The other day, a friend told me about a relative who had suffered from a heart attack and had to be rushed to the hospital. Thankfully, the man was treated in time and is now home in recovery. Even so, it was a shock to everyone as no one was aware that he had any pre-existing heart issues.
The family understandably rushed forth with great concern, determined to adjust the man’s diet, exercise habits, and environment. The physician on the other hand, took a more relaxed attitude. “It’s hereditary, there’s nothing much you can do about it, and he can control it with medication,” he said.
I found myself getting increasingly angry about the doctor’s cavalier approach. Are you kidding me? No doubt, heredity plays a factor in health outcomes. But please don’t tell me that what you put in your body, or what you don’t put in your body, doesn’t affect your overall health. Not surprisingly, according to a 2010 report in Academic Medicine, U.S. medical schools offer only 19.6 hours of nutrition education across four years of medical school.1 Most of us spend more time in line at Starbucks.
Doctors nowadays, in my opinion, are so quick to prescribe medication and ignore the very simple things in our lives that we can do to prevent the need for medical treatment. I’m no expert in medicine, or in the workings of the medical industry, but if I were to take a guess, I’d say the reason doctors fall back on recommending medication, as opposed to counseling patients on long-term behavior modification, is a result of a few of the following factors:
- Lack of knowledge and education, as discussed above.
- Lack of compensation (Doctors don’t get paid for telling people to eat healthy foods and to exercise more, whereas they do benefit from telling people to take certain medications.)
- Lack of interest/motivation/courage (Hard to find a physician who will go against what a majority of the medical industry is doing.)
- Lack of time to focus on a patient’s real needs (When you are being compensated to ‘move people along,’ how much time is there for a conversation about lifestyle?)
- A desire to appease the patient’s expectations (Who wants to hear that the answer to long and healthy life is diet and exercise? We live in an instant gratification culture, where “there has to be a pill for that,” whatever the ill may be.
Doctors don’t tell us the truth about what will work, partly because they don’t know better, partly because they’re trained not to, and partly because we just don’t want to hear it. Don’t you just want to scream “PLEASE, just tell me the truth!” so that the medical industry understands that they owe it to us to help us live healthier lives.
So why am I, an investor and money manager, getting so bent out of shape about the medical industry, and what does any of this have to do with personal finance? A whole bunch, it turns out. The financial services industry is no better than the medical industry when it comes to the amount of BS they are preaching.
Let’s start with the messages that we do hear from the financial services industry:
- “Diversify your holdings in a broad portfolio of mutual funds”(win by not losing)
- “Invest in low-cost ETFs or index funds” (because you should just settle for cheap and average)
- “Robo-advisors,” (because who needs a live advisor anyway?)
Time and again, people are advised to spread their money across all of these investments, instructed to willingly follow the herd, and to be content with mediocrity.
Do you want the real truth, though? How do you accumulate as much money as possible? How did the wealthiest people in the world do it? They did it with one stock. Ask Bill Gates, he didn’t make his billions in a portfolio of diversified mutual funds. It was one stock. Mark Zuckerberg of Facebook? You guessed it. In fact, for any business owner who pours everything they have back into their business, their “one stock” is their business. Wealth is created in concentrated portfolios, not diversified ones.
Now granted, you may not be a Bill Gates, or a Mark Zuckerberg. And it may not be feasible for you to put all your eggs into one basket. If it’s your business you’re talking about, that’s one thing, because you probably have an extent of control over how your business operates. But if it’s your retirement portfolio, you don’t have a lot of control over the day-to-day workings of the companies within it. You’ll need access to excellent research information, as well as someone well-qualified to devise and implement a strategy that can help you accumulate as much money as possible over time.
So why doesn’t the financial services industry tell us the truth about successful wealth accumulation? Perhaps it is for many of the same reasons that doctors don’t tell you to get the hell off the couch and stop eating at Cinnabon.
- Lack of knowledge and education. Most financial advisors don’t even know that a concentrated portfolio is necessary to maximize wealth. (Sadly, most advisors have also bought into the myth of the overly-diversified investment portfolio as the key to long-term success.)
- Priorities are whacked. Nowadays, financial advisors are “asset gatherers,” and not money managers. Especially at the larger investment firms, advisors are incentivized to keep the status quo, investment-wise, and instead go get more clients. The crazy idea of actually making money for their clients got lost in the shuffle a long time ago.
- Two words: murky compensation. It’s hard to ‘stand up to the system,’ when the system is designed to feed you, compensate you, and move your career forward. Mutual fund companies compensate advisors for recommending their products. Advisors get paid commissions by their firms for selling products. As long as “wealth management” is being offered in this way, there is no such thing as objective advice.
- Emotional appeasement. Clients (just like patients) have been indoctrinated with messages from the financial services industry. Therefore, they expect to continue to be emotionally appeased with messages that make them feel good. No one wants to hear that they will need to start saving sooner, that they’ll need to save more, or that they’ll need to potentially take on more risk for a long time.
- Lack of courage. Few financial advisors have the guts to separate themselves from the herd, so to speak. They’d rather do what everybody else is doing, for fear of being different. Even if they believe that the path to wealth accumulation is via a carefully-selected and monitored concentrated investment portfolio, you’ll be hard pressed to find someone who will own up to this.
How often do you hear a financial advisor ask you about your retirement goals, assess your risk tolerance – and then try to connect the two! It’s crazy. The advisor should tell you that if you really want to get to where you want to go, you may have to take a bumpier ride than you expected, and then guess what? It may not be possible in the timeframe you thought it would be. It may take longer.
Back to the doctor story, that got me going in the first place. You shouldn’t be eating junky foods and asking your doctor to prescribe cholesterol medication to mitigate the symptoms. A good doctor would say: “Hey look, you shouldn’t go on this cholesterol medication. What you need to do is get your ass off the couch and exercise. Eat real foods, and get rid of the sugar and processed carbohydrates. Eliminate the root cause, and you can decrease the likelihood of chronic illness.”
A good financial advisor should say: “You went and bought a whole bunch of investment products that are loaded with junk that you don’t need. That’s time lost that you’ll never get back. You’re going to decrease the longevity of your portfolio. Instead, concentrate your portfolio in no more than 15 stocks, selected using the best information you can get your hands on, and stick to this regimen for a long period of time.”
Now that would be refreshing advice.
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.
1How much do doctors learn about nutrition? The answer: it may not be enough – but it’s not their fault. U.S. News & World Report, December 7, 2016.