Parallels between a hospital and the stock market

Sitting beside me is an 11 year young boy. As I await the return of my 66 year old father from the operation theatre, he is awaiting the return of his 3 yr old young brother. His parents are out somewhere handling the hospital formalities. Opposite me is a couple whose 16yr old daughter is inside the operation theatre complex.

A good 3 hours later, I am called to visit my father who is now in post operative care. Out of danger and also without water for the past 18 hours a condition called NBM (Nil by mouth) was maintained to avoid complications related to surgical anaesthesia. There is only a slight hint of recognition in his eyes, but he does hold my hand. He asks for water but perhaps for the first time in my life I deny, not because I want to, but because I am forced to. Forced by his health condition & the needs of post operative recovery process. On an adjacent bed is the 16yr old girl whose mother is distraught on seeing her daughter not recognizing her voice.

Hospital for that matter is a great leveller. Young and old, urban dweller or villager, any religion any sect all sit awaiting news of their loved ones. Some sit beading a rosary, some reciting mantras, some staring in empty space occasionally disturbed by enquiring phone calls. But a common thread of hope & anticipation binds them all. No matter how rich or well networked you are, on the hospital bed you are at the mercy of the gods with the stethoscopes. You may have a huge villa adorned by a Mercedes or you may have the cutest grandchildren in a 600sq ft, all you want is to be healthy. To be free of whatever pain & discomfort troubling you. All other wishes and aspirations not only yours but also of your near ones are on hold, albeit temporarily.

Unlike the stock market which is volatile & waiting to swing at the slightest unexpected happening, a hospital is sterile, bland & driven by strict protocols. Despite all models & analysis of trend followers and astute chart readers there are no definite trends, no repetitions, no rules that the market follows during volatility & corrections. However a hospital has protocols from routine blood pressure measurement to terminal stage emergencies. Nurses and doctors exude utmost calm while delivering CPR, or while connecting the ventilator to a patient gasping for breath. They can't batter an eyelid while piercing the skin of a newly born premature baby or making an incision in the frail skin of a 80 year old. It is routine, a job, a lifesaving one and so has to be done. All empathy & emotions are to be left at the door. Compare that to the market which fluctuates by the emotional swings of the participants, between pessimism & euphoria. But you need the same calmness seeing your portfolio turn blood red as that of a surgeon watching a bleeding. The difference is that the surgeon has to act, to stop the blood flow, while you as an investor are often better off by not reacting to the bloodbath. “No action” is fatal in the case of a surgeon, but for an investor it could be beneficial.

Yet there are parallels to be drawn. The market won't be kind and considerate to a novice investor. It doesn't know that you, a veteran investor, has bought the stock. The stock doesn't know that you have studied the business well and have built conviction. Despite all complex analysis, calculations and good results indicating a rally, the lower circuits can hit you enough to knock the breath out of the windpipes. You may have strong belief in the management however the stock price doesn't care. John Maynard Kaynes has said that “The market can stay irrational for a time longer than you can remain solvent.”

This is similar to a disease which doesn't differentiate between the poor & the affluent. It spares neither the believer nor the atheist. In that way both markets and illness are democratic. They favor no one. The ones who study & are well prepared can avoid a dramatic erosion of their portfolio. Much like the person who exercises regularly & eats well he can avoid disease & hospital for majority of his lifetime. However during a correction even the well prepared suffer possibly less. Similar to the pandemic where even healthy individuals got infected. They couldn't avoid the symptoms but recovered earlier, much like the portfolios with quality stocks. They did fall during the recent corrections but recovered quickly. The portfolios with penny stocks, businesses with shady management, inflated balance sheets, non existent cash flows never saw the light of the day.

A hospital employs numerous people for a multitude of roles. There are the doctors, the specialists who attract patients based on their experience & reputation. However they are outnumbered by a huge amount by the staff. Nurses, lab technicians, assistants, non-medico administrative staff, cleaning housekeeping staff, security & facility managers. They run the show on ground and are the key enablers. They enable the doctor to use their skills, perform diagnosis & surgeries. Much like the market where the people with deep pockets can move the markets. The FIIs, DIIs & the ultra HNIs are often termed as the market movers. There actions are monitored closely by the other participants, say the retail investor who outnumber these market movers. However, their decisions can make the market rally or fall. If they happen to take a position in a stock, the stock sees heavy buying by the retail. While a negative commentary by large analyst firm can see the stock price sliding.

A few moments later the surgeon calls me in his cabin to provide an update about the surgery. I cannot help notice his calm words. He is brief and explains the complications involved and wishes me for the best. I can't help but notice his faint smile indicating an assurance that the danger is out of the way. In the next moment he walks out ready to tackle the next crisis, defeat the next adversary. I wonder whether at the end of the day, he reminisces about his score of the day. Of patients treated successfully and of the one who couldn't make it alive. Does the sight of deceased bodies, damaged organs & the final few moments haunt him in his sleep? John Watson the famous assistant to Sherlock Holmes was an army doctor and is said to be haunted by the gory images of war.

Psychologically an investor and doctor infact most healthcare professionals need to have similar mental make up. As we have seen earlier, an investor needs to have the calmness of the surgeon. At the same time he needs to learn from his losses rather than dwell and brood on them for long. It takes years to be a good surgeon and also it requires a doctor to stay updated with new guidelines, tools & modern treatment protocols. Same applies to the investor who needs to stay updated with the businesses that he owns. Constant learning as well as the skill to unlearn a few things. He need not know in detail about the business, however his awareness should be enough to enable him to take a decision on his holding. Investing is probabilistic and there are no guarantee of return. However, with proper due diligence, gradually built conviction and margin of safety during buying can avoid the heavy losses. At the end of the day, it ensures the investor gets a good night’s sleep. Patient, doctor, healthcare professional or an investor all need a peaceful night’s sleep. This depends not only on our preparation & execution but also on our psychological attitude towards failure & success. Let’s derive inspiration from the surgeon to stay calm, to focus on the job on hand, do it to the best of our abilities and have the courage to accept the result which is often beyond our control.

Let us together ride all the volatilities of life & markets. I have been a D.I.Y. investor since 10 years. Started with mutual fund and then graduated to stocks. I write about personal finance, markets and investing in this publication. I also have another publication where I write about my journey as a parent.

See you in the next post.