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