SPA Spring Meeting Reviews

Sunday Session III - Investing 101
Anesthesia and Economics: A Journey from Personal Investing to Practice Management

By Franklin B. Chiao, MD
Caremount Medical
New York, NY

This was part of an innovative and practical new session at this years conference.  The lecture was delivered by Franklin Chiao MD, an anesthesiologist, who has unique expertise and training in practice management.   Before becoming a doctor, he worked on Wall Street and managed, a multi-billion dollar portfolio of investments.  He also earned a Masters degree at the London School of Economics where some of his professors had won the Nobel Prize. 

Dr. Chiao discussed investment selection in the first part of his session.  Investments should be seen by three pillars- accessibility, liquidity, pricing transparency.  Two people with the same assets and age can have completely different optimal investment portfolios.  For example, if one person is planning to buy a house, they should have that money in a liquid investment.  If they have $500k in art, this can be hard to sell which means it is not very liquid.  Stocks on the other hand are very liquid.  Moving on to examine other investments… for the car lovers, classic cars return 15% per year on average, but can be hard to access, and have poor liquidity.  Try purchasing an air-cooled Porsche from 1981 and the selling it quickly, neither are very easy to do.  Looking at each individual investment with these three pillars is a helpful start.

There is also the aspect of optimal portfolio asset allocation.  This partly depends on age and what is called the “Lifecycle Stages” of investing (Figure 1).  When someone is young in their 20’s, they can afford to pick higher risk investments like stocks, and fewer low risk investments like bonds.  This is mainly because they do not plan to retire anytime soon.  If, however, someone is 75 and about to retire, putting their investments in stocks is a terrible idea.  This could be seen as recently as the Covid epidemic’s effect on the economy and stock market.  One never really knows for certainty where high risk investments will be from one week to the next.

Stocks refer to ownership in companies, while debt or creditors own debt from the company.  Both of these are the most common investments that individuals make.

There was a part of the session focusing on the amount of research one does into stock picking. 
The questions were posed: which is better?

A) Concentrate on buying one or two stocks and do a lot of research on them?
B) Pick several stocks and do minimal research on them?

Does looking at stocks everyday make me money? T/F

According to the major investment theory, the “semi-strong Efficient Markets Hypothesis”, the public receives or learns information too late to profit from arbitrage.  Spending time looking at stocks does not lend any particular advantage to picking investments.  In fact, building a portfolio of uncorrelated and diverse investments consumes less time and returns the same.  This is referred to as diversification, and by doing this, one can get the same return on a portfolio with less risk! 

Dr. Chiao made a comparison to multimodal analgesia as diversification.  Some drugs do not work on certain patients, but we do not know this before we prescribe them, so giving several different drugs can be a better plan.  A number of studies have shown the optimal mix of groups and committees includes people with completely different backgrounds like having a doctor on the board of an investment bank (Figure 2). 

Different backgrounds can help the committee come up with more well-rounded and optimal strategies.  This is a frequent problem in academic anesthesia where new faculty who have new and innovative ideas are excluded from committees.  Over time, having membership that is too long, is also suboptimal because the politics become a focus rather than departmental growth and success.  This can be seen in small companies with new eager staff who have average returns that are three to four times higher than larger companies.

Health care staff are handicapped with investing compared to finance professionals.  Making money from investments is quite the information game.  In this respect, health care staff have less access to information particularly when taking care of patients.  Luckily, knowing more does not make people happier, even though they can make more money off investments.  In addition, finance professionals are able to short stocks, which is borrowing it from someone and selling it, and then buying it back when it goes down.  They are making money even when stocks go down.  Shorting is not readily available and borrowing rates are higher for regular investors like us. 

The analytic tools are also quite different as Dr. Chiao described having three computer screens, two televisions, and 300 people to exchange information with when looking at investments.  Doctors are also trained to minimize risk, whereas investors are trained to pick investments with appropriate reward per risk taken.  Interestingly, corporations will buy insurance to prevent the worse outcomes, but doctors still prescribe opioids with the potential worst outcome of drug addiction. 

Psychology also affects investment prices.  As an example, research has shown investors typically over react to good or bad news which explains why stocks often rise, then sink slightly or dip and then rise slightly in response to news.  Also, investors too easily follow short trends such as a three-day run of big increases in prices.  This does not make the stock more or less likely to go up or down the next day.  Next, there can be difficulty letting go of investments that have performed poorly.  Everyone waits for a miracle and it often doesn’t come.  Finally, the month of January has the highest single stock returns of any month.  Dr. Chiao also discussed some other topics including the high risk of margin and using leverage in investments, interest rate and its role in preventing inflation.

Dr. Chiao closed the session with additional practice management tips.  He described the need to reduce information asymmetry for handoffs, and the role it has in conflicts.  Many workplace conflicts are due to a different set of knowledge between two parties, and by working to bridge or lessen this gap, less conflict will arise.  Department leaders also need to account for time spent in anesthesia that is not accounted for in the time-based anesthesia billing system.  There is also the role of transaction costs where doing many small cases like BMT’s can involve more effort than one long colorectal case.  In this event, designing a system that allows the person compensation for doing all those short, high volume cases could be warranted. 

Scheduling was also discussed as when pairing certain surgeons, anesthesiologists, and nursing teams can make a difference between finishing the day on time or paying a lot of overtime.  He lastly discussed the topic of field avoidance and how it can result in higher practice income when it is appropriately documented for BMTs.  Dr. Chiao described in his closing comments how he would recommend having a low-maintenance diversified portfolio by purchase something like exchange traded funds.  

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