The Physician Investor

THE PHYSICIAN INVESTOR NEWSLETTER

HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.

A Book You Should Read

Issue #102A, April 28, 2010

I just finished No One Would Listen: A True Financial Thriller (Markopolos et al, Wiley & Sons). I recommend you purchase this book. It is the story of Harry Markopolos and his decade-long frustration in trying to get the SEC (Securities and Exchange Commission) to investigate Bernie Madoff. Markopolos really is a hero; he stood up to some very powerful people, did things because he knew they were right, and some times had genuine and legitimate concerns for the physical safety of himself and his family.
Markopolos makes many points worthy of discussion. “It is a felony to lie to an official of the federal government—even without taking an oath”.
RMD comment: I mentioned this in a recent letter regarding dealing with the IRS.
“What surprised me from the very beginning of my career was the level of corruption (on Wall Street) that was simply an accepted way of doing business. Bernie Madoff wasn’t a complete aberration; he was an extension of the cutthroat culture that was prevalent from the day I started….The great majority of the people I’ve met are honest and ethical, but where money is the scorecard a certain level of ingrained dishonesty is tolerated…The industry is based on a predator-prey relationship”.
RMD comment: Remember that whenever you buy or sell anything; there is a professional on the other end, and their idea is to make money at your expense; even when they are honest.
Markopolos (and the other books I have read on Madoff) notes that when he first had his suspicions and started to ask questions, many others were also concerned about Madoff’s stellar results, which seemed to defy all logic. This included many who had money with him; they really didn’t care how he produced the returns, they were just happy to receive them.
RMD comment: In my opinion, dishonesty, whether legally culpable, or just intellectual, is still dishonesty. You have stepped over the line, and will eventually get burned, as all of Madoff’s investors ultimately were.
“My error was that the SEC actually was capable of protecting investors”
RMD comment: Markopolos outlines in exquisitely-painful detail the complete incompetence of the SEC. He notes the subsequent investigation of the agency by their Solicitor General David Kotz was well done and that the new chief Mary Shapiro seems to be making an honest effort to reform the SEC.
The SEC recently brought suit against Goldman Sachs (GS). Apparently when such suits are considered, the SEC likes the vote to pursue them to be unanimous. In this case, the vote was 3 to 2 (the three Democrats for and the two Republicans against). Many times when firms are guilty they will settle, take their lumps, and move on. GS apparently intends to fight this suit. Also note that financial “reform” legislation was just introduced into Congress. Is the suit against GS just an effort by the SEC to regain some of their machismo after the terrible failures in the Madoff case, the Stanford case, and others?
(At least one cause of these failures could be because some SEC staffers, as reported last week, were using their government computers to download porn).
“People who come forward to expose corruption risk their jobs, their personal relationships, and even their lives. Rather than being celebrated for their honesty and integrity, too often they end up alone and embittered”.
RMD comment: Recently a subscriber, about my age, told me about things in medicine that concerned him, and he lamented that he was becoming cynical. I told him I think cynical had a negative connotation. I much prefer the terms pragmatic and realistic.
Buy this book. It is worth your time to read, because at some time the lessons, especially as they relate to avoiding a scam, could save you a great deal of money, maybe even your life savings.
In the next newsletter, I will re-visit the issue of doing a Traditional to Roth IRA conversion.

RMD
The Economist (4/17/2010). “In 1996, David Colander…expressed his dissatisfaction with decades of economics by invoking a lofty analogy. He felt macroeconomics had clawed their way up a mountain, only to discover, when they broke through the clouds, that a neighboring mountain would have taken them much higher. Mr. Colander (recently) joined many disgruntled economists at King’s College for the inaugural conference of the Institute for New Economic Thinking.
RMD comment: It is standard teaching in almost all academic disciplines that 50% of what is currently accepted as fact will eventually be proven false; we just don’t know which half.
I believe those on the inside are concerned with which half is wrong. I think the fact that I have no formal economic/financial training is a plus; I am not encumbered by pre-conceived dogma. I wonder which half is correct.
A recent subscriber noted she often does not agree with what I say, but she enjoys my insights. That is my exact goal: to provide advice you will find nowhere else, that will separate you from the lemmings and the penguins (depending on the pole). If you purchased gold, you are ahead. If you paid off your mortgage and your credit cards rather than took out a home equity loan (aka second mortgage), you are now happy as a clam, maybe even with a little schadenfreude (a German word you should know. It means shameful joy) while your (ex) neighbor’s home is sold on the courthouse steps.
I always wondered the Post Office policy for delivering a letter that is addressed incorrectly, so some time ago I asked the local postmaster.
Say Mr. Smith lives at 100 Main St. and Mr. Jones lives at 110 Main. If a letter is addressed to Mr. Smith at 110 Main, the regular mail man on the route will deliver it to the correct person (to Mr. Smith at 100 Main). If it is not the regular mail man, they will deliver the letter to 110 Main, no matter to whom it is addressed.
In a precious metals bull market, silver tends to lead gold and the miners tend to lead bullion. In several recent letters I said if you watch just one precious metals stock, follow Silver Wheaton (SLW).
On Friday, SLW broke to a new high. There has been nice follow-through the last 2 days.
Yesterday was an amazing day for the precious metals. The DJIA was down 213 points while gold was up $16, breaking to a 4 month high (see chart of GLD below).