[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!
Dear Original Poster:
Thank you for the article! I am interested to hear a little bit more about your story, if you don’t mind sharing here publicly or privately.
I’m a 3rd year medical student and I’m looking to enter the field of anesthesiology.
#1, I have long thought day trading would be conducive with my future professional schedule, and so I have started learning how to do it ahead of time.
#2 My main professional goal is to someday (possibly) be a partner in a surgical center. I noticed you started out with below average pay and somehow worked your way into becoming a partner and now earning much more. Do you like the surgical center business, and did you have any outside money that helped you get started?
You sound very much like a future me…or someone that has achieved similar goals that I wish too! I appreciate any advice! thank you,
Daniel
Daniel,
First of all, Good luck on your continued journey through medical school and residency. Enjoy the ride!
To answer your questions…As I stated in the post, investing in yourself should be your NUMBER 1 goal right now. Become a great anesthesiologist (if that is your path) and learn and invest as much time as you can in treating patients and learning your craft. Also, along the way invest time learning about the business aspect of medicine. Your goals will change as you age and gain more experience, but having a larger knowledge base is always better than the alternative.
For question #1. I probably wouldn’t spend a lot of time learning about trading at this point. I think your time is better spent learning about how to care for patients, save lives and work with your colleagues. This can be an open fire hydrant of knowledge that you will continue to learn. Take as much in as you can. However, if you don’t have other hobbies and enjoy reading about it in your “Spare” time as something relaxing then go for it. Unless you have money to invest, it probably won’t be very worthwhile to start “trading” until you do.
For questin #2. Becoming a business owner/partner in a surgery center etc is the only way one can achieve exceedingly high pay in the field of medicine. I think it is very important to learn and do everything you can to participate in/partner in. For example…I can be an employed physician by a hospital, perform a surgery and get paid X dollars for that surgery. The hospital will take my surgeon fee, cut it some percentage to cover overhead costs and then pay me what is left. However, the hospital will also charge the patient a surgery center fee. This fee helps pay the overhead of running the surgery center. However, there is also profit from this fee that the hospital will take as profit. As an employed physician you would likely see none or almost none of that profit. Compare that to my situation….I help own and operate the surgery center. This takes more time which is one disadvantage and why more physicians don’t do it. However, I perform the exact same surgery as above. I now collect my same surgeon fee and a surgery center fee (likely lesser than the hospital…don’t even get me started on the politics of this). I now have to pay my staff and surgery center overhead. If I am smart, “run a tight ship”, and do good work, I get paid significantly more for the exact same surgery. Do I have to put in a little extra work compared to the employed physician who punches in at 9 am and out a 4pm? Yes. Is it worthwhile for me? Absolutely.
Did I have outside money to help me get started? NO. I was on food stamps as a kid at one point and grew up in a poor/middle class family. Thankfully I got a solid college scholarship and didn’t have debt from college but started with about 200K in debt from med school. So, I lived and still live frugally given my high income. I saved and worked hard the first 2-4 years out of residency and worked through a lot of trials and tribulations with my practice and eventually worked through the buy in process which has greatly helped my income and income potential. WCI’s recommendations to save and “live like a resident” when you first come out are HUGE. I highly recommend following the basics he outlines.
Good luck and you it sounds like you will do very well if you are already thinking this far ahead!
I recently used about 3% of my portfolio to buy three equities that tend to go up year after year during the holiday season: Best Buy, Tyson foods and some ETF of consumer goods (GUGG S&P 500 EQ WGT STAPLES). The trade cost $15. They may go up. They could be held if they don’t go up short term (in other words I like the stocks in general). I almost bought TJX (TJ MAX) but did not and it was just lucky, as it tanked 3% on an earnings report soon after…
Now after reading the WCI breakdown of why NOT to “day trade” or “short term trade” I tend to agree. The time in picking them (a half hour), watching them for the sell point, etc. is hardly worth my time (I make $250-$400 an hour on my side work).
So, I will be selling them and will stay away from this interesting form of gambling. I can invest the 3% in whatever my portfolio or asset allocation is missing. Now, it is fair to say that if I sell them today, I made $174 minus commissions ($5 a trade or $30) or about $144 in three days and it only cost me some time in the car eating a sandwich, listening to Bloomberg.
Out of curiosity, may I ask Napolean Dynamite his specialty? Sounds like ophthalmology to me 😛
Anyways, great post! Regardless of whether we agree or disagree, it’s nice to hear another view point! Thank you.
Don’t know how I stumbled upon your post here, very interesting read. You didn’t come right out and ask the question “should I day trade?” in your article. You just tried to justify why day trading was okay for you because you enjoy it and you can afford it. My short answer is no, you shouldn’t be spending your time day trading. My long answer takes things a bit off track, but I promise I come to a logically conclusion for my answer if you can make it to the end!!
Why do you have to continue to make over a million dollars a year? Isn’t this in some way at the expense of all your patients? I won’t bore you with the number of people in this country that struggle to pay for medical expenses, or how the crippling financial burden can spill into all aspects of the economy. In a comment above, you said “medicine is a business and being an employee of medicine is not a way to make money doing something I love.” I am not really sure what to make of that but it sounds like you very much treat your profession as a doctor as a business. Try for a moment to think of your skills as a life changing gift to humanity. You have enough money ten times over to dedicate the rest of your life to giving your services away to those who cannot afford it. Each patient will be forever changed because of your generosity.(That is the extreme end of the “LOVE HUMANITY” spectrum). Instead, I imagine you have caused more than one family to struggle to make the car payment every month because they financed their procedure and have to pay $400 a month every month for the rest of their lives to pay for the surgery. My family earns $120,000 a year, and while this pales in comparison to your income, we still do better than 98% of the rest of the country and I am incredibly grateful for this . We struggle to pay for our medical expenses because my daughter and I inherited some shitty genes and, well, we are expensive to keep alive . Luckily we have a cap on the out of pocket expenses ($15,000/yr). On top of monthly premiums, we pay around $25,000/yr for our medical needs, which is just enough to make it a struggle every month to stay on top of the bills. I don’t care about your day trading or the balance in your 2 year old’s education account. I will challenge you to shift your focus away from money and what is best for your pocketbook. Restructure your pricing to account for a families’ financial ability to pay. Assuming you have a staff, give them all a HUGE bonus just because you can. Most importantly, spend every moment you can with your children until they grow wings and fly away. Think of time invested with your children now as an investment that will pay dividends later in your life. When you are living in your golden years, time with your children and grandchildren will be what matters most. The stronger bond you build now with them will equate to a stronger bond later in life. It took me a LONG time to learn this. You only have 18 years until your kids have the choice to spend time with you or to spend their time being the masters of their profession. Don’t waste a moment enjoying day trading because in the end it won’t be you bank account that sits by your side when you are old and frail. I have nothing but love for you brother. I wish you and your family a very prosperous new year. Congrats on all the success. -K
I always find it interesting to see people tell other people how to use their money. Your essay goes from encouraging him to work for free to encouraging him to quit/work less, anything but continuing to exchange his time at a fair rate for money and doing whatever he wants with it like everyone else in this country. I’m no fan of day trading, I do lots of work for free, I pay my staff ridiculously well, and I give away more than I spend each year, but those are my choices and you and the post author are entitled to make your own.
Given the website is called white coat investor, I assume you and everyone on this site thinks they have fair rates. I am sure that may be the case in some instances. However, doctors have a part in high health care costs just like hospital executives do. I never told him how to spend his money, just made a suggestion. You all have to live with your decisions on how you spend your money.
Ha ha. Fair rates in medicine. Ha ha. No. None of us have fair rates. We have chargemaster rates, which aren’t fair in any way shape or form.
WCI-Pretty funny really. I suspect that this person has little idea how much free care we give away yet take 100% of the liability for it. Our group is not paid for over 30% of the work we do. Imagine a retail store staying in business when 30% of all of the merchandise is simply taken out of the store and not paid for. Same thing really.
And I suspect that this person doesn’t know that most of us have literally zero control of what we charge. The charges are determined by Medicare, Medicaid and private insurance. Non insurance cash payments are a tiny percentage.
And perhaps it’s not known what the average debt a graduating physician has…$200,000+ I believe it is now. I know a number of docs early to mid career that own 300-500k.
As for doctor’s being partially the cause of the high cost of medicine? Numbers I’ve read in the past is that overall physician cost is about 20% of the national health care spending and about half of that is spent on keeping the office doors open.
I am not a physician. But I just had to revive this thread due to this comment and some others above. Please forgive me!
The problem in this country is virtue signaling and people believing they have a right to tell others how to live their lives. Sickens me really.
I am an IT consultant that specializes in HIPAA compliance so maybe that’s why this popped in my google feed. I also trade…though not day trade.
I’ve beaten the sp500 by a couple percentage points (after taxes) for 5+ years which is documented by my brokerage statements.
Is it possible? Absolutely. But it has less to do with intelligence or skill and more to do with disposition. Its not overly complicated but it does require a certain personality and one has to be an expert at managing risk. Any monkey can make money in a bull market, but the true money is made managing risk and not losing tons of money.
As to WCI criticism of not putting all your money if you were so sure…that’s two fold. I still have indexed retirement accounts because no matter how sure you are, there is still risk of being human and making a mistake. Secondly, as someone also alluded to, moving large amounts of money is difficult and takes time. As an investor’s capital grows, learning proper sizing and how to enter/exit as well as deal with emotions of trading larger sizes come into play.
When you’re trading 5 figures, you can pretty much just take full positions…on a $150 stock, one lot is $15k. Once you start trading 6 figures, then you slowly start to have to account for legging into positions…which brings in a host of other management issues such as when to leg in, size of positions, early entry/exit, etc.
Then once you start trading 7 figures, that problem gets magnified again. Many times you will not find good opportunities and need to settle for less than great ones to keep capital churning because a 30% return on 50% of your capital is only a 15% return. I’ll admit I don’t know much about extending beyond this as this is the limit of my experience.
I can conclude that extrapolated, this leads me to believe that one of the major reasons for wallstreet underperformance is the sheer amount of capital they are trying to allocate. Since as astute readers may have already deduced, I trade options. Another limiting factor is that in order to get good fills, you need open interest and frankly, there are many great stocks that I either pass on or take smaller positions than I like because there isnt enough volume to support larger positions.
Will I prove my results or share my methods? No. Frankly there is no incentive for me to do so. I’m not getting paid (even if I was, it could never be more profitable than what I make in the markets…unless you’ve got hundreds of millions of dollars burning a hole in your pocket!), and I could care less what some random people on the internet think of me or my integrity. If I told people, then chances are it wouldn’t be profitable anymore…kinda pointless.
I also don’t talk about trading with most of my friends and family. I might make a comment here and there but I never give recommendations because your investing needs to suit your risk level and no one can know that but you. Has this pissed of some friends and family that see it as being ‘selfish’ (again with the virtue signaling)? Yes. But my true friends and family realize why I don’t manage others money and respect my decision. They also know that while I would never manage their money, if they ask about a specific trade, I’m always more than willing to discuss the potential pros and cons.
Lastly I will say I was amused with some of the negative comments and criticism towards the OP. Confirmation bias goes both ways and projecting your values/beliefs on the OP “go golf” “find better ways to be happy” “spend more time with family” “you’ll get an addiction” et all is unfair.
OP – yes only a small percentage make it. But then again, only a small percentage become physicians as well. Your ability to achieve one has no bearing on your ability to achieve another, but it is possible. There is no value that can be placed on time or enjoyment so do what is best for you and leads you to a fulfilling life.
Congrats on your success. Hope it continues. It doesn’t sound to me like you really believe it is as easy as you say it is though, as evidenced by the fact that you’ve left at least some money in boring old “average” index funds to hedge your bets in case it turns out you just got lucky and don’t actually have the skill necessary to beat the market long term.
Never said it was easy. Said it was possible and not complicated…that is not the same as easy. Ergo, being the best downhill skier is not complicated; don’t fall down, be streamlined, and take the best angles. Simple geometry and physics. Not complicated but definitely not easy!
Hedging is prudent and something intelligent people do all the time…basic risk management. To not do it is pure ego and hubris which is a quick path to the poor house. I will not be checking this forum thread anymore but wish you all the best.
NapoleanDynomite,
Have you ever considered online poker as a profitable hobby?
The reason I ask is years ago, I knew a guy that once a semester he would start out hold up in his room. It seems he would get the student loans to pay Stanford room and board. Always wanted to payback the loans before classes started. Because poker is basically probabilities behind a screen, only played small to medium pots. That was his risk control.
A little luck with your brain could be profitable.
Hi ND and WCI,
Fascinating discussion. I am an older doc and have seen several of my colleagues try and fail at this. Some of them have succeeded for many years before giving it all back, in some cases giving more than what they made back. They are all smart people, read a lot, and worked hard at it. I should add that for at least two of them, I am assuming they failed as when I asked about it, they said they weren’t doing it anymore because they didn’t have time. This sounded to me like they likely failed but didn’t want to talk about it. Why would they stop doing something that they loved and was so profitable?
I would love to hear an update from ND on how his trading experience is going. Is there any chance of a follow up blog post?
I befriended a Wall Street trader I met on vacation over ten years ago. After several days of enjoying each other’s company because our kids liked to hang out, he told me something “off the record” that has always piqued my curiousity: Young traders will trade in their own personal accounts, but most older traders learn and stop doing it. He said it’s unusual for retired traders to actively trade with personal money though there are some. He went on to say that it’s a tough business and when you’ve done it long enough, you know better.
I’ve never been able to confirm this with an academic research study or even some kind of forum post or blog post online, but it’s pretty damning if true. Professionals – paid to spend every minute of their workday to research, trade and generate alpha – don’t do this with their own money after they retire?
I day trade options, I am in and out 30 mins max usually.
How’s that working out for you? Are you rich yet?