[Editor's Note: This is a guest post from a physician and a long-time WCI reader with whom I have no financial relationship, who wishes to remain anonymous, and who posts as NapoleanDynamite on the site. The subject matter is controversial, at best, and while not a true Pro/Con post, I did make some lengthy comments at the end. Despite disagreeing with a significant portion of what is in this post, I thought it would be a good discussion to have on the site as this subject has never been hit very hard by me or any guest poster.]
Let me start by stating that I expect this to be an inflammatory post for many people who read WCI. I will also admit that the title is meant to be an attention getter but not entirely true. Given the passive investment recommendations on this website many of you will blow me off. In the past, I too would have ignored this post, or considered the idea heretical. But before telling you about my decision to actively trade stocks, I will back up a step and explain my financial situation and a little about myself.
About Me
I am a private practice physician and part owner of a small practice. Our practice owns our surgery center. I am in my late 30s and 7 years out of residency, so that places me in a similar age range as WCI. The first 2 years out of residency my income averaged $150 K. I have steadily grown my practice and this year my income will likely be around $1.1 million. I have taken my practice very seriously and done very well with it. Growing my practice has been the best investment I could pursue following medical school. I cannot overstate this enough as it is what the vast majority of readers should be doing to grow wealth. Invest in yourself prior to all other ventures.
Don't blame me, I voted for Pedro
From a financial planning perspective, I max out my 401K, HSA and Roth IRA. My wife maxes out her solo 401K and Roth IRA based on her income. She works part-time and her income is about $25K. If her chosen profession was higher paying or if she had a desire to change professions, she could work and earn more.
We have 2 children under the age of 6 who currently have $100K and $50K in their 529 accounts respectively. I have significant term life policies on myself and my wife along with significant long-term disability insurance on myself. In addition, we have a large taxable account which is our largest investing account. We have a couple real estate ventures and an oil royalty. I also have about $500K invested in my practice buy in which is like a stock option that will grow or shrink based on how the company does in the future.
My wife and I currently have $300K left on our home mortgage which has an interest rate of 3% and about $120K of student loans which have an interest rate of 1.75%. Although I could have paid both of these off by now, the interest rates are low and I haven’t been motivated to do so (I don’t want to argue this point as it is an entire 1-2 blog posts worth of writing). I will probably pay these off fully in the next 2-3 years. My current net worth is about $2 million.
I'm Not a Day Trading Wacko
My point in discussing my background is that despite the title of this post, I would still qualify as fairly conservative in my investments. I found WCI through the Boglehead forum about 6-7 years ago and continue to maintain many of the values expressed in both of these arenas.
While my income has increased over the past 2-4 years, I have searched for different avenues for investment income outside of passive stock market investing. For tax purposes, I have started to venture into real estate although this is definitely not my talent or my passion. From an ROI perspective, I have done okay with these ventures, but I continued to search for something more stimulating for me.
Initial Steps to Day Trading
Let us fast forward to 2015/2016 when I started discussing “day trading” with an old college friend. We will call him “Jim” (Irony intended). He was a premed student like myself who started trading stocks in our University computer lab. Jim dropped the premed track in his sophomore year to spend time trading stocks and take additional business and psychology courses. He started with $2K in 1999. We all made fun of him and told him he would lose his butt. Instead, he made his first million in less than 18 months trading stocks out of the computer lab!
I am still friends with Jim, and although I don’t know his net worth, he recently told me he has a goal of being a billionaire by age 40. I have no doubt he will get there. Realistically I will never be as good at trading stock as Jim and he refuses to trade with anyone’s money but his own so don’t ask me for his name. For good reason, he also does not give stock picking advice, especially to friends. However, he was nice enough to give me a good “starter kit” and a book to read if trading was something I wanted to pursue.
I read the book and did some research on my own about trading. I also started some basic research on publicly traded companies. In April of 2016 I placed $50K of “gambling money” into a TD Ameritrade trading account. On June 1st, 2016 I placed my first ever trade. Given my age, current net worth, income and retirement path I decided $50K was a small enough amount of money that it would not affect my final retirement outcome if I were to lose it all but a large enough amount to make it worth my time if I did well. Note: I do not short sell, specifically so I cannot lose more than this $50K.
I am not going to lie; making my first trade totally freaked me out! I had butterflies in my stomach even though I bought Walmart stock, which is possibly the most boring stock trade ever. Not much of the 50K was placed into the Walmart stock, but I ended up making about $150 in a few weeks on my first ever trade. I continued gaining knowledge and practice while placing other small trades and watching the market closely.
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Now I will fast forward to June 1st 2017. I made it through 1 year of trading stocks. I traded through the Brexit vote where I lost about $6,500 in stock value in two days as I made the wrong decision by going “all in” the night before the vote. Having “learned my lesson” from Brexit, I traded through the Hillary/Trump election where I again made a poor decision sitting on the sideline while the majority of the “Trump bump” occurred. Despite making two grandiose errors that cost me a lot of money, I also made some amazing trades during these 12 months. After one year my return on my $50K investment was 23% after taxes and fees.
Comparing Returns
Some might say that this effort was in vain as the market was up about 20% in that same time frame. This is true, but I can tell you the correlation with the market was very little as it related to the timing of my gains. As mentioned I sat out the “Trump Bump” as I didn’t believe it could be happening. Most of the total market gains occurred during the “Trump Bump” when I had my money in a holding account. Instead, most of my gains occurred on 4 trades. 2 occurred very early during that year and 2 very late. During both of these time frames the market was either flat or down. I made many other trades with less effect on my outcome. I had more wins than losses, but did encounter both. I learned to weather some storms and gained some incredible knowledge as to how the market works and behaves. Most importantly, I was really enjoying this activity. Since June 1st, 2017 I have continued to trade and have done well. Not as well as my friend Jim, but well enough to keep me interested for another year.
I have asked myself, what is the point of this? Would it not be easier to just keep working and contributing appropriately to my retirement accounts? (I still do BTW) Why “risk” this extra money instead of fully paying off my loans or buying a boat like WCI? There are no simple answers for these questions, but in 3 short words: I enjoy it.
WCI Comments About Day Trading
I informed NapoleanDynamite that he was likely to get plastered in the comments on this article and that I wasn't going to hold back in my comments either. He assured me he has thick skin. I will explain why I don't day trade nor recommend that you do.
#1 Day trading is a job, and not one I'm interested in
Day trading generally has to be done during the day. As noted above, this requires watching the market closely, doing research, putting in trades, and learning all about it. I have other things I'd rather do than watch the market closely, both for work and recreation. That includes practicing medicine (which pays me well and I can do outside banker's hours), running the WCI Empire (which pays me well and I can do mostly outside of banker's hours), going on trips, and spending time with my family. Adding a job as a day trader would have a significant impact on every thing else I'm doing, and I'm not willing to drop anything out of my life to do this. If I had wanted to spend a large portion of my time on stock trading, I would have done something very different with my education and my life. I suspect this is the case for most readers.
#2 Day trading works out poorly for the vast majority
The investing literature is rife with data showing that, on average, the more you trade the worse off you are. Does that mean every trader loses? Absolutely not, but it takes a great deal of confidence to put yourself in a place where you believe you're smarter than the guys doing this full-time on Wall Street with better access to information and faster computers. Because that's who you're trading against. This fellow who's going to be a billionaire by 40 from stock trading- he's on the other side of the table from you. Good luck. I'm not that confident in my ability.
Let's consider NapoleanDynamite's case. He made 23% on $50K, or $11,500. Hopefully he wasn't doing this in a taxable account, but if he was, taxes, fees, and commissions, (bear in mind that in the highest bracket he is in, short-term gains are taxed at 39.6% Federal + State) could easily reduce his gains by 50%, down to 11.5%.
If he had simply bought Vanguard TSM and gone about his life, he would have bought it at $52.36 on June 1, 2016. On June 1, 2017, he could have sold it for $60.82, an increase of 16.16%. Add in the yield of around 1.92%, and that works out to a little over 18% a year. He would lose 23.6% in taxes, reducing his return to 13.8%, ahead of the more impressive initial day trading return. But even if you ignored taxes and other investing costs, he basically came out 5% ahead of just buying an index fund. 5% of $5K is $2,500. Maybe $2,500 changes your life, but it certainly doesn't change his.
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But wait, there's more. NapoleanDynamite makes $1.1 Million per year. His time is extremely valuable. You have to add in that opportunity cost, which in this case, is very high. Let's say he spends 10 hours a week, 52 weeks a year doing research, watching the market, and putting in trades. That's 520 hours. If he makes $1.1 Million per year working 50 hours a week 50 weeks a year, that works out to $440/hour. 520 hours x $440 = $229K. Now, surely he's really trading some of his recreational time for day-trading, so you can't hold all of that time against him. But what if you only held 10% of it against him? That's still $23K. He spent $23K of his time to make an extra $2500. Not sure that's a good trade-off. Sounds more like a very expensive hobby.
#3 It doesn't pass the sniff test
Any time someone suggests to me that they want to purchase individual securities or do any sort of trading, I always recommend they keep very good records of their actual returns including all costs, taxes, and the value of their time. That's enough to convince most of us it isn't worth it. But for those who come out ahead, they then have to ponder the eternal question of whether they are lucky or good. If lucky, their outperformance isn't likely to persist. If good, what the heck are they doing messing around with $50K or $500K, or even $5M? They should be running at least hundreds of millions if not billions. It doesn't pass the sniff test, and that's assuming the person actually knows how to calculate their return (they usually don't) and isn't lying about their performance (which happens surprisingly often.) I'm not saying that there aren't people out there who through their skill can trade stocks profitably over the long run. I'm saying those people are pretty darn rare and the chances that you are one of them AND good at your main profession seems too low to risk it.
#4 If you're rich, do whatever you want with your money
Finally, it's worthwhile pointing out that it doesn't matter all that much what you do with a small portion of your money, particularly if you're a multi-millionaire making $1 Million a year. NapoleanDynamite could simply light $50K on fire every year and will still have an estate tax problem in the end. If trading stocks is truly something you enjoy and are willing to pay (money and time) to do, then knock yourself out. But I can list several dozen things I'd rather do than track the market closely every day and that cost much less than what it would likely cost me to be a day trader.
What do you think? Do you day trade? Why or why not? Do you think it is a good idea for a high-income professional? Comment below!
Good for you ND.I started out a year ago with $200K. I don’t ‘day trade’ but I do buy & sell within as little as 4-5 days, but usually 1-3 months. I look for ‘bad news stories’ and try to capitalize on market over-reactions to those. I’ve made $95K on the good ones & I’m down about $18K on the dogs I still have in my portfolio(those are known as short term investments that turned long term). I enjoy it and spend probably 20 – 30 hours a week on it. Am I lucky? Probably, but my returns are mostly in the TSE which, unlike the US markets, has pretty much traded sideways this year.
Why would you hold losses instead of harvesting them? Are they in an IRA or something?
Some of them are in the Canadian equivalent of an IRA, but most are companies I still believe in – they just haven’t performed within my expected timeline, but I’m still a beliver in the company. One good example is Neulion – I’m down about 30% on it but I still think it’s a viable company with upside price potential.
Richard,
Some of my method is similar to what you have described. I made about 5K over the past few months on defense stocks….2 of those stocks I lost about 1K, 1 stock I made a few hundred bucks and 1 stock I made about 6K. That has been almost entirely based on Donald Trump, Syria, Russia and Kim Jong Un.
In Hong Kong, the stock market is considered a natural extension of the horse track, so why not day trade?
However, no guts, no glory. If you are only day trading with the “gambling money” portion of your portfolio, you are unlikely to add significantly to your net worth, even if you triple or quadruple this amount. So why bother?
But if you a going to day trade a large portion of your net worth, can you stomach the risk?
I’m still convinced that short of founding a successful website empire, there are few things a doctor can do which make more money per hour than doctoring, so I just stick to that.
I don’t think founding a successful website empire makes more money per hour than doctoring, but I’ve only got an N of 1. My best hourly rate is probably still working shifts if you look at total dollars made by total hour worked, but it is getting better each year.
There is a limit given the linearity of that however, and also intellectually. Which, hes doing fine there anyway. This is an intellectual and money endeavor. I dare say trading large cap stocks like walmart is the antithesis of ‘risk’ either.
When it ceases being enjoyable, he can throw it in an index. It will contribute something to overall net worth, even if small.
Arguable, the returns to day trading (including high frequency trading) can be attributed to liquidity risk. Fama French have added a liquidity factor to their standard dataset (other factors are size, value, momentum).
If you ever are curious, you could regress your returns against the Fama French factors. You may find out that the returns you think are due to stock picking are really from following a momentum strategy (which can be replicated through an ETF). If your returns are due to liquidity, can replicate strategy by selling at the money puts every week, and if exercised against you (market goes down), you just hold until the market is back up.
Not to slam you, since a lot of active funds are actually “closet indexers” Morningstar has a function that allows you to check an active fund against a variety of factors. They may compare themselves to the S&P 500 (we are beating our index), but if they are trading in momentum stocks then they are using the wrong benchmark and may be collecting fees from exposing you (unwittingly) to a risk factor you didn’t think you were taking.
http://www.morningstar.co.uk/uk/news/147931/watch-out-for-closet-index-funds.aspx
Great insight….There is definitely some momentum factoring in to my trading “skills”.
This is not day trading but rather appears to be swing trading.
I happen to be an excellent swing trader and have been for years in both good and bad markets. For those that think it can’t be done, you are wrong. For me, I have a fairly simple system that is very selective regarding what vehicles I use and it has around a 90% success rate and to achieve that rate, the number of trades/yr is fairly small. I have learned the skill so that when I retire, I can supplement my income and am completely confident that I will be able to do it.
BUT, I do NOT use but a small portion of my overall portfolio for this. I don’t need to use large numbers to make a decent income off it. Fees are inconsequential. And yes, if I use a taxable account, it’s taxed just like my income but it’s part of my income so it should be.
As for risky, I’m not able to mathematically calculate the beta but I do know that it is far less risky that having 100% of my money invested at all times.
It is not a substitute for doctoring but rather a supplement. It is very nice to know that I am able to do this particularly when I retire and only if needed. Quite a bit of relief and freedom.
And I will use the long term charts to know when the market is beginning it’s turn down. While not 100% by any means, every bear market starts that way.
I should add that they way I do it has no resemblance to gambling. It is a mathematical decision based on charts. So please, no one tell me it’s gambling because it is far far from it.
Again, why not do this with millions and take your 2 and 20? Not sure I buy either of the usual arguments to this question which are:
It won’t work with millions, only with my $50K and
I love doctoring so much I want to do it even though there is an 8 figure salary available to me swing-trading.
Forgive my skepticism.
If I was 100% confident in my trading abilities I would put all of my money into it and invest less and less time doctoring for money. This is just getting my feet wet. We will see how it goes…
The humility will serve you well, no matter what you end up doing long-term.
“This is just getting my feet wet.”
Overall I’m with you for the purpose of the mental challenge of investing for rapid gain, individual stock performance and testing theories. I spend a fair amount of my free time making youtube videos with my daughter (makes no money), a ridiculous amount of time playing video games (makes no money) and some money on manic pursuits of hobbies that never develop into anything (loses money).
The main danger from your hobby of swing/day/momentum trading is what will happen if you are 100% confident. The idea of guaranteed returns after a few good years of trading may lead you to make choices that to an outsider would seem much more risky. If you can keep to a set, specific budget, go for it. This needs to be in your IPS. I’ve discussed with my wife about investing up to 10K per year in individual stocks/alternative investments but only with a strict limitation that no outside money can be pulled, no matter how well our stocks/alternative investments are doing.
Dicast,
I agree with you. My goal with this 50K is to see if I can turn it into 1 million in 10 years. It may seem ridiculous, but I think it would be really cool to do it. I refuse to put any extra money into this account to get there not matter how well I am doing. Then, If I make 1 million off of this 50K, I will likely consider myself pretty good, but also I will have not need to add any extra money. I would likely just try to turn the 1 million into 10 million. If I lose the 50K, I hope to have 10 million in my index funds/retirement accounts by age 55 anyways so losing the 50K won’t really matter that much. I suck at Youtube Videos, I actually loathe video games, and spend my money on golf when I have time. Either way, the mental exercise of this is fun for me, like the Youtube video’s and video games for you. So I march forward.
WCI…why don’t I do this with millions? Because I’m conservative like many doctors. I know I have a salary coming in so keep it. What if I used a large portion of my portfolio and the unthinkable but certainly possible happened and I lose a large amount of it? No thanks. That’s why. Common sense. I have a healthy degree of skepticism myself. You don’t have to believe it; there is no reason for me to lie about it.
I’m not suggesting you’re lying. What I’m suggesting is you’re not entirely confident in your ability to really do this well over the long-term either. You realize that maybe some of your outperformance is due to luck, not skill and may not continue.
That’s all I’m pointing out.
No true. Even professionals have a salary while they trade. Advisors also. I am confident that I can make a part time income not a doctor’s salary as I stated above.
All depends on the size of your account. I can make doctors money trading or even just collecting dividends on a large enough account. Point is from a risk/safety standpoint there are position sizing limits that preclude large yearly sums unless one is already starting with a massive cash pile.
Even a bet with a 99% win rate will go bust if the sizing is too large. Its easy to make sure you fail by putting too much into any one play or otherwise being too risky.
I will guarantee that I can make millions trading, guaranteed. Someone just wire me 1+ billion dollars into my brokerage and I’ll get started. 😉
Could not agree more.
Why can’t you scale up enough to make a doctor’s salary? Same trades, just larger lots, no?
When I began the process I had two goals.
1-Determine a way by looking at long term charts in order to avoid a major recessionary type draw down. Can’t do anything about a flash crash.
2-Be able to earn a part time income in case my group lost their contract or such and to provide a way to earn enough income to live on.
Mission accomplished and I will not deviate from the goals. This is an extremely safe way to trade about 10% of my overall account. The trades don’t come often; I have not made a single trade in over a week as the setups aren’t there. I’m looking for a specific pattern in a small universe of vehicles. I have no interest in watching hundreds of vehicles or positions.
As for larger lots, I’ve certainly thought about it but I’m too risk averse to do so. I’m closing FI (and may actually be there) and don’t feel a need to increase risk. When one is close to winning the game, there is no reason, for me anyway, to stay in the game in a big way.
Additionally, there a good reasons to have W2 income such as for obtaining a new mortgage which I may do though I may choose to pay it off (new house).
I suspect you don’t believe me and I understand why you and many may or cannot believe that someone can be successful. Feel free to call me sometime to discuss. I have nothing to hide except for the trade setups that I share with some close acquaintances and they do the same in return for the things I don’t see.
All of that said, a close friend of mine told me just tonight that someone he deals with has lost 2 million between this year and last presumably trying to short the market in the greatest bull of our lifetime or listening to an “expert” (I think the latter mostly) though I don’t know the details. No thank you; I’m not interested in that game.
1. You can do that with simple trend following scheme if you don’t want to deal with it by choosing an asset allocation you can tolerate all the way down and still rebalance into it.
2. That’s much harder. I guess if trading is what you feel passionately about to try to earn that income, and you can actually do so, more power to you. But I’m not convinced that you’re convinced you can actually do that. You say it is “extremely safe” and then later you say you don’t want to do it with more money because it increases risk. I can’t quite figure out how you feel about your strategy. I can tell you that if I felt there was an “extremely safe” way to beat the market, I’d be loading up on it.
Pretty simple Jim. I trend follow with my investment money and trade to supplement it. I definitely do not want to take a 30-40% draw down at this point in my life and it’s unnecessary. It is safer than buy and hold because there is always a healthy amount of cash on the sidelines waiting. If it doesn’t change the end dollar amount, it does diminish the volatility and I’ll sleep better. The increased risk is all in. One can make a very good case for staying with the prevailing long term trend and getting out when it changes. Nothing wrong with that, that’s great but one has to learn how to do it and very few do. They panic when it’s too late; proven over and over with studies. I don’t consider myself much different from most people that have emotions.
So many people go broke doing this. Ego, emotion, poor decisions or desperation or the like, or just the need to want to win bigger and that’s often how they lose it all.
I’m clear that I can do it with a small % of my money but not foolish enough to use big money for the reasons above; I am human as well and don’t how I would react if something went terribly wrong. It probably wouldn’t be good and there are few do-overs.
Extremely safe still has some risks.
I think unless you were already FI and it really was play money, it would be the “trying” to earn a docs salary that would hurt you. You have to take what the market gives you, you cant force it.
I think thats where you’d start making mistakes. Of course, flash crashes, and other anomalies can still happen and hurt everyone. Saying nothing of a bear market.
Would you please share the “starter kit” and the name of the book you were recommended by your friend? Any additional tips for somebody who wishes to try day trading?
Thank you so much.
The name of the book is in the comments above called Reminiscences of a Stock Operator. I would also recommend studying Value Investing and Momentum Investing along with understanding about trend lines. I will say that I accumulated much of my investing knowledge over the past 7-10 years and then more specifically focused in on stock trading over the 1 year prior to starting this venture. There are a lot of theories out there and trying to take them all in at once is quite overwhelming. If you already have a good foundation then focusing in on certain aspects is a lot easier task to undertake. Glad to peak someones interest! Even if you never trade a stock, I would still recommend reading the above book.
Contrary to the belief, there are a lot of “traders” here on the blog.
There are also lot of readers here who pursue both routes of investment: part conservative and part “gamble/hobby/fun” whatever you want to call it. Some buy boat, other day trade.
My only argument is statistics!
You would be much more “likely” to be successful and rich practicing medicine then “day trading”, talking purely in terms of statistics. Tons of “financially stupid” docs still end up retiring rich, just coz they are “doctors”. If you can beat statistics all the time, then you should day trade. I would do half day clinics and half day day trade 🙂
Would you be willing to share some more tools for your trade? What trading platform, the pro-trader software, etc etc.
Good luck
This was something unexpected from WCI. Can it work? Yes. Chances? Small. Basic good trading mechanics still apply. Does you method make money? Does it have a positive expected value? Is it duplicatable, i.e. can it be systematized?
Expectancy = (Win rate * Average Win) – ((1-Win Rate) * Average Loss) – Trading Expenses (Commissions + Slippage)
If you have positive expectancy, shortening the time frame and increasing the trades will make you more money.
A good place to start is Van Tharp’s works, then backtest your idea to get a handle on the statistical probability of win, along the way maybe find some professional traders that have solid track records and offer them something of value so you can learn. That has been my experience, but I’m not a day trader.
Thanks for the thoughts.
I think that if you are seeking thrills outside of work, trading stocks and holding them for a bit seems pretty terrible as a hobby. Might as well take up golf or something…
Jesus man, pay off your house, pay off your student loans, fill your kids education funds full and then enjoy taking whatever vacation you ever wanted for however long you want to anytime you want to. I think your wife will probably enjoy this better than you “day trading”.
Now this is the kind of response I expected! I am a 1 handicap…playing twice a month. I plan to pay off all the loans I’m the next 2-3 years and then take a lot more vacations. In my experience so far vacations have mostly been more stressful than my job with 2 small children. I have taken very little vacation recently because of it, but will take more and more as the kids mature.
Completely forgot about that aspect. As a parent of a young child, I completely agree with vacations with young children.
PLAY MORE GOLF!
Holy smokes! First off, congratulations on such a high trajectory into wealth so early in your career. However, as the other commenters have mentioned, your success is somewhat unique and probably very difficult to replicate. Everyone who I know who has a similar degree of fascination in the market also LOVES money. Nothing wrong with that, but will you still be practicing medicine in the next 5-10 years? Perhaps after you’ve mastered your practice, you’ll end up venturing into some other secondary career. Would like to see how things turn out!
If I am physically capable I plan to practice until about 55 at my current level (with days preferably ending earlier and taking more vacation starting next year)…beyond that I don’t know, but I love doing surgical mission trips and would like to maintain my surgical skills as long as I can safely do so to continue this charity work going forward.
I think others can replicate something similar, but most choose different routes or just don’t have the same goals and wishes.
I have a good doctor friend who has no retirement money saved, still has a ton of debt, is 42 years old and has made over 250k for the past 8 years. He takes at least 12 weeks(some years 20) of vacation every year, travels non-stop and has experienced things most people could never dream of. The next 15-20 years may be a painful wake up call for him financially, but he is very happy and wouldn’t trade what he has had with these life experiences. The next 15-20 years I am pretty set financially, however if I die in 1 year none of that will matter as I will not have experienced 1/10th of what he has. We are quite opposite as to how we have done things over the past 7-10 years…but I don’t think either of us believe what we have done is wrong or that the other person is wrong. We have just made different choices that will lead us to alternate endings.
You can do both and balance it out. I’ve been an employed physician since leaving residency about 7 years ago and was fortunate enough to find a job that allows me to take a lot more time off than most. I’ve traveled all over the world but still managed to save over half my gross income since I started working despite having a lower than normal income for my specialty. Honestly, if I died tomorrow I would have had a great life with no regrets.
One of the local physicians around here keeled over from brain cancer at age 40, and the last thing I want is to die so young having done nothing except work. If I were fortunate enough to be in your position making 7 figures a year, I’d probably retire 2 years from now and call it good.
If NapoleonDynamite had written a guest post about how he paints oil paintings in his spare time, sells them at a gallery, and makes 23% profit on his material costs, it wouldn’t generate nearly as many comments or interest.
The controversy is in the implication that this is somehow generalizeable to other WCI readers and physicians as a whole, just because it involves the manipulation of money, as opposed to paint.
True…but after reading WCI for so many years, I have a pretty good feel for the audience. Also, I am very good with numbers, but my painting and art skills start and end at stick men. Know your limitations 😉
You just lose time and the cost of paint if you fail at oil painting…
I strongly believe that investing in individual equities gives returns which can be life changing. WCI rightly points that day trading for a physician is another full time job and distracting if you are doing it in between your jobs as a physician. I myself, finally have found a sweet spot in what type of trading style works best for me (a busy intensivist who wants better returns with downside risk managed). I try not to over-trade and probably have about 10-15 trades a year and hold not more than 5 stocks, pyramiding into winners. I believe having a large portfolio of >10 stocks is a hedge against ignorance and will not give superior returns. Last two years in a Roth IRA account where I had stuffed some money during residency I have had 50% in 2016 and ~50% YTD returns.
Stocks I carried for instance was NVDA (bought at 33 in March of 2016) currently at 170s (a 500% return in a slightly over a year). Another one was EXAS bought at 17 currently around 44. I have trailing stops/ stop loss to protect against downside. If I get pushed out and my stock sells, then just like cabs another will come ones way. I bought EDU and TAL for my daughters Roth account 6 months back. These returns cannot be matched by any mutual fund PERIOD.
However, just like any skill set in life there is a tuition one pays for learning this stuff. Half of it is about knowing which stocks to get, timing and the other half is about understanding my own self and my own biases. The mental part of the equation has been the harder part- so I have rules I have written I follow religiously to protect me against my own biases. Another rule is to have something to play for tomorrow, so preservation of capital is the most important and fundamental rule. One cannot let hope, fear and greed play in and try to catch a falling knife. A given equity does not move because I bought 100 stocks but due to the market movers (the mutual funds who allocate 50 million to a particular equity and then have to move in on a stealth mode so it can take a position over several weeks to months). However, they are like elephants, once they take a position it takes them time to get in and get out. I am like a horse who can get in and out of stocks on the click of a button and have a distinct advantage. If I can detect the footprint of the market movers on a stock chart (technicals), I can get on their coattails and enjoy the ride.
I thought about investing in housing/ rental but the headache factor is just too much for me. For me a ‘Focused (<5 stocks) growth disruptor companies stocks with active management of downside risk using stop loss and not overtrading' has worked well as a strategy
This ^^^^^
I feel like I’m at a cocktail party.
You say it has worked well. Have you actually calculated how well it has worked? What value did you include for your time?
Of course I’ve calculated it and more than doubling my salary last year suited me well. And it takes very little time, maybe 15-20 minutes/day because my universe is so small. But why would I ever discuss what I do at a cocktail party; very few people know that I do this. It’s not something I advertise but felt compelled to comment to some posts here though now I regret the decision. Waste of my time to be chastised when trying to show people something that can work. It’s up to the readers. If you and others don’t believe, that’s fine.
The classic cocktail stock discussion only discusses the winners and not the overall record. That was what your previous post did.
Not trying to chastise you, but I’n not sure you’ve shown anybody any actionable strategy have you? Maybe I missed it somewhere in today’s 100 comments.
Of course I have losers; I’m sitting on 3 right now. Never said I didn’t have losers, in fact clearly stated that it was not 100%. Only a fool would believe that. And it is no get rich quick scheme. It is a slow, thoughtful process that should work over time (as I said, no one including myself can accurately predict the future consistently).
And I’m not going to show any actionable strategy. I worked on it for two years and it’s held closely. But I will say that there have been many white and academic papers on a very similar but more detailed strategy; I discovered this afterwards but don’t have interested in the fine details as it won’t make enough difference to me to matter.
Hard to explain everything in a few paragraphs.
A few comments-
#1: This blog/website caters to the median and the 2-3 SD of physicians on a Gaussian distribution (perfectly fine as it is a worthy goal)- it does not mean that a world does not exist beyond the median. There is more than one way to skin the cat.
#2: There will be some who will make a killing in the markets and that is fine too. Those who make a killing do not have to prove to anyone their results (that is why I hate to justify anything- give stock tips or advice or invest others monies- just like Jim). Speaking about cocktail parties, these folks just purse their lips and smile when the discussion veers to individual equities and folks are throwing suggestions out.
#3: Assessment of input, output, throughput and opportunity costs are fundamental to any endeavor- whether it is personal lives, our clinical arena, research or admn. Same here with equity investment as with any other- keeping tabs on all inputs and OC is part of the equation of managing risk- reward equation. My neughbors kid had a UTI and I get a call at 11 pm that he is throwing up and has high fever. I said go to the ER and may need hospitalization as the risk of a serious bacterial infection (meningitis, septicemia) is about 3-5%. Next day I call him and ask and he replies we decided not to go to the ER. The first question I asked him was ‘how much term life insurance do you carry?’ It did not make sense that given scientific evidence he would take a 5% risk with his kid but is perfectly OK to have a large insurance coverage for event which has a far lower probability to occur. I don’t get it!!! Same thing with investment in equities, risk management is a cardinal principle.
#4: Just like reading a textbook in Anatomy does not make one a surgeon. Similarly reading a few books in trading will not cut muster in the ‘real’ world. Someone said that truly you have to see two to three downturns (>10%) to understand the ‘real’ market and about ones own mind and risk tolerance. And come up with heuristics which work best for an individuals.
#5: I concur with Haweye on the losses and winners. I see it this way- if I had NVDA and it went up 500% and I had 4 losers which I cut loose at 10% (my stop loss) I am still up 450% (given equal allocation) in my portfolio. I do not have even have to have a 0.35 batting average to be an ‘All Star’ in equity investment. I can have a strike rate of 0.1 and still be 45 times the S and P returns. Compare this to what we do clinically. A CT surgeon has to bat at 0.97 year in and year out. If his surgical batting goes to 0.85 he will lose his job. What has fascinated me is that physicians who are used to batting a high strike rates (>0.9 consistently) fail in a 0.3 or less batting arena (the equity market).
#6: This occurs not due to buying stocks but due to the very survival instincts which made humans a dominant species on Earth (hope, greed, fear) and let human emotions overrun our strategies. Van Tharps 50% of the book is about knowing your own trading mind. That is why the classic trading book mentioned earlier and others are still in print after even 90 years since coming in print. ‘The Reminiscences of a Stock Operator’ Edwin Lefevre (about Jessie Livermores life) was written in 1923; ‘How I Made 2 Million Dollars In The Stock Market’ by Nicholas Darvas (written in 1950s); Charting the Stock Market: The Wyckoff Method was written in the 1940s. The reason is that though we have fancy tools today the human mind and the stock market is still a collective reflection of human emotions of greed fear and hope playing out in every timeframe (day trading, value investing, growth investing).
#6: The market charge is led by only a handful of stocks- Read somewhere that ‘Over the last 30 years ALL of the total market’s gains are from just 30 stocks. Over the last 90 years ALL of the total market’s gains are from 1,000 stocks (<4% of the total traded during that time). Unless you were smart enough to pick most of those so-called "super stocks" you probably did not outperform the market (the chances that you picked all or most is slim to none).’ So what one is looking at is not the 10K stocks but a small basket. IBD provides you free of cost through their newspapers a basket of about 500 stocks. If you pay for their premium Leaderboard service you narrow the basket down to 50 stocks. You are paying someone else to do the research. Same as taking a plumbing service when having rental property- at 2 am you do not go to unclog someone’s potty- you pay to hire a service. Same here.
In all enough said…
Seek and you shall find. Do and you shall learn!!
I concur that if you are going to trade individual stocks you need IBD.
Well written Pat. Well read Pat. Well learned Pat. Well shared Pat. Well done Pat.
Instant classic.
Pat’s Six Comments on Investing.(1)
(1) IBD is not day trading, SwingTrading and Momentum Breakouts is the focus.
Pat,
Great discussion. NVDA has been an outstanding stock over the past year.
Back in the late 90’s I worked ED on the weekends and day traded during the week. At the time part of day trading was defining it as not holding stocks overnight. I think what NP is doing would have been termed swing trading.
Ultimately I discovered I was pretty bad at day trading, and found it more stressful than medicine. Over the years I tried various strategies including covered calls and delta neutral trading, and although it was fun and I learned a lot I could not be consistently successful at it. I learned that the key to trading is really psychological and mental discipline, and I could not master it. Now I am doing long term index funds and rarely touch my portfolio. It’s fairly easy to maintain discipline with that strategy.
Having said that I have no doubt there are people that can trade stocks successfully, and it looks like NP is one of those people.
I couldn’t read through all the comments, so not sure if this is repetitive. My issue with the post was not that it advocates stock picking (I imagine it is possible to make money on a small scale under some circumstances). My issue with the post is that it lacks basic information that would have made the post more interesting. How do you develop a trading thesis? What analysis do you do? Where do you get your information? Why not show your daily PA balance over time since you started trading? Where are the trade by trade results? Etc. etc. By not posting a real view other than “I made money trading stocks” the post really doesn’t have anything that can be debated, substantiated, or refuted. If you want to really have a debate, you should detail how you decide to make trades. I suspect no real thought goes into it, which is why it wasn’t written about in the post.
Unfortunately the lack of basic info that any moderately serious investor would have at his fingertips leads me to believe that the results are either pure luck or inflated from poor record keeping. You mention making money playing poker. Good poker players similarly meticulously track results, hands, ranges, etc. I am doubtful this was your poker style either. If you made money at poker it was probably a lucky run based on a small sample size or inflated from poor tracking. Best of luck. If your results are accurate, you clearly have had it so far.
Donnie,
There was a lot of information left out. This was mostly intentional, or the post would have been a book. Most of what you are discussing is Technical Analysis. While I agree there is some place for technical analysis, I would argue it is not the only factor for successful trading. The point of the post was not necessarily to debate, just to offer a different perspective that I rarely see on WCI’s site. If I continue down this path successfully I will keep you posted and I will write a book which will include at least a couple chapters on technical analysis. I am an anal number tracker BTW. So maybe this is just as you suggest….pure luck.
Fair enough. I created a thread in the forum in the hope that folks like you would share general details on stock picking, volatility of your results, etc. I think it’s a worthwhile discussion to have, and it can be had without you giving away your secrets!
With such high income, I am surprised you seek out even more highly taxed income.
If you enjoy it, continue. In the final analysis, this will not make you happy. Maybe think of this as a “phase.”
Maybe it will be a phase. I don’t rule that out. As for the taxes…yes, I have a serious tax problem already and this doesn’t help. But I now know some people far wealthier than me and it is amazing how they treat taxes. Most of them stop caring so much as we do. They have so much money that saving 50K on taxes a year becomes inconsequential to them. It sounds ludicrous to us, but once you are very wealthy and generating large amounts of income, you will not be able to legally escape them.
Thanks for the replies, I think. Regardless, this appears to be a controversial topic here and I’m done discussing it. In some ways, my integrity has been called into question and for that reason alone, this is probably my last post here. I’m fine if no one believes any of it but to suggest that it’s not true because I’m not going to publicly give away what I’ve worked hard for and learned is simply mind boggling. Most here would not give their local medical competitor groups their inside information either. No hard feelings as I can take it but I do have other things to do with my life besides debate topics. I may or may not read the forum and blog posts on occasion. Best to all.
I’ll be sorry to see you go and hope it wasn’t me that you felt was calling your integrity into question. If so, I apologize as that wasn’t my intent.
Free pdf available for ‘seekers’ for some of the books mentioned in the blog- not easy but a good starting point (was it not the same when we started our baby steps in medical school!!)
Ed Thorp-
https://oneworld-publications.com/media/preview_files/9781786070289.pdf
Ed Lefvre-
https://www.earnforex.com/books/en/forex-market/jesse_livermore.pdf
-Nicholas Darvas-
http://www.r-5.org/files/books/trading/investment/Nicolas_Darvas-How_I_Made_$2_Million_in_the_Stock_Market-EN.pdf
Prof Van Tharp-
http://www.saham-indonesia.com/Ebooks/Technical%20Analysis/tharp,%20van%20k%20-%20trade%20your%20way%20to%20financial%20freedom.pdf
William O’Neill- older edition- good to read the latest version
https://cdn.preterhuman.net/texts/unsorted2/Stock%20books%20051/William%20J%20O%27neil%20-%20How%20To%20Make%20Money%20In%20Stocks.pdf
Wyckoff- could not find the book but here is the technical analysis on the 2008 recession
http://mtaef.org/documents/Wyckoff_Pruden.pdf
Thanks to Physicians Capital Management LLC for mentioning the Thorp book.
Read Nassim Talebs (of Black Swan fame) Forward and the Preface by Thorp for this book and I am fully hooked! Somehow had missed on this classic text.
Napoleon, the 50K in stock trading isn’t a big deal to me, but how long have you been making the 1M? I’m surprised that your net worth is only 2M with an income like that. Are you not including the business or house etc?
I don’t think that I would pay off the student loan at that rate. I was in the same boat and wrote a check for it. Looking back I regret doing that, and I’m was into the pay of debt quick camp.
I can relate now that I’m a high income doc. I may have a 7 figure income, but I haven’t had it long. Bear in mind when you’re making that kind of money, you’re paying 30-40%+ of that income in taxes each year. Then you’re probably spending some of it. Even a good saver may only be putting away $200-400K a year. That might only be a million dollars in savings after 5 years of a 7 figure income.
True, but you have a net worth of a few multiples your annual income if including the business. That’s why I was curious how long he had the 1M. 2 years, great, keep saving and working you will be set. 10 years….not so great.
This will be the first year I will top 1M. The past 2 years have averaged about 800K….And Over these past 3 years I have been paying off my 500K business buy in. Plus, Taxes Frickin suck.
+1 on the taxes. Thanks for replying back. With that income and a decent savings rate you will be at 8 figures in no time. Congratulations on the hard work and good luck on the stock picks.
Problem is too many doctors and other highly educated individuals think they can beat the casinos!
Fools gold
The likelihood someone can beat the market is low but not 0%. There are without a doubt people on this planet who are successful trading stocks. I tried and and failed. Therefor I invest in index funds. Is NapoleonDynamite one of those few people? Maybe, and I wish him all the skill and luck in the world. I’m sure we can all agree that 1 year says nothing and it may take a decade or more to know for sure.
It’s a shame so many people act like they are 100% sure he will fail. He appears wise enough to use a tiny fraction of his wealth to test his skill against the rest of the market.
I too am an amateur poker player. Even though on an hourly basis I make a lot more money practicing medicine, I still enjoy playing poker. The money I win is tiny and not worth the time/effort if I did not enjoy the process. And yes, I consistently over enough time win though I am pretty sure I would fail playing at the high/higher stakes tables.
With Docs I think we look at percentages. If I’m sure that 95% of the time something will fail, I’m not going to do it. However, as in the case with Napoleon, he isn’t betting retirement on it so it may just be an expensive hobby in the end. I know plenty of Docs who spend 50K on things truly have no chance of increasing in value, ie surf boats, but do bring them enjoyment. At least with his stock picking he has a chance to come out ahead, no matter how small we may argue that to be.
Thanks guys. As I mentioned, this 50K will not make or break my life or retirement trajectory if I lose it all. If I make a significant amount of money, then it could theoretically dramatically increase my wealth, or shorten my time frame to optional retirement. Is this a likely scenario? No. I am aware of that. However, it is fun for me….so I will keep playing.
EnjoyIt…I too avoided the high stakes tables as I was pretty sure I would have been the minnow at a table of sharks. Lots of bad players at the smaller tables though 😉
I think there is significant correlation between playing poker and investing. It is all about the math. Sure someone can get an edge by knowing something more about their opponent or the company they are willing to invest in. That little edge can be a notable difference over long term.
“I continued to search for something more stimulating for me.” That says it all. For a primarily medically trained audience, shame on you. Using ROI before or after tax is not really important. Yes, you get a “rush” for taking a financial risk. Money and risk appear to the triggers that give you pleasure. The rationalization is you can afford it. This seems to be all true. The psychology of a trader in combination with the repeatable process or system is important. Try reading Brett Steenbarger, Ph.D. , http://traderfeed.blogspot.com/ and actually developing your skills. What you will find is that the pain of loss is more significant than the pleasure of gain. You have a hobby that you can afford. Please realize that many many have developed a gambling addiction, just as some physicians need to address prescriptions, alcohol, and other issues.
My suggestion would be for you to really think hard about setting some new goals. What kind of person do you want to be? The first obvious one is you have two kids. The window of opportunity for bonding, parenting, and educating them is short and very valuable. The real problem is that at 35 you have worked hard in a competitive environment and succeeded. Now what? You have about another 60 to go. I do not think you want your wife and kids to remember the last 60 years and say “he was a great day trader”. The hard truth is you are looking for “excitement” to replace the sense of achievement. Even with trading, you have some thinking to do.
What to you want to be in your second career and for the next 60 years? or
Pick 5 languages for the whole family to become fluent in and spend a week vacation visiting them. (one a year with lessons and tutoring). or whatever lights the fire for you and your wife.
[Comment deleted at poster’s request.]
Tim,
I don’t know if you are still reading this from last week….but I am a little confused by your posts. First you state, “For a primarily medically trained audience, shame on you.” So you are shaming me for the trading activity? Then you go on to direct me to a trading blog…then you go back to directing me elsewhere. Then in another post below you are discussing how learning about trading is good. I’m getting a little mixed messaging.
Either way, I think you were being a little “judgy” and reading too much into things that I wrote. Maybe you missed the big picture with my post, but that’s ok. But FYI, I will be ok…my kids are very well taken care of from both a financial and parenting standpoint, and I speak 2 languages but don’t really have the desire to learn more and vacation all the time at this point in my life. Maybe you should though as it sounds like it might be something you would enjoy? Thanks!
So technically I am a pattern day trader. I enjoy it. I am a successful physician and bring in over 500k, nowhere near the 1.1mil. But trading is fun to me. Trading is educated guessing, wishful thinking, pixie dust..etc. I have been luckier more times than not. I think it’s really fun to do. If you mess around with options it can be really fun too. It gives me a similar thrill that WCI might get from heli skiing or rock climbing. I feel a rush during the day when I see options value fluctuate from +4k to -4k. I can understand why someone does this. It’s all about mental discipline and having end goals in mind for each trade in order to be successful. I have done this for 5 years and netted 50k each year of profit. Without discipline you are lost in this market.
In regards to the comment that there are guys on wall street that are smart and do this day in and day out; I will say these are the same guys that are wrong every freaking time. They have been screaming a bear market since the bull market started. They thought the internet bubble would keep going forever. They thought real estate would never pop. I have been around each time. No one can predict the swings of how people are going to buy and sell. Now they are relying more on AI to do pattern trading.
WCI, you forgot the extra time commitment or accounting fees during tax time to compile the capital gains and losses from each trade.
I don’t know how big of a deal that is. It’s pretty much automatically downloaded these days.
It’s very easy…TD Ameritrade sends the paperwork in January/February with all the info which is easily plugged in to your taxes
Or auto uploaded to Turbotax
Just want to chime in defense of the OP that day trading can work. I used it successfully to help me pay off my student loans in residency. One has to have clear objectives, clear exit strategy, rules for when to trade in and out and most importantly know yourself in the game. I made around 50000 over 4 years in residency just by trading one single stock. It is possible and it can be profitable and most importantly, it can be done.
“It is possible and it can be profitable and most importantly, it can be done.”
It is possible and it can be unprofitable and most importantly, the failure percentage of invidual’s that attempt to trade using a system, is very high. Trading is not “investing” by any means. It is an attempt to gain an edge through a better understanding of market price reactions than the overall market. Knowledge of an industry, niches, management, products and economics allows one to spot a stock that has over/under priced and take advantage of it. For someone with a full time occupation, that is expecting alot. I have never heard anyone suggest trading 100% of your assets. Why? This risk is huge and lawsuits would follow. My point, is a trip to Vegas is entertaining. For most, whatever is bet in Vegas stays in Vegas as well. Some folks come back with winnings. Really, they do. The house has the odds though. Simply realize Mr. Market does too. Fan-Dual and playing golf for money are other options. Use it as a hobby is the point.
Benefits: You will be educating yourself in managing risks, sizing trades and understanding markets and attempting to understand leading and lagging indicators as well as stock or individual selections options and market techniques. Portfolio allocations and strategies and sectors and options, apply to your portfolio and retirement accounts as well. All the work you put in is of great value. Think of it as a small sandbox to try different things. It is alot more interesting is some real dollars are involved than using play money. A trading “play money” account is just that, a fun toy.
Way off topic, but i did find it interesting that no one commented regarding a doctor making over $1M from his practice. While not the only reason by any stretch, one of the reasons healthcare in the US is so expensive is that it is not that unusual for a doctor to achieve this kind of salary.
The US spends close to 18% of gdp on healthcare, western europe is generally between 9-12% for what is more universal coverage and similar if not better outcomes. There are many areas where we spend too much money, and we need to address all of them, but one of those is a system that results in a million dollar salary (practice profit or whatever one calls it) for an individual doctor to not be regarded as unusual is one of them.
This blog is probably not the most receptive place for this comment, but I thought this particular post was a good place to say this. One last thing, i am not saying doctors dont deserve to make a good living, or a good return on med school investment. All i am saying is the “system” in the US allows some specialists here to achieve far greater incomes than systems in other countries would allow.
You’re right, this is a place where that sort of a comment isn’t well-received since the whole point of this website is to help doctors do better financially.
Personally, I’ve found it way easier to make 7 figures doing non-medical stuff than doctoring so I see little reason why someone who has acquired a great deal of specialized knowledge over a decade and a half, works very hard, and has some good business sense shouldn’t make 7 figures. In our capitalistic society, if you prefer not to pay for that person’s services either on your own or together with your insurance company, that’s your right. But obviously there are plenty of “customers” who feel differently about the value of that person’s knowledge/skills/business than you do.
Dave,
I respond to your questions with a couple questions for you to ponder.
In our capitalistic society why is it ok for someone to make 200 million dollars (or more) for simply developing a game like Angry Birds? What does this game add to society? In my mind absolutely nothing. It is a complete waste of time and brain power. Apparently society disagree’s with me.
Why is it not ok for a doctor who saves lives (for me occasionally) or at bare minimum improves peoples quality of life to make 1 million dollars?
Society, not you or I, decide where money is spent in the United States. While I don’t disagree that the amount of our GDP spent on healthcare given the outcomes is probably too high and it is only increasing. This system is going to crash in some way, shape or form at some point. It cannot keep going forward at the current rate.
However, I wholeheartedly disagree that doctors are the cause of this problem. There is not enough time to discuss or write about what does create the healthcare spending problem. But, I am definitely not ashamed or embarrassed by my income given the 39 years of working my butt off to get here.
A resident is greatly “underpaid”. The time “clocked in” is typically 80 hours per week and additional time for “preparation”, “on call”, “research projects”, and “journal club” etc. On an hourly basis, the pay is about that of an Assistant Mgr. at McDonalds. On top of that, do it for 5-6 years then a fellowship and “moving expenses, licensing fees and review courses”. Of course you pay for transportation and all your living expenses. This is after any med school debt for four years. I salute every physcian for their accomplishments and wish them every financial compensation and investment they can get. To those that think physicians are overpaid, feel free to take the ambulance through McDonald’s drive-through and order “one orthopedic surgeon with a trauma fellowship” from the “Dollar Menu”.
Do you think hospitals and surgury facilities had turned into “medical hotels” where occupancy rates and utilization are driving the money, not the medicine?