It's been a while since I've posted. That might be a good thing....I don't know. My rant is healthcare over which I see dark clouds this way coming. I will get to the point.
I am selling down healthcare in the portfolio and raising cash. I have five (5) funds.....four (4) will get downsized; one (1) will be increased. As the market has dropped so much, it has taken healthcare with it this time.....moreso than before. As I look at charts of my funds, most have a rollover top, it seems. Looking at 3- and 5-year charts, I don't like what I see. Also, with Bio and Pharma in the news lately, I fear much more to come. As the government gets more into legislating it, I see this as a precursor to cost cutting across the board. I see a sun setting on these things rather than rising. As you know, I still work....many of you do not. So, you may not see the healthcare prices as much. After many years of rate increases and copay increases (times that by millions of people) along with college students who have loans to pay, are you surprised to see the economy slowing? A co-worker of mine went to the doctor last week----twice! Each time, the visit was $177.00......no meds included. He's a family man with three (3) kids. How does that work out???!! I feel all healthcare prices must fall and will, I think, as we head for deflation. So, I will step aside for now as I am going to raise cash. I believe we've seen the top of the market, and a bear may be near. As I do not want to be a pig as I've owned these funds for years and only added to them, I feel it's time to.......ring the register.
God bless.
the Pudd
Comments
Derf
Healthcare is insane in this country and it is increasingly crowding out spending on other things. I don't think we'll get a revolution in healthcare in this country - which will require difficult decisions and massive cooperation and care that allows innovation to still occur and risks to still be rewarded - for a very long time. Very, very long time. We have a government that always seems to be looking for easy, quick answers. There is no easy, quick answer for the healthcare situation in this country.
Healthcare is predicted to reach 20% of GDP by 2020 and it will probably happen.
how-countries-spend-their-money
Like you I'm a bit concerned about Hillary's comments not so much specifically but rather more generally that there may be efforts from the government to stick more dirty little fingers in the pie. Most times they do that, however, the effect is to take more out of your co-worker's and Derf's pocket rather than to have a big impact on the companies. I figure it will be a few years before we really have to worry about that and in the meantime I think there are still a lot of opportunities in smaller emerging markets where healthcare spending is still very low and in foreign developed markets and bigger emerging markets where the demographics and aging are worse than in the U.S.
Good luck!
Wait, is the thinking here that gov is responsible for healthcare costs? Seriously? Wait till you see how cheap and efficient Medicare B (and parts of A is; you'd wish the gov ran everything like that.
There will always be a market for improved compounds, and legislators can't dismiss the fact that the cost to bring a new compound to market is currently around $2.8 billion according to a recent Tufts study. Companies incur these costs during development, and need to recover these costs and then earn a profit to account for the compounds which failed during the clinical trials process. Take away that last part, and say goodbye to new drugs. Even a dysfunctional Congress won't do that. Common sense says they won't, and lobbying dollars provides insurance that they won't. Congress may indeed examine the profiteers...the folks coming in and buying compounds out of patent and jacking up the fees....which doesn't directly impact the investor, as long as you don't invest in those engaged in this practice.
Start ups will continue and prosper, as big pharma needs an ever-increasing revenue stream, and it's sometimes cheaper (and easier) to buy revenue than develop it. Of course, that is not a new discussion.
press
It's good to hear from you. Your post caught my attention. The weakness you allude to is only the beginning, I fear. While you talk about foreign and emerging markets, they don't pay the bills of these companies----we do! We are the richest nation on earth----where would you go to make money......to the poor?? I think not. I saw somewhere over the last 20 years......during the years of the presidential cycle, healthcare has lagged badly to the overall market. I see no change in that this year. This is one reason that I will stand aside----even though we differ, I value your opinion on this board of many.
God bless.
the Pudd
My previous comments on precisely this point are here:
http://www.mutualfundobserver.com/discuss/discussion/23691#Comment_69036
Meaningful statistics on health expenditures by country can be found here:
http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS/countries
Regarding the projected growth to 20%, it may very well be true, but it would be nice to have a source (and a year when the projection was made). The rise in health care costs has slowed over the past few years (even allowing for this years faster growth), while GDP is much higher than during the Great Recession. Those two trends would tend to push out the year in which health expenditures exceed 20% of GDP. But I haven't analyzed projections.
I like what you say......again, 2016 is elections. No one cares about profits or companies.....it's about the self-serving politicians and what they say about things. Think about it! Per visit, who will you vote for? These companies will fall with every comment......think the Fed on steroids for 2016. Nothing goes on forever. The bull is old and healthcare has been the star so........sell the winners and get the hell out! Just one man's opinion....
God bless.
the Pudd
Sell the winners and get the hell out.....and then do what?
"There is no reason anyone would want a computer in their home."
Ken Olsen, founder of Digital Equipment Corporation, 1977
press
Although I don't recall all that I did in my early years; a few reflections that come to my mind regarding pre- and election years relative to healthcare and any kind of "special" profit taking:
year 2000: kinda hard to measure, in light of the "dotcom" melt in March of this year
year 2004: don't recall...'cept working too much
year 2008: well, a lot of market melt to go around, eh?
year 2012: coming off of a short lived market melt in late summer of 2011
year 2015 into 2016: a money rotation perhaps is in place.......that would be profit taking
FSPHX was selected as a long time and sorta middle of the road healthcare, active managed fund. Yahoo was the easiest graphic for annual returns going back to 1982.
You'll have to sort if there is a connection to election years and healthcare.
https://finance.yahoo.com/q/pm?s=FSPHX+Performance
Sidenote: Hedge fund smarty Kyle Bass continues to pursue pharma in particular regarding high customer costs. The law suit thing and related. I don't have a current story link, but this has been in play since about the beginning of this year.
Lastly.........the biggest and unknown cycles may indeed be the hugh sums of monies that move in a heart beat. I don't know of a way for this small time investor to measure this without a delay that will affect sells and buys. The closest tool I could use would be moving averages. Few touch downs and hoping for field goals while moving between the 30 yard lines on the investment fields.
Take care,
Catch
I believe healthcare, along with tech, utilities, consumer discretionary, et. al. are all components in a well balanced portfolio.
One of my earliest learned recommendations, was to not let politics influence investment decisions...I guess that is my best advice. And remains in place to this day.
press
I come to the board of many to learn my skin is thick and my patience is long. Your opinion is valued.
God Bless.
the Pudd
FWIW
On the other hand, indirect costs, like the costs of providing the roads used, are not. But these infrastructure benefits tend to be spread across all aspects of life. If one allocates their costs to each area of national expenditure, it isn't clear that this would alter the percentages of national expenditures for healthcare and other areas. "Middleman" sounds like insurer. I'm inclined to think that high costs come primarily from elsewhere. The ACA ensures that no more than 15% - 20% of insurance costs go toward paying overhead. Medicare spends about 1/10th as much. Which leads to ... Medicare is good at negotiating rates, undoubtedly. While service providers claim poverty, the rates are supposed to be set at the average cost of providing services.
Assuming these write offs result in cost shifting (from Medicare patients to "full freight" patients), that shifting of expenses doesn't increase expenses - it just affects whose pockets the money comes from. So this isn't a factor anyway in how much goes toward total (national) health care expenditures.
There are lots of costs, lots of places for improvement. But when simply calculating how much of national expenditures go toward health costs, all that matters is the grand total - not why it is so high or who pays it (just so long as payments aren't omitted).
I think you are going to prove to be a wonderful contrarian indicator for the healthcare and biotech sectors. I am a buyer not a seller and I am targeting the ETFs (FXH and IBB) and several of the stocks that have corrected substantially following Hillary Clinton's comments. I am not talking about unprofitable gene therapy, orphan drug stocks and other pie-in-the-sky micro caps. Rather, I am talking about stocks that are already profitable. If the stock market has an end-of-year rally - and I believe it will because investor sentiment is so negative and fearful - you can bet these sectors and their stocks will participate.
Biotechs have had a historic run from late 2011 into the middle of this year and are now in the process of giving back a big chunk of the gains. Unfortunately, the losses always happen much more quickly than the grind higher when a momentum trade goes bad. [...] Non-committal traders crowd in and then flee at the first sign that the easy money isn’t rolling in like it had been. Margined players get blown our as true investors clutch the fundamental story to their chest like a rosary. They repeat a mantra of sorts under their breath as the selling intensifies, “it’s cheap on next year’s numbers, it’s cheap on next year’s numbers.”
And if you think, "well, of course I'll sell my biotech sector fund; after all, assuming even an elevated annual average of 15%, I've received 25 yrs of return in 4 yrs, so geez what a no-brainer" but then think, "but no need to sell/trim my healthcare sector fund, because that's an entirely different animal," you really should check under the hood about your specific fund's holdings before giving it a pass:
http://www.crossingwallstreet.com/archives/2015/10/what-makes-up-a-sector.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+Crossingwallstreet+(Crossing+Wall+Street)
Recently, I mentioned that the Healthcare sector contains biotech stocks which behave quite differently from the rest of the sector. The market seems to treat Biotech as more tech than bio. [...] Here’s a look at the relative strength of the Healthcare ETF (XLV) in black along with the relative strength of the Biotech ETF (IBB) in red. I was shocked by this. While the two lines have similar nooks and crannies, the behavior is very different. It’s as if the IBB is like a highly leveraged XLV.
I am a bit to the point with healthcare that I really have to cool it at this point with adding more, but I honestly have very little concern about the healthcare names I own and while the recent move isn't pleasing, I really haven't stressed over it.
Thought about CVS if it got into the low $90's recently but doesn't look like that will happen. Own Walgreens (WBA).
This fund swung with great abandon, which probably isn't too much of surprise for those who participate in the bios. What I also observed though made me reconsider.
Swinging in the same direction pretty dramatically were several other holdings...VHCOX and POAGX because of their relatively high percentage of HC holdings, and VGHCX (of course), though it didn't swing as wildly as a pure biotech fund due to the breadth of its HC related holdings.
What I learned is that I have sufficient coverage in this sector, and will be selling ERNHX. I may sit on the funds for a single stock holding or two if I see something coming though trials which looks promising, but will be fine with my HC holdings at this point without the extra spice.
Listen....I will say this again, sssllllloooowwwwllly (lol)......I can only buy mutual funds....no ETFs.....no stocks.......only mutual funds. It's the only way my company will allow me to invest---until I retire. I have owned these funds for years, so I have only added, never sold. Healthcare has become rather large!! So, now I wish to sell a good bit at a high price and buy at a lower one, hopefully, next year as the Presidential rhetoric starts up. And they dogpile on this story. Healthcare will not be the story forever. So, again, mutual funds....
You have completely misunderstood what I posted. The mutual funds vs. ETFs point you have made is irrelevant. Your initial post states that:
1. "The healthcare sector has a rollover top",
2. "I feel ALL healthcare prices MUST fall and will..."
3. "I believe we've seen the top of the market."
Based on your statements above I interpreted your post as saying that you were liquidating all (or most) of your holdings in healthcare and biotech because you were calling a secular top in these sector. That is what I disagree with and what I am taking the other side of the bet on. I do not think we are on the verge of a bear market and if I am correct these sectors will participate. I cannot imagine a divergence between the entire healthcare/biotech sectors and the overall market.
If you meant to say that you were now overweight in these sectors because of profits you have made over the past 4-5 years and are rebalancing your portfolio, you did not say it very clearly.
If THIS post is not clear, I will repeat it v-e-r-r-r-y s-l-o-w-w-w-ly for you.
Hey, I owe you a big apology. I misunderstood your post.....and then proceeded to chide out of turn. My sarcasm was uncalled for, and I apologize. Hopefully, we will meet again on the board and you will see I can be clearer, more concise, and, yes, even more thought provoking.
God bless.
the Pudd
May God bless you with a quick return to healthcare and me with an opportunity to add even more at lower prices!
LLJB
What a tough question.....what will the future hold and what will I do? When Hillary got all twitty, FBIOX fell 6% or so, JAGLX, about 4%. As the race heats up and they come out with their "I'm gonna do this plan!," and they start to dogpile, I think, as investors, we will all see our own time to add to healthcare....as we all have different risk levels. So I say, watch the funds or companies you want and be patient. Let the game come to you. I hope that helps you.
God bless.
the Pudd