Why Average Investors get Rich and Excellent Doctors Don’t.
Doctors, lawyers, accountants (all that ilk) tend to think that the financial system isn’t very fair. They don’t like to talk about it, but most docs have figured out that on the average, they are smarter than the average investor. And at the beginning, it seems fair. The doc has a bigger house, a shinier car and the good table at the nice restaurants. Plus everybody calls them doctor. The investor 0n the other hand has to deal with all the trash people leave in his rental house when they move out, handle graphically detailed calls about stopped up toilets, plus their vehicles (usually trucks) are always scratched and full of “stuff”.
But as years pass, things change. The doc is still working the same hours he was working twenty years ago. The investor is out of town a lot. He goes on lots of cruises to faraway places. He gets to deduct the cruises, but doesn’t really care much; the rents keep coming in whether or not he learns anything at the seminar. He just likes the other people there – mostly investors like himself.
Not fair? Well, kinda. The docs are in a business where “when they stop, the money stops”. The investor isn’t. The docs are taxed at around 40% of the “extra” income they make, including what they spend supporting their families, etc. The investor isn’t. In fact, most investors pay little or no tax at all for the first ten or twenty years while they are building their portfolio. Even then their effective tax rate is about half what the docs pay.
The problem often started way back. My high school gave IQ tests and put the brightest students in Group One classes. I was in that group, and so were all my friends that turned out to be doctors. Another friend (different high school) was put in the lowest group in his high school according to his test results. When I met him he drove me around to see all the properties he owned, and more importantly, introduced me to his other “group seven” fellow ex-students who owned a good portion of the real estate in his town. He had recently returned from a trip to China to study Kung-Fu with the Shaolin priests.
Probably the biggest difference is how the docs learn versus how the investors learn. The docs go from theory to practice. The investor learns by tinkering. Only recently has it been proven that tinkering is — even in theory — a better way to learn than going from theory to practice. Even docs often acknowledge that they learn the most by doing, whether it’s during residency, or in practice itself. The best investors and the best docs can both accelerate that process by getting mentors. Traditionally that was called the apprentice system. Switzerland is still largely based on the apprentice model, and as a result has one of the highest per capita incomes in the world (and the lowest percentage of “college educated” citizens).
Yes, doc, you are smarter than that average investor, but please don’t let the missteps of your youth (going to medical school, etc.) hold you back forever. Learn using a better system — tinkering. Give it a nicer name if that makes you feel better, but get your feet wet and dirty. Make mistakes. Learn from them. Pay others, ones you are smarter than (IQ wise), to shorten the learning curve.
Docs get killed by the tax system. Investors get protected. Interim taxation takes away 80% of the effects of compounding for docs. Most investors know how to compound their wealth tax-free for decades. An above average doc will be a wage slave for his whole life. A below average investor will end up supporting his lifestyle with passive income.
The first step for a doc is to realize that the medical school model does not apply to wealth building. Only when a doc is ready to accept his condition and ask for help can we help him overcome this debilitating, often fatal condition and put him on his own twelve step road to recovery. “Hi, my name is Mike, and I’m a doctor”. “Hi Mike, welcome to the group.”
