Doctors order a lot of tests.
Let’s be clear, most of these tests are quite good and help with diagnosis and management. They can help hone down a wide differential diagnosis to a single diagnosis. Once a diagnosis is made, additional tests can help guide physicians on the best treatment.
But there are some tests which are not necessary to order. In some scenarios, the next step in management (whether it be treatment, observation, or another test) is the same regardless of the results of the test. Medical students and residents are taught the adage: “Don’t order a test if it won’t change your management.”
This teaching has applications outside of medicine, including in personal finance.
A medical example
For readers outside of medicine, let’s look at an example of this principle in practice.
The classic scenario I was taught in medical school to illustrate this teaching was the decision to order a CT scan for a patient with clinical signs and symptoms of appendicitis. Appendicitis is a clinical diagnosis, and many patients will come into the ER with all of the textbook signs of appendicitis. There are radiological signs of appendicitis on a CT scan, but you can’t be 100% sure it’s appendicitis until a surgeon goes in and cuts out the appendix.
It can be very appealing to order the CT scan to “confirm” your clinical diagnosis of appendicitis. If the CT scan shows imaging findings indicative of appendicitis, then the ordering physician can feel more comfortable with his clinical judgment and refer the patient to general surgery for an appendectomy.
But what if the test is negative? The patient still has all the clinical signs and symptoms of appendicitis. You don’t want to allow the patient to worsen before intervening if they have appendicitis. Even if the test is negative, you would probably still refer to general surgery, who would remove the appendix.
It doesn’t make sense to order the CT scan if you’ll refer to surgery for an appendectomy regardless of the result.
Therefore, ordering the CT scan actually did not change your management, which was to refer the patient to general surgery for an appendectomy. So should you have ordered the CT scan? No! CT scans cost money to the patient and the healthcare system and expose (typically young) patients to unnecessary radiation.
Now, I understand that the ordering of a confirmatory CT scan in appendicitis cases may or may not be routine depending on the emergency room physician or general surgeon, but the principle is clear. If there is no chance that you are going to do anything differently based on whether a test is positive or negative, then you should not order the test in the first place.
Are you checking your investments too often?
How can we apply this principle to our lives outside of medicine? Here’s one example: don’t check your investments so often.
Many people will check their stock investments on a daily basis, or even more commonly than that. Are you going to act on the movements of the stock price? No, or at least you shouldn’t.
Let’s look at a decision tree of your investment decision-making based on how the stock market is doing today.
After looking at this diagram, it seems a bit silly to be checking your stocks multiple times a day, right?
Not good reasons to check your investments
There are many reasons why people like to check their investments more frequently than they need to.
It’s easy to get glued to the television screens or phones when the stock market starts falling. However, the only thing checking your investments does is sow anxiety and panic, even if you don’t act on the information. And if a drop in the market causes you to sell, then checking your investments has possibly hurt your investment performance.
Some people might say that they need to check the stock market on a daily basis so that they can take advantage of tax loss harvesting opportunities when the market falls. Unless you live underneath a rock, you won’t miss big market drops. When the markets start falling, financial news becomes front page news.
Others might say that you should check your investments so that you can catch any unauthorized transactions before they happen. In this case, you should probably make your login more secure, taking steps such as using two-factor authentication, and having e-mail alerts for transactions that might be suspicious for unauthorized activity.
Finally, my suspicion is that people check their investments too often because they are anxious or are looking for a rush from checking their investments. They worry about whether they are on track to meet their investment goals, or they might have a brief celebration when their stocks have a big gain. Ultimately, this type of checking is not productive. Whether you meet your investment goals isn’t determined by a single day’s stock move. It’s determined by sustained investment over decades. And why celebrate if your stocks have a big gain? It’s only paper gains until you sell it — and you shouldn’t really be cashing in your gains until retirement anyway.
We were taught as physicians to only order a test if the results will change your next step in management. I think that most physicians check their investments too frequently, as daily stock movements should rarely affect your investment decision-making.
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