Biotechnology bubble, and the US market of Tuesday

Discussion in 'Stock Market Forum' started by WaveWage, Sep 30, 2015.

  1. WaveWage

    WaveWage Well-Known Member

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    Meanwhile Asian and next European markets will play its game, the Tuesday, September 28 results can be analyzed since Wall Street is closed since few hours now.
    Let's start with a summary: S&P 500 rose of 0.1% or 2.32 pts, meanwhile Dow Jones did +0.3% and +47.24 pts, but then NASDAQ got a drop with -26.65 pts and -0.6%.


    One of the problem for the NASDAQ loss is once again the biotechnology industry, that some expected to be a bubble. Facing its 8th day of losses, the Bitechnology index has fallen 27% since its July peak. The problem was the amount of the speculative money and the number of IPOs, creating a bubble probably exploding now.
     
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I like to buy promising biotech stocks (that have usually done well previously and are likely to do well again) when they sell off hard. A a good small cap biotech company with more than one good drug that sells off 70-80% in one day because of a slight issue with only one of those drugs is often a very good buy, for instance.

    With these companies, timing is very important. Because of this volatility, I don't think short to mid term fluctuations in the broad index is a very good thing to go by. Better to either be a good individual biotech stock picker (and timer), or else just not fool with the small/midcap biotech space at all. There are many other places to invest if you don't have the time, aptitude, and stomach to dig in and find the individual winners at the right time, tolerate the short term volatility, and take at least some profits on each at the right time.

    A good way for the advanced investor to take advantage of the volatility (both upside AND downside) of biotechs is to buy both puts and calls on each company you're speculating on.
     
  3. WaveWage

    WaveWage Well-Known Member

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    It feels a bit surprising they are so volatile. It feels like that today, markets does not believe in the biotechnology and feels like it can fail randomly, they can't really try to understand or predict how much it will give each year unlike other simpler industries, and because of that, at each news they meet, it feel like they are doing sell-off quickly just because of a random result or of some fears.


    The fact market has many places to invest, volatile and non-volatile is a nice thing. I'm just struggled to see that this market is so volatile when it comes to biotech, and so taking the better of the situation is "easier", but also more risky.
     
  4. turt

    turt Guest

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    Biotech is really risky in general. If a company only has one product bringing in revenue, any problem with it can take down the company. For one, the cost of developing that product is huge (leaves debt before any real profit). And they can't just sit on one product forever since it may become obsolete. So the next product could be a failure...
     
  5. WaveWage

    WaveWage Well-Known Member

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    I think also it is only of the only business that gets often covered by insurance companies or governments, depending of the country you are in. Basically, a lot of medical/health-related pills can get subvention at least partly by insurance and governments, and then it is often an high-price resource for not especially something really costly to produce, that's more the R&D cost dictating the price. So it is risky, yes, but it also faces less "consumer problems", if we talk about drugs.


    Now, if we talk about other, industrial technologies, if you succeed to make some kind of plastic with extra properties, you may have a patent with nice licenses for at least years without worrying. So compared to some other industries, I don't find that much risky. It's just we understand less this industry.
     
  6. crimsonghost747

    crimsonghost747 Senior Investor

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    Yeah biotechs are a confusing little bunch. Often it is just as you guys have mentioned, the whole company is basically resting on just 1 drug. If it succeeds, great, if not then ohh crap. That and the media is constantly and constantly talking about biotechs and that usually brings investors in... might be too much hassle for not much in my opinion.

    If I was more into short term plays then something similar to JRs tactics could work really well. But that's not my cup of tea so I'm staying away.
     
  7. WaveWage

    WaveWage Well-Known Member

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    I'm not sure it is short-term. I mean, when you get a loss of many percents (-27% since July peak), the time you will need for a recovery is months if not years, given a bubble just exploded on the matter. So for me, if I have to wait for 1.5 year for the results of an investment, I can call it mid-term, but I can't call it short-term. So maybe you should take a longer look at it before going away.


    About the biotech companies, it's not only based on the drugs, so yes some are based on pills, but other are building materials I guess, or sell it for more absurd tasks like keeping your ice cream from melting too much by making it more consistent with less fat usage (that's a real news, if you wonder, ice cream industry is really interested for this).
     

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