dumping the individual bonds for simplicity’s sake.
Thanks for the advice Jenn!
Adam great article man! yes, it is tempting to eat the forbidden fruit, but I also find fascinating that your plan actually called this year to buy bonds, not invest in an individual stock! It seems your plan went out the window when System 1 was activated by the low price of that individual stock. Going forward, are you going to mitigate this by putting in a “play fund” in your financial plan? Or are you going to go the other way to prevent from buying an individual stock ever again, maybe something silly like “if I buy an individual stock ever again I will punish myself by running around naked down the street with a picture of Margaret Thatcher taped to my butt!”
Seriously though I’ve written a blog post of adding some humor to a financial plan to induce my brain not to make System 1 mistakes by using System 1 silliness. would be interesting in a follow up post of what you and your partner decided to write in your financial plan.
Rikki, are you still at 100% stock allocation or has your plan kicked in for some bond weighting ?
Thanks Rikki! We have no plans for a “play fund” moving forward. We decided that we crave simplicity in our portfolio, so no need for silly positive punishments. We will probably sell this individual stock after the one year mark.
Still 100% stocks baby!
I plan to add some bonds five years before I retire.
I am probably going to get flamed for this (well, WCI flamed) but here it goes. Buying individual equities is not the sin it is made out to be around here. You have to know what you are doing, which means you have to intimately understand the business you are investing in. You have to understand how to read a chart, how to read a company’s balance sheet. All of this information is readily available to you, along with credible analyst research. But as the author of this blog post points out, we encounter companies in our daily lives every day that we can invest in. When you find yourself regularly using or enjoying a company’s product, that is the very first step in coming up with an investment thesis. There are many steps to go, obviously. But you, reader, are a high achieving professional. You very likely have the intellect to make informed, well thought out investing decisions given how far you have already come in your professional life. Now, I also believe a bedrock of diversified index fund(s) that are appropriate for your time horizon should be firmly established as a foundation in a portfolio before undertaking individual stock ownership. But I really believe that individual returns can be accentuated beyond benchmark index performance by well conceived, thought out, and researched individual equity selection. Dr Dahle and I have argued this point before, and I realize what I am saying is even slightly antithetical to mission of this site, but I just couldn’t resist throwing in a contrarian perspective. Put another way, I see no need for an M&M here. Aside from not consulting with his spouse prior to the purchase and perhaps (though the post does not make this clear) not familiarizing himself with the financials of the company, I see no problem with committing a very small percentage of a retirement portfolio to an informed idea such as this (particularly informed given the training and credentials of the author). The purchase sounded perhaps a little impulsive but even if the stock price went to zero, I have a hard time picturing it wrecking this couple’s retirement portfolio.
I disagree that by virtue of being smart, particularly smart about some medical subspecialty, makes you any more likely to beat the market than the typical active mutual fund manager. The data (such as that collected and published by SPIVA every six months) is awfully clear. Over the long run, and even before tax, only something like 1 out of 20 managers beats the market, and it isn’t typically by much. It just doesn’t seem like the way to bet unless:
# 1 You don’t know about that data
# 2 You don’t believe that data for some reasno
# 3 You are in a very exclusive club of people talented enough to beat the market long term (in which case you should be managing all our money, not just yours.)
https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-mid-year-2024.pdf
Now, if someone wants to “play” with 5% of their money, fine, whatever. You can light 5% of your momey on fire and still meet all your financial goals and picking stocks will probably beat that. But I wouldn’t bet that way with real money.
I wouldn’t beat yourself up, I think a lot can be learned from setting aside a small % of your portfolio to test your skills in investing in individual stocks (if you have the desire). It is humbling and can be a valuable lesson that helps you stick with your original investing plan.
But at the same time, I do think that some people can do very well with individual stocks. My Dad has been practicing anesthesia full time for almost 50 years now, has never invested in an index fund (I’m not even sure he knows what those are), and has crushed the S&P with about at 20% annualized return on his portfolio of individual stocks over the past 25 years. Pretty impressive.
The hard part is figuring out if you’re one of those people. My sense is that if you’re not sure, the answer is that you’re not.
20% for 25 years? Have you run the numbers on that? I mean, start with $1 million and make 20% for 20 years.
=FV(20%,20,0,-1000000) = $38 million
I hope you’re expecting a pretty nice inheritance.
If he can really do 20% for 25 years, he made a big mistake managing only his own money.
What happened to the first 25 years of his career?
Yes you’re in the ballpark, but subtract a lot for some of the outlays for huge expenses he made along the way though like K-12 private school, ivy league university, and grad school tuition for 3 kids, and a house at one point that was huge money suck.
He immigrated in the late 1960s so for the first 20 or so years I don’t think he was really investing much, or if he was there weren’t huge gains, I’m not 100% sure since the brokerages don’t track performance back that far.
The thing is, as we all know, that’s the power of compound interest – all of the impressive gains have really come towards the end. By the time you’re his age (83), I’m guessing yours will probably be close to if not more than that!
And he’s got 9 grandkids and counting so honestly at the end of the day all will eventually get filtered down to them, and all we can do is hope that they and their kids will continue to live and invest wisely.