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Is Investing in the Healthcare Industry Worth the Trouble?
2006 October 6
© 2006, Libertiny Financial LLC
Full disclosure: We’re not doctors nor to we play them in the movies or on TV. If you’re interested in the details of medical issues, consult with your doctor.
The human body is fascinating. It does some things very well. On the other hand, its level or robustness is low in certain critical areas. Examples include your heart (no back-up system for this critical pump) and your spine (a nightmare design unintended for its present use).
Let’s take a look at the spine for example. From an evolutionary perspective, the spine is based on a suspension bridge structure to support creatures that provide themselves with mobility from 4 points: Two arms and two legs. In this configuration, gravity exerts an evenly distribute load along a spine that is approximately parallel with the ground during most maneuvers. The benefit: Loads on the individual sections of the spine are relatively low.
There are a variety of reasons why over the course of hundreds of thousands of years (if not millions) we would transform into a creature based on 2 point mobility (legs). Unfortunately, this transformation places the spine in a compressive load position where it’s carrying much of the weight of your body on flimsy cartilage disks interspaced with bones (vertebrae). The surface area of this “suspension bridge turned on its end” is quite small compared to the total static and dynamic loading of your spine and this can cause displacement of the disks and fractures or movements of the bone. To further add to this mess, the major nerve run from your brain to your extremities is located adjacent to your spine. Protrusions of the disk and/or bone into the adjacent nerve bundle can cause a lot of pain. So many of us our now blessed with back pain. And, spinal injuries can be life threatening.
There are a variety of medical procedures that can be used to repair major injuries to the spine, but the most promising ones come from the bioengineering companies that are involved with the development of techniques to regenerate bone, cartilage, and most importantly: nerves.
Since we’re living longer and more active lives, the limited useful lifespan of our spine is driving the development of new products. So is it worth it to invest in companies that develop new bioengineering and medical products and procedures?
We’ve analyzed stock performance data from 15 companies that are involved in the healthcare industry. By using statistical analysis and calculus the results are very interesting. Over a two year period ending in 2006 July, Cumulative Growth has ranged from approximately -20% to +60%.
Of much more interest is the periodic nature of the swings in stock price (variance). Peak-to-peak swings occur monthly with most swings in the -4% to +4% range and extreme swings confined in general to the -10% to +10% range.
Bottom Line: Should you purchase stocks in the healthcare industry?
Unless you and your independent Financial Advisor are willing to commit significant time and money (both yours and theirs) to actively research and trade these stocks, we recommend not investing in individual stocks for this sector.
However, there are mutual funds available that include either a concentrated portfolio of healthcare stocks, for investors who accept higher risk investments, or diversified portfolios for investors who prefer a more conservative method of investing.
We do believe that this is a growth industry. It’s simply a matter of deciding which method you prefer.
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