Tuesday, June 9, 2015

Great Financial Advice From a 2,400-Year Old Medical Textbook

By Simon Black

In the 5th century BC during the Golden Age of Athens, culture and intellect flourished in Ancient Greece more than at any other time or place in history up to that point.

It was an amazing period of discovery.

Philosophers Socrates and Plato, writers Sophocles and Euripides, historians Herodotus and Thucydides, all lived during this period and completely revolutionized their fields.

One of their contemporaries was the physician Hippocrates, who did more to advance medical science than any other human being until Louis Pasteur.

In his book “On Sacred Disease,” Hippocrates became one of the first to propose that illness wasn’t a curse from the gods, but rather the result of some natural cause.

In his book “On Ancient Medicine”, he wrote extensively about how good food and regular physical activity were the best ways to ward off disease and stay healthy.

But most famously, his book “The Oath” describes his solemn vow to practice medicine exclusively for the benefit of the patient, which is often colloquially summarized as ‘do no harm.’

To this day physicians still recite some version of the Hippocratic Oath, swearing to uphold standards of integrity and professionalism for the benefit of the patient.

Over drinks last night in London, my colleague Tim Price wondered aloud why there is no Hippocratic Oath in finance.

It’s incredible when you think about it-- finance is one of the most heavily regulated industries on the planet.

And yet with legions of bureaucrats regulating their every move, and compliance officers looming over banking like Dark Lords of the Sith, there’s still an incredible amount of impropriety going on.

Brokers and exchanges happily sell away our investment data to give an edge to High Frequency Trading firms.

Just a few weeks ago some of the largest banks in the world pled guilty to CRIMINAL charges of rigging foreign currency rates.

In fact, they’ve fixed just about every market they’ve ever gotten their hands on, from silver to LIBOR to just about everything else in between.

Banks gamble away their depositors’ savings on risky investment fads, and money managers stuff their clients’ retirement accounts full of overpriced stocks and ho-hum mutual funds.

Where is the oath for bankers and money managers to stand up and say “I promise to do my best for the sole benefit of the client”..?

It doesn’t exist. Even more importantly, every incentive in the industry is to do the exact opposite.

Chuck Prince, who once presided over banking giant Citigroup famously said once that “as long as the music is playing, you’ve got to get up and dance.”

Prince ultimately resigned from Citi after the bank suffered massive losses in the credit crisis. Apparently his dancing skills weren’t up to snuff.

But consider the magnitude of that statement if you’re a young banker.

The guy who dominates your industry is basically telling you that you’ve got to get out there and keep dancing, even when all the indicators suggest that the market is about to collapse.

This pretty much sums up the financial industry today.

It’s not that these guys are stupid. It’s not that they can’t see the writing on the wall. It’s not that they’re blind to the tremendous amount of risk in the system.

The issue is that their jobs are on the line.

Finance doesn’t take kindly to mavericks. Despite all multi-million dollar bonuses and huge salaries, people have absolutely every incentive to follow the herd and continue putting their clients’ savings in risky investments.

Anyone who doesn’t tow the line is quickly fired.

This is nowhere close to ‘do no harm.’ It’s much closer to ‘screw anyone you have to screw to keep your job.’

Sound, safe, objective financial advice is a rare thing. And that’s why your ultimate financial decisions, like your health decisions, should never be outsourced.

If you don’t understand investing and personal finance, that’s not a reason to outsource everything to a money manager.

Rather, it’s a reason to educate yourself about investing and personal finance.

But like Hippocrates told us about health, it doesn’t need to be complicated.

Just like a brisk walk and a quality meal go a long way in promoting good, long-term health, sometimes good, long-term investing can be as simple as buying quality companies run by honest, talented managers.


  1. That's a great idea. Maybe we should also have politicians swear an oath to uphold the Constitution. What?
    Oh. Nevermind....

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