Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Energy sector is more than a falling knife. It seems to be in a price reset and so can wallow for a long time in price discovery. I believe something fundamental has changed in the trading instruments that resulted overstated demand or understated supply not just a physical demand-supply situation.
Biotech/Pharma may get to that stage once it no longer keeps producing high returns because a lot of the returns were from just money piling on to a hot sector. That creates volatility which is fine but I don't think most of the investment money coming via broad etfs and funds understand the risks in this space. Investing in clinical stage biotechs is like playing VC with startups where most of the exit upside has already been realized by the real VCs. They can simply cease to exist if clinical trials fail or FDA approval does not happen because of side effects. Bigger company pipelines are threatened because smaller startups would rather do an IPO or the acquisition costs are very high.
It doesn't mean the whole space is in trouble. Some companies will do very well but picking them is beyond the capabilities of retail investors and even some smart investors and they might not even care if too much money is pouring in. Problem with this rising/falling tide space via broad ETFs and funds is that it is subject to shocks from bad news from any company as happened with Celgene today. A very large number of companies in this space will eventually fail so there will be a sequence of bad news and the broad ETFs and funds do not provide enough diversification. Might be good if you are a momentum trader. There might not be enough gains over a longer period to show for all of the volatility.
The only thing I would trust in this kind of a market if one were to buy on dips is the S&P 500 and is likely the best one to pay off with such a move. It avoids most but not all of the sector-specific problems, currency problems, interest-rate problems, developing market problems and almost every other problem. US Economy is far from recession and all the investment money will have to go somewhere. Programmed money simply moves into such "safe" instruments to park the money other than cash.
Energy, pharma/biotechs, financials (who seem to have run out of lucrative proprietary trading ideas under increased scrutiny and don't make much in traditional banking) will be value traps for a while in my opinion even of there might be frequent violent swings up.
Obviously, I could be completely wrong about this.
In a comment to that thread, I threw in some data from Josh Brown and Eddy Elfenbein, showing just how historically wild the 4-5 yr returns had been, and added a quote from Josh Brown about what he thought would likely transpire: "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 so, here we are. For those who received over 25 yrs of return in less than 5, did you follow Puddnhead out the door, shouting "Is this a great country, or what?"; or, are you still clutching those beads to your chest, sipping your whiskey in the dark, wondering what oh what went wrong with the "fundamental story"?
@heezsafe, thanks for the link. It made interesting reading. Biotechs have been flat from that point not counting today's bounce.
It is like when you read a news report that seems credible and plausible. If you were a participant in the news or had inside information, the reports you read are almost always full of inaccuracies.
Same thing with investing. We make investment decisions within the narrow scope of what we know or can imagine but the reality is most often very different. Lot of times, it does not matter because you place a bet, the stock goes up for other reasons or as is more often the case, because a lot of people place the same semi-ignorant bets, and we think we have it figured out. When it does not, we blame the "other" investors, manipulators, etc or move our targets to a longer term. This is fine as a game app you play on a smartphone but trusting the entire retirement plan to it? Just nuts.
But that is the only game we have if you haven't earned enough via wages to make retirement without playing this game. What is insidious is that a whole industry is vested in doing exactly that convincing everyone else to play the game. That includes every broker and fund manager.
I really have to wonder why people buy individual stock because of the games being played within the companies to make their shares attractive to the "greater fool" markets we have. If you had visibility into any of the inner deliberations, you would never buy any company's share based on public disclosure unless you had that kind of visibility in which case you might be flirting close to insider trading territory.
Most of the wealth in the Bay Area comes from exploiting that market system of greater fools, not from playing it as another fool. Biotechs and Unicorns are currently doing so. Same is true of NY area I would think.
Comments
Biotech/Pharma may get to that stage once it no longer keeps producing high returns because a lot of the returns were from just money piling on to a hot sector. That creates volatility which is fine but I don't think most of the investment money coming via broad etfs and funds understand the risks in this space. Investing in clinical stage biotechs is like playing VC with startups where most of the exit upside has already been realized by the real VCs. They can simply cease to exist if clinical trials fail or FDA approval does not happen because of side effects. Bigger company pipelines are threatened because smaller startups would rather do an IPO or the acquisition costs are very high.
It doesn't mean the whole space is in trouble. Some companies will do very well but picking them is beyond the capabilities of retail investors and even some smart investors and they might not even care if too much money is pouring in. Problem with this rising/falling tide space via broad ETFs and funds is that it is subject to shocks from bad news from any company as happened with Celgene today. A very large number of companies in this space will eventually fail so there will be a sequence of bad news and the broad ETFs and funds do not provide enough diversification. Might be good if you are a momentum trader. There might not be enough gains over a longer period to show for all of the volatility.
The only thing I would trust in this kind of a market if one were to buy on dips is the S&P 500 and is likely the best one to pay off with such a move. It avoids most but not all of the sector-specific problems, currency problems, interest-rate problems, developing market problems and almost every other problem. US Economy is far from recession and all the investment money will have to go somewhere. Programmed money simply moves into such "safe" instruments to park the money other than cash.
Energy, pharma/biotechs, financials (who seem to have run out of lucrative proprietary trading ideas under increased scrutiny and don't make much in traditional banking) will be value traps for a while in my opinion even of there might be frequent violent swings up.
Obviously, I could be completely wrong about this.
Regarding the apparent demise of HC/biotech, it might be helpful to refer back to an October post by @Puddnhead in which he reported exiting his heavily-weighted positions and his reasons for doing so. He didn't propose it as advice, but his instincts have proven prescient.
http://www.mutualfundobserver.com/discuss/discussion/comment/69856/#Comment_69856
In a comment to that thread, I threw in some data from Josh Brown and Eddy Elfenbein, showing just how historically wild the 4-5 yr returns had been, and added a quote from Josh Brown about what he thought would likely transpire:
"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 so, here we are. For those who received over 25 yrs of return in less than 5, did you follow Puddnhead out the door, shouting "Is this a great country, or what?"; or, are you still clutching those beads to your chest, sipping your whiskey in the dark, wondering what oh what went wrong with the "fundamental story"?
It is like when you read a news report that seems credible and plausible. If you were a participant in the news or had inside information, the reports you read are almost always full of inaccuracies.
Same thing with investing. We make investment decisions within the narrow scope of what we know or can imagine but the reality is most often very different. Lot of times, it does not matter because you place a bet, the stock goes up for other reasons or as is more often the case, because a lot of people place the same semi-ignorant bets, and we think we have it figured out. When it does not, we blame the "other" investors, manipulators, etc or move our targets to a longer term. This is fine as a game app you play on a smartphone but trusting the entire retirement plan to it? Just nuts.
But that is the only game we have if you haven't earned enough via wages to make retirement without playing this game. What is insidious is that a whole industry is vested in doing exactly that convincing everyone else to play the game. That includes every broker and fund manager.
I really have to wonder why people buy individual stock because of the games being played within the companies to make their shares attractive to the "greater fool" markets we have. If you had visibility into any of the inner deliberations, you would never buy any company's share based on public disclosure unless you had that kind of visibility in which case you might be flirting close to insider trading territory.
Most of the wealth in the Bay Area comes from exploiting that market system of greater fools, not from playing it as another fool. Biotechs and Unicorns are currently doing so. Same is true of NY area I would think.