A Fresh Dose Of Biotech Perspective

Warren Buffett liked to say, “It’s only when the tide goes out that you learn who’s been swimming naked.”

He should have ended that line with “swimming naked and swimming scared.”

Because whether it’s biotech or micro-caps (or this week, crypto currencies), a nasty bout of volatility tends to cause panic attacks for wide swaths of investors.

I know this all too well. Why? Because every time there’s volatility, my inbox overflows with pleas for explanations.

Over the years, I’ve learned that, just because people own something, that doesn’t mean they necessarily understand it. After all, there’s no test to pass before you buy a stock, right?

Sadly, many people don’t make the time to understand their investments until prices drop sharply.

With that mind, I’m serving up some fresh perspective today on one of my favorite sectors: biotech.

The goal? To clothe you with calm so you can carry on — and keep profiting, of course.

So let’s get to it…

Drawdowns Be Damned

As a follow-up to my April 26 perspective on the biotech sector, I wanted to share this key chart, courtesy of my friends at Bios Partners.

It shows pullbacks in the SPDR S&P Biotech ETF (XBI) for the last decade.

10 year performance spdr and xbi

For those unaware, XBI is a more relevant biotech index for me to track because it’s biased toward smaller names versus the iShares Nasdaq Biotechnology ETF (IBB), which is dominated by the largest names.

The purpose of tracking either of these indices couldn’t be more straightforward: It’s to understand what’s typical for the sector, so we can calmly weather the current storm. And as you can see, what we’re experiencing now is perfectly normal.

Or as Bios Partners told clients in a note, “Over the last 10 years there have been four material consolidations, each ranging from -29% (2014) to -45% (2015 to 2016).”

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