Why do Smart Doctors Sink Money into Silly Investments?

Part IV- Trusting the science can bust your bank account:

Nov 21, 2022

Many doctors, like Dr. Crosby, began drinking in the science with their mother’s milk. By the time medical school finished with Dr. Crosby, he was swimming in science. Science has always served Dr. Crosby and his patients well: “Undoubtedly”, he proclaims, “science has improved my ability to cure disease.” What’s more, in this secular age, trusting the science filled the religion-sized hole in Dr. Crosby’s hyper-educated heart.

“OK, I’ll buy it. Doctors and science go together like peanut butter and jelly. How does that lead to financial blunders?”

Before Dr. Crosby sinks even a single red cent into any investment, he insists on a scientific presentation from his financial advisor, Mr. McGee. Unfortunately, even though Mr. McGee puts on a science-ish show, he’s more of a soothsayer. Mr. McGee’s computer can turn any bit of data into a multicolored chart. And every chart has a convincing pattern. There’s the Head and Shoulders pattern and the Cup and Handle pattern. But most convincing of all is when the 50 day average line crosses the 200 day average line.

“Time to pull the trigger,” says Mr. McGee. “And buy those puts. This same constellation of data has foretold a bear market eighteen times in the last twenty years.”

A put is a bet that an investment’s value will fall below a certain level by a certain date.

“How sure are you?” Dr. Crosby asks. “Scientifically speaking.”

“Oh,” Mr. McGee nods wisely. “It’s statistically significant, alright.”

Dr. Crosby writes out a fat check.

“Yes. Yes. The P Value is much less than 0.05.”

Dr. Crosby adds a few zeros.

Mr. McGee’s prognostications were correct in the long run. After all, the science was on his side. But Dr. Crosby learned an expensive lesson after his puts expired worthless at the end of the month. “Markets can remain irrational longer than you are able to remain liquid.”

If you’re interested in Part I (Achieving success in one domain, may sow the seeds of failure for another) please read