When it comes to investing in biotech, you’re going to have to do more research than you would with many other industries. Many investors simply steer clear of the whole industry because it can be difficult to be consistently profitable. Oftentimes it’s viewed as the type of sector best saved for gamblers who are looking for quick, explosive, and often unpredictable and unexpected movements.
To even begin investing in the biotech industry, you better have not only a solid background in financial fundamental analysis, but a science degree as well. Reports and information put out by such companies is often laden with technical jargon and studies. Only someone with a PhD in science would be able to fully comprehend the implications of this information. Moreover, this information and the time spent studying it could be rendered absolutely worthless if the FDA puts the kibosh on one of the company’s products. Oftentimes these companies have most of their eggs in one basket, and the simple act of being shot down by the FDA can have devastating affects on a company.
One option, to diversify your exposure in this market, and simplify your research, is to invest in a biotech ETF. There are only a handful of these ETFs, which greatly simplifies the research process, and each ETF has its specialty. If you want to leverage the stocks in the S&P Biotech index, go with the ProShares Ultra Nasdaq Biotechnology Fund (BIB). Maybe you want to dip your toes into every stock in the NASDAQ biotech industry. The iShares NASDAQ Biotech Trust (IBB) covers all 170+ stocks within that index, weighted for market cap, which means the bigger, more stable stocks are held in larger percentages than lower, often more volatile stocks.
Trading and investing in the biotech industry is not for the uninitiated. Even the ETFs can present problems of over exposure to one particular stock (in the case of market cap weighted funds), or lack of liquidity – none of them are traded at particularly high volume. If you want to take your chances and invest in biotechnology, do your own due diligence before taking the plunge.