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When silence isn't golden: How to have a say in your business deals

Physicians commonly buy minority stakes in other businesses, and they commonly lose money. There are ways to protect your investment, even if you don't have a voice.

By Katherine Vogt, amednews staff. March 15, 2004.

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In the early 1990s, radiation oncologist David Moylan, MD, was offered a chance to invest in a semipro basketball team in Pottsville, Pa., called the Stingers. Dr. Moylan kicked in $2,500 to become one of about a dozen minority investors helping to start up the Atlantic Basketball Assn. team.

"It was relatively small sum, and there were various perks you had as an investor as far as premium seats and meeting the players," he said.

The Stingers might have been a fun investment for Dr. Moylan, but they weren't a profitable one. He lost his investment the first year. He lost another $2,500 he invested the following year. The team, and the league, eventually ceased operations.

Buying a small stake in something that sounds exciting and potentially profitable, only to lose money, might sound like a familiar tale. That's because it is. One financial adviser, Marc Singer, estimates that 80% of physicians lose money buying a minority stake in a business venture.

Another name for a minority investor is a silent investor, because the person putting in the smaller stake tends not to have a say in the direction of the business. The odds are so bad in making money from being a silent investor, some financial advisers say, that physicians should think more than twice about entering that kind of arrangement.

"Physicians have to be extremely cautious, because a minority or silent investor has virtually no rights. They don't control the operations, they don't control when the business can be sold, they don't control dividend distributions. And lack of control means a significantly diminished value of their interest in that business," said Singer, a financial adviser for physicians with Singer Xenos Wealth Management in Coral Gables, Fla.