Over the long term, a stock’s value isn’t determined by market returns but by the company’s operating performancehow much cash it generates and how well it invests that cash in its business.
So the most important question is which company is most likely to be running successfully five, 10, or 15 years from now?
Over the past 10 years, professional ethics in the United States have taken a pounding. We’ve heard about CEOs falsifying earnings reports, research analysts hyping stocks, and major accounting firms signing off on fraudulent income statements and balance sheets. It’s fair to say that there are few professions in America that remain unblemished.
The medical profession is one of the few. Physicians have come through this period relatively unscathed. Despite several well-publicized scandals, the public continues to believe that doctors will behave ethically and look out for their patients’ interests. Medical professionals continue to set the standard for research, education, and ethical behavior.
Are they poised for a fall? Investors buy bonds for safety. Compared to the stock market, the backing of, for instance, the U.S. Treasury or a blue-chip firm when buying a bond feels like pulling into a safe port in the stormy seas. Yet bonds aren’t without risk, a fact that many investors overlook.
Financial gurus routinely tell investors to do their homework. But few money managers take that advice further than Steven Abernathy, founder and chairman of The Abernathy Group, a $150 million fund of medical and information technology stocks.
APB Financial Group, a brokerage firm that also manages $175m for wealthy investors, has decided to stop charging clients for unprofitable trades.
Clients will pay fees on a sliding scale – from 1 to 3 per cent of gains, for example – only if the value of their portfolio increases. If they break even or lose money, they pay only transaction fees on the trades their brokers make.
Last year, the capital markets anticipated and confirmed that our economy was heading into a recession. The capital markets always anticipate fundamental structural changes in the economy, and often they are right. In 2001, the capital markets re-evaluated the prospects of almost every company in the U.S. economy to reflect a decrease in future operating earnings. However, with this broad-brushed re-evaluation of the economy, all securities were downgraded when not all of them were losing intrinsic value.
On April 12, 2002 Steven Abernathy, principal of The Abernathy Group was interviewed live on “Business Unusual” regarding the Merrill Lynch probe by New York Attorney General Elliott Spitzer.
Merrill Lynch said Thursday that they New York attorney general has agreed to extend a court order requiring the country’s biggest broker to make changes in the way it discloses the relationships between its equity analysts and investment bankers.
As a physician, you know that almost any medication or procedure carries some risk. As an investor, the same holds true.
Even the broadest portfolio entails some peril, notes The Washington Post. But risk comes in two forms: market or systematic risk, and idiosyncratic or extra risk.
You can’t avoid market risk. Over the past 75 years, the Post says, market risk, as measured in standard deviation, has hovered around 20%. Think of it this way: In two-thirds of the years, the S&P’s annual return has ranged between a loss of 9% and a gain of 31%. That’s the risk you have to live with if you invest in stocks.
There are things we can control and others we cannot. Financial risk adheres to this actuality-there are controllable and uncontrollable risks. Successful physician-investors must be able to identify the difference between the two types before they can take advantage of the opportunities presented by learning to manage risk well.