Investing is Hard Work, Just Ask a Pharma.

Headline:  Investing can be hard work, just ask a pharma.

Date: 11/17/2020

Body: According to this article at Yahoo Finance, Mr. Warren Buffett is making a very large bet on Big Pharma.   Please see the article in full, at the following link

https://finance.yahoo.com/news/warren-buffett-stock-moves-in-third-quarter-212734618.html

Now, Mr. Buffett is an investing genius, and has decades of hard-won experience and hard, hard work behind him, and I cannot believe that he’d make a HUGE mistake making these investments.   But, in case you need a reminder, I am not Mr. Warren Buffett, and I don’t believe you are either.  (If you are reading this, Mr. Buffett, please don’t laugh too hard at my less than perfect style or knowledge.   You might get Cherry Coke up your nose, if not cautious.)

Jokes aside, it might seem a no-brainer to invest in Pharma stocks.  In the short term, there is vaccine production and distribution to be done, and a lot of government money being earmarked to encourage this.  In the longer run, the Baby Boomers are aging, and older people consume more pharmaceuticals, usually.  So, yes, a cogent argument COULD be made to make such an investment.  But, a lot of mistakes could be easily made.

How does one make a good decision regarding potential investment in this area?

Well, that is the nub of the rub, isn’t it?   In fact, most people are NOT doctors, and cannot completely understand the science behind vaccines.   Those who are doctors don’t often have the business connections that Mr. Buffett and his trusted colleagues have to fully evaluate who is the most probable to profit by vaccine sales and other responses to the pandemic.  To say it differently, it seems clear that there will be some companies that do well, but, which ones?  I suspect that Mr. Buffett and his colleagues are paying VERY close attention to clinical trials and actively working to decide who has the better mousetrap.  Or virus-trap, whatever you like.

Investing in the “Wrong” company could make you feel ill.

If you invest in the wrong company (and that would be SO easy to do) , it will not bankrupt you, because you can only lose the money you invested.  But, if you incur debt to make your investment, and the stock goes down, you lose.  Worse yet, if you decide to short-sell the stock, and the price increases, there is no limit to your exposure.  The key word here seems to be caution; Investing here could be very profitable, but, know that you’ are gambling, and ensure that your other needs are covered first, then you can feel somewhat justified in making this investment, in the normal manner.

It is important to know that the current vaccine race is just like any other time you might try to invest based upon current events: Sometimes, you have to face that you might not have the expertise to make the call.   Take, for instance, the 2 seeming front-runners on the “Vaccine scene.”   Pfizer has developed one vaccine that seems to be effective in 90% of the subjects they inoculated.  Moderna has a different vaccine that seems to be effective in 95% of the subjects that they inoculated.   Add this to the fact that the latter vaccine has a 30-day shelf life and the former has less, AND the one from Moderna can be kept in an easily-available refrigeration unit (Whereas the one from Pfizer needs to be kept in a VERY sophisticated one that gets a lot colder) and your choice seems obvious.   But, Moderna is a pretty small company with a market capitalization of about $39 Billion, and Pfizer is a huge pharma company with a market cap of almost $208 Billion and you can clearly see that there is a monumental difference in size.  This difference in size could allow Pfizer to either develop a better distribution strategy or buy out the smaller company entirely.  Either one could potentially leave you with a relatively bad hand of cards.   This example might be a bit complex, but it is illustrative of the technical differences that can make an enormous difference in stock performance.  (And, this is all BEFORE politics is figured in.)

So, what are we to do?

If you are a normal human being (like me) with a job not in this particular field, I would recommend that you do not invest to take advantage of current events.    You should talk to an advisor and devise a plan that makes sense no matter what the conditions of the market.  

REFERENCES:

Pharma Stocks Poised to Move Higher (investopedia.com)

Best Pharmaceutical Stocks to Buy in 2021 | The Motley Fool

How to Buy Pharma Stocks | Investing Advice | US News

14 Best Biotech Stocks for a Blockbuster 2021 | Kiplinger

Welcome!!

Welcome to my blog called, “The Drew Line.”   The main objective of this blog will be to start with a discussion of a financial topic in the mass media or seen on one of the many credible websites.   I will make reference to this primary material and provide a link to that original material.   In addition, I will consider similar information from a different point of view.   So often, I read these financial articles and I have fundamental problems with how they present information.   Very often, to make the article timely, the author will focus on a very narrow question related to a larger issue.   Only a few scant sentences are used on this background information.   I envision The Drew Line as an attempt to add this background information, to better inform you about information you are hearing presently in the media.

To those of you who are still awake, THANK YOU!!  It is also my objective to make this blog as interesting as possible.   Over the years, as a society, we have added cumulative layers of complications to financial matters.  But, when we strip away the confusing words (usually written by accountants and lawyers, trying valiantly to either put us to sleep or convince us that they are brilliant) we often find that there is a pretty good reason why a law was passed, or why a procedure is used.   Often, there is an interesting story (well-hidden) within this occurrence. I will attempt to elucidate this kernel of logic to the best of my ability and present it in an entertaining manner.

Each blog entry will be rather short, 500-700 words will be the standard length.   This allows for a comprehensive overview of a topic, but it is short enough to be able to read it quickly, in the midst of the madness of a regular day.  For those of you who would like to know more on a topic, I will add a section at the end of each post, called, “References.”  In this section I will add 3 or 4 excellent references on the topic, culled from only credible sources.

I realize that this is a rather august set of objectives, but I think I am fairly well-equipped to take on this challenge.   In 2008, I obtained my license as a CPA in the State of Maryland.   In 2012, I obtained my certificate as a Certified Fraud Examiner from the ACFE.  And in 2015, I finished my MBA at Frostburg State University.  Also, I have been employed by the IRS, in various positions, since 2008.  All of this has given me a good broad view of the financial field, and more importantly, a thirst to know even more.  This, more than anything else, is the passion I want to share with you.

I very much look forward to “seeing you” as I present other blog posts.  Please feel free to add comments.  I will make every attempt to reply to as many as possible.  Further, while on my website, please feel free to look around.   I plan to add several resources that you might find useful or entertaining (possibly both.)   Please stay tuned: This blog and website are a work in progress, and I am excited to learn and  I appreciate your input and contributions.  In particular, if there is a subject you would like me to address, I would be interested to know of it.

Thank you for your attention.   I look forward to our conversations!

Andrew W. Kolody, M.B.A., CPA

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