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The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

The Bear is Growling

Issue #406, February 22, 2016

    A bear market is defined as a drop of 20% or more in the major averages. Some bears are especially vicious. From 1929 to 1932, the DJIA lost almost 90% of its value. When inflation was factored in, the bear market of the 70s was almost as nasty. From the high in 2007 to the low in March, 2009, the DJIA was down about 55%. In the “average” bear market, the losses are about 35%.
    About 70% of the performance of an individual stock is due to the fundamentals of the company, about 30% to general market conditions. At a major bear market bottom, 85-98% of all stocks are down at least 20%.
    Point #1 of this discussion:
In a bear market, no stock is immune.
Essentially all lose money.
    All of the standard investment advice is to “buy and hold”. Consider this: if investing didn’t require any thinking, we’d all be rich. Periods of under-performance and over-performance last about 15-18 years. Compare the current S&P to the market peak in early 2000: now add in the dividends but subtract inflation (and taxes), and you are barely positive. 16 years of near dead money, with some nasty volatility in between.
    The really rich people don’t believe in buy and hold forever. Bernard Baruch was long gone from the market before the crash of 1929: he sold “too early”. Warren Buffett dissolved his partnership in 1969, and sold all of the stock in the retirement accounts of the employees at Berkshire Hathaway in the days before the 1987 crash. Sir John Templeton was an early investor in the Japanese boom of the 60s and 70s, but was out long before the NIKKEI peaked at 38,915 on December 29, 1989. 26 years later, the NIKKEI is still down about 60%. I turn 65 next month, and I hope I have a lot longer to go, but I’ll bet any subscriber one ounce of gold that the NIKKEI won’t return to its previous high while I’m still looking down at the dirt.
    Point #2:
Buy and Hold is a Myth
    Right now we’re down about 10% from the highs of May, 2015. If this is an “average” bear market, investors still face loses of 20% or more. Note also that most of the losses in a bear market occur in its final death throws.
    Point #3:
Take any bounce as a chance to sell,
To create defensive positions.
    There are counter-trend rallies in all bear markets. They are sudden, often explosive, and can turn on a dime without notice. It’s easy to get drawn in. Nobody will watch a TV channel that constantly preaches doom and gloom (even if they are right), so the talking heads on TV are always too positive.
    Point #4:
Don’t get caught in the “bear trap”.
    Bear markets cost years of your financial life. If the major averages drop 20% more from here, it requires a gain of 25% to get even. To make up a 33% loss from the highs of 2015 requires a gain of 50%.
    Point #5:
A Bear Market will cost you
3-5 years of your Financial Life.
    Please be careful. If you are no longer working, and live off your investments, it is standard advice to have 3 years of living expenses in cash and cash-equivalent vehicles (such as CDs and Money Market) so you can ride out bear markets and not have to sell while prices are down just to meet living expenses. The older you are, the less you can afford to try to ride it out. Don’t get mauled by the bear.
    Volatility is already high, and will almost certainly increase. The VIX anticipates there will be 1-2 days every week where the market will be up—or down—more than 1%. Volatility is not only nerve-wracking, but you can easily get whipsawed, buying and selling at the exact worst time. Having a lot of cash will make it much easier to sleep nights and avoid bad decisions.

    Next week I’ll talk about the action in the precious metals, and what to look for to confirm that the bottom might be in, and we are again in a bull market in gold. In the meantime, watch the financial stocks, the ETF XLF, a basket of our largest financial stocks, and the European banks, already down 25% this year. The German economy is the 4th largest in the world, but their largest bank, Deutsche Bank (DB), is down more than 40% this year. If it gets into trouble, it will make the implosion of Lehman Brothers look like the minor leagues.
    Since the beginning of my financial writing, my basic message has been “work hard, save your money, and stay out of debt”. I recently learned another reason to work hard—you have less time to spend the extra money that you make.
    RMD comment: It doesn’t get any better than that.
    I received an interesting comment from a female physician about 40 years of age regarding last week’s newsletter about the importance of showing respect and addressing people as Mr. or Mrs. or Doctor. She notes that she is called Jane or Mrs. Smith as often as she is called Dr. Smith.
    Do females in our society still not command as much respect for similar success as a male? Ex: In Phishing for Phools: The Economics of Manipulation and Deception (I have an autographed copy), Akerlof and Shiller note that white females are quoted higher prices by the salesman for the same car than white males. Black females and black males are quoted even higher prices.
    RMD comment: 1) in The Physician’s Guide to Investing, I note that females would do well to take along a male when entering any negotiation, if for no more than “backup or muscle”. 2) Looks like we could all do a little better by putting ourselves “in the other person’s shoes”.
    There is a statistic that looks at how far you can drive a car on the salary the average worker makes in one hour. It is now 371 miles, the highest ever, surpassing the previous high of about 340 miles in 1999.
    RMD comment: In inflation-adjusted terms, salaries have been relatively flat. The 2 big contributors here are 1) the drop in oil prices, and 2) the improved fuel efficiency of autos. Ex: 100 years ago, a Model T was about 6 month’s salary of the average worker. In 2015, the average salary was about $55K. So compare the current car costing $27.5K to the Model T. I also find it interesting that the average vehicle is still about 6 months of the average worker’s salary.
    Also, note that auto fatalities show the progress of technology (seat belts, airbags, medical care, etc.). Fatalities peaked in 1979 at 51,093, with a US population of 225M. In 2013, there were 32,719 fatalities in a population of 316M. 40% less fatalities in a population that is 45% greater. Pretty impressive.   
    In 2014, NFL Commissioner Roger Goodell took a pay cut from $44.2M to $34.1M.
    RMD comment: The average physician in the US makes about $250K per year. Is Mr. Goodell more valuable to society than 135 physicians—or 500 nurses? I don’t think so, but the marketplace says he is.
    I talked with a lady who previously worked in health care who now works for a company that does opinion surveys. One was for an important federal agency. 50 addresses were chosen at random. She went up, knocked on the door, introduced herself, and offered the people $100 to complete a 1 hr. survey (she admits it took at least 3 hours). Only 3 people agreed to take the survey, and they were clearly of the lower-socio-economic classes, who participated because they needed the money.
    RMD comment: 1) these surveys are clearly not representative. 2) It’s hard to believe people answer such questions truthfully: Someone you’ve never met before comes up to your door and asks you how much money you have in your bank account? C’mon, dude. 3) Setting unachievable goals, especially when your job depends on the results, at the least can cause people to bend the rules, and at the worst, causes outright cheating to satisfy the boss.   
    I highly recommend Kissinger: Volume I: 1923-1968: The Idealist. I’ve learned a lot I didn’t know about Kissinger, and I love Niall Ferguson’s style.
    I was going to make some comments about “The War on Cash”, but the more I read, the more I think this is worthy of a newsletter of its own.
    I’ll be traveling next weekend, so the next newsletter may not come out until Monday or maybe even Tuesday.   

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