HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
I am a macro-investor. I try to identify significant, secular, long-term trends and then invest based on that. For example, I believe we are in a bull market in the precious metals, commodities, and hard assets that has years to run. I think long-term bonds will be a poor investment. Although there are some stocks that will produce superior returns, I think as a group, non-hard-asset-related stocks will lose value in comparison to gold.
Because I am a macro-investor, it is essential to read as widely as possible, especially history. Very few things happen that haven’t happened before.
I just finished Perilous Fight: America’s Intrepid War with Britain on the High Seas, 1812-1815 (Budiansky, Knopf). With the notable exception of Andrew Jackson’s smashing victory at New Orleans (after the Treaty of Ghent, officially ending the war, had been signed), the US did not do well on land (Ex: Gen. Wm. Hull surrendered an army of more than 2,000 at Detroit without firing a shot).
The war at sea was a different story. The US had a strong maritime history, and they had a strategy. To try to slug it out with the Royal Navy, the most powerful in the world, that outgunned the US 100 to 1, would have resulted in instant and complete defeat. So the US sent out individual ships, with instructions that they were never to engage an enemy with superior firepower. This forced the British to tie up scores of ships looking for every US vessel. In heads-up fights, the US gained some impressive victories, such as Constitution (Isaac Hull, Captain) over Guerriere, and United States (Stephen Decatur, Captain) over Macedonian.
The preceding was a prelude; what I want to talk about were the US privateers; ships outfitted at investors’ expense, with a goal of taking merchant ships of the adversary (Note: These are not pirates. The merchant ships of adversaries during a declared war are fair game. The British were doing the same to us).
Occasional privateers were amazingly profitable, money beyond their wildest dreams, so much that everyone on board, even the lowliest sailor, became wealthy. A few took multiple ships, which were brought to port as prizes and sold, or they took ships with extremely valuable cargo, such as specie (coined gold and silver), or hides, molasses, rum, or whale oil.
The vast majority of the time; there were little or no prizes (or they were taken as a prize). The investors and officers were losers, and the sailors had nothing to show for months at sea but “room and board” and memories. But in toto, the US privateers put some real hurt on British commerce, such that by 1814, the British merchants were getting very, very tired of the war. They were losing a lot of business.
The privateers were a perfect example of entrepreneurial capitalists. If you worked hard, were smart, were willing to take chances, (and were lucky); you could realize the American Dream. Likewise; there was a very significant risk of failure, the majority were lucky just to break even. Many suffered significant losses.
Point Number One: This is how capitalism works, a few are big winners, the majority in the middle, and there are some real losers. But; overall, there is progress. The desire to make money honestly produces net positive results.
In America, mostly because of government interference, we have lost this spirit. Instead of getting out of the way to let people show their creative genius, we want to make sure there are not losers. This 1) gives the people who start with less desire to succeed even less desire, 2) stifles the creativity of the brighter, hardest working risk takers, and most importantly, 3) decreases the overall progress.
Now, say a successful privateer is headed back to port with 150 barrels of whale oil, 100 barrels of rum, a cache of fine linens, $125K of specie (coined silver), and has aboard 5 liberated US seamen that had been unlawfully impressed into the Royal Navy and 6 British sailors who were so unhappy in the Royal Navy that they jumped ship, worked hard, and are now considered members in good standing of the privateer crew.
They are caught in a time warp and come into port in 2011, expecting a hero’s welcome, and to realize the wealth of their labor. Instead, as soon as they get off the ship, it is impounded by the IRS for back taxes, they are cited for scores of violations by OSHA (such as the crew being at their stations for more than 30 hours during a battle) and HIPAA and the EPA, they have not signed up for Obama care, the whale oil violates the Endangered Species Act and is dumped overboard, the rum is considered illegal bootleg, there is a stiff tariff on the linens, the poor British sailors can’t even enter because they have no green cards, and a group of plaintiff’s attorneys have slapped the owners of the ship and all of the officers with a class-action lawsuit because they should have known not to do these things.
The Captain responds “Sir, we fought the War of Independence to rid ourselves of unfair taxation and government interference in our lives, of despotic rulers. How has this happened? Is it that tyrant, the King, is it Lord North”?
“No” responds the US Marshall, “it is the representatives we have elected”.
RMD
CNN.Money, 3/28/11. “The national vacancy rate crept up to just over 13%, according to last week’s decennial census report. That’s up from 12.1% in 2007”.
This is from a subscriber; a physician, and very sophisticated investor.
“My brother-in-law is a part-time real estate agent and has worked in South Florida for many years…(He feels) the local residential real estate market is dead and years from recovery. This is consistent with the conclusions in your last letter”.
RM, MA
RMD comment: Ouch. More than 1 out of 8 homes sitting vacant. I would only buy a home if the situation is extremely compelling, especially if your time frame is 5 years or less (ex, moving to do your training). There is nothing wrong with renting until the dust settles.
When I thanked the above subscriber for his comments, he added:
“A little more color may be helpful. A client to whom my brother-in-law sold a home three years ago for $515K is upset because the value has dropped to about $450K…There were several factors in the purchase:
1) A “no income, no asset verification” loan, which to this day means no one knows their financial condition.
2) The mortgage company wrote a first mortgage for 80% and a second mortgage for 20%, so no down payment was required.
3) A “seller’s contribution” of 6% was allowed to cover moving expenses.
On net, this family was able to purchase a $515K home for less than $1K out of pocket. I pointed out that a family that wants to rent a $500 a month apartment and has to deposit first and last month’s rent would have a greater cash outlay”.
RMD comment: The subscriber concludes: “Stories like this once again illustrate how the housing bubble got inflated and why it exploded”.
Being able to compare one thing to another often provides perspective, especially to help determine if something is under or over-priced. In this example; less up-front money was required to by a one-half million dollar home than is needed to rent a $500/month apartment.
CNN.Money, 4/1/11, quotes AR Magazine. John Paulson earned $4.9B, the most of any hedge fund manager last year. He achieved previous fame and notoriety by shorting the sub-prime market.
But in 2010, he turned his attention to gold. Nearly 90% of Paulson’s personal money is invested in either his gold fund, or in the gold shares of his other funds.
RMD comment: The most successful hedge fund manager of the last 5 years has 90% of his personal wealth in gold. Buy some gold and silver.
Tomorrow is Election Day in Columbia and Boone County. Columbia’s population just passed 100K. Currently the Mayor and City Council receive no salary. Proposition One is to give the Mayor a $9K and the City Council members a $6K salary. Because I will be out of town on Election Day, I voted absentee, and I voted “No”.
What should politicians be paid? I see three options: 1) Continue the current salary structure, 2) Raise salaries for top officials (President, US Senators, Representatives, Federal Judges, Governors) to 7-figures, consistent with the executive ability and responsibility required of such positions, or 3) Pay them nothing.
My first choice is no salaries (very unlikely). My second choice is raise the salaries (impossible, will not happen). My last choice is what will happen, which is nothing.
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