Sick Economics

Searching For Healthy Profits In The Stock Market


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I love to go to Las Vegas, but the truth is, I have never been much of a gambler. I am attracted to the lights and the action, the color and excitement, but I don’t have much of a stomach for gambling, and frankly I find the math to be a bit confusing on the more complicated games. I will play a few nice hands of blackjack just to be “in the game,” and get a taste of the excitement.

There is nothing wrong with doing the same with your biotech investments. In fact, if you had plunked down $10,000 10 years ago in the Ishares Nasdaq Biotechnology Index, today you would have $34,820 for a total return of 248% (13.29% per year). How is that for a taste of the action!?

As we discussed previously, index investing is a way to invest in the long term progress of science and technology without having to deal with the splitting headache of guessing which company will find the cure for cancer. All you have to do is choose the right basket of stocks, which shouldn’t be hard to do because all three major indexes have grown like wildfire over the last ten years.

The ishares Nasdaq Biotechnology Index is the broadest sample of the biotech world ranging from mature companies such as Amgen to promising newcomers such as Editas Medicine. If you want to capture the essence of biotech world in just one ticker symbol, IBB will do the job.

If you want to underweight the stalwarts of the biotech world in favor of newer companies still in hyper growth mode, then the First Trust NYSE Arca Index will work well for you. Many of the companies in this index have reached profitability and a degree of respectability, but the index eschews “old line” biotechs that some analysts feel have “maxed out” on growth. This index has returned a whopping 281% over the last ten years, or 14.47% annually. If you can find better compounded returns than that without joining the mafia, congratulations.

Finally, if you want to drink the hot sauce right from the container, put your pedal to the metal, or go “balls to the wall” as they say in the frat house, then the S&P Biotech ETF is your play. This index focuses on the “young punks” of the biotech landscape; more than half of the companies on this index don’t even have an approved drug on the market yet. If there is a cure for cancer out there somewhere, it would most likely be found somewhere in this basket of names. These “speed demons” have produced a 287% total return over the last decade, multiplying $10,000 into $38,774. Not bad for a group of companies with little more than a petri dish full of dreams……

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