Thank you for your kind words today, and some final thoughts

Tuesday, 7-April-2015

I wanted to take a moment at the end of the day today to say thanks a lot to those of you who sent well wishes about the index announcement.  The response was better than I could have ever expected.  I prefer to respond personally to all of you, but I also didn’t want to clog up the Twitter stream in the middle of an important day.  Nonetheless, I am very thankful for all of your support.

 

I also want to say thanks to those of you who offered comments, improvements, and general advice.  The great thing about social media is that it provides a natural platform for crowdsourcing, and there is no smarter crowd than biotech investors on Twitter.  I appreciate learning from you all every day, and I will consider the comments carefully.

 

Now that you have seen what the index looks like, here are some final thoughts on what I hope to accomplish with it.  There are four main goals I have:

 

1.  To show that biotech is not one thing -  There has been a lot of talk and confusion about “are we or aren’t we in a bubble” lately (I personally don't think we are, btw), and I think part of that has to do with the fact that biotech has inadequate indices.  All of the main ones like the Nasdaq Biotechnology Index and the S&P Biotechnology Select Industry Index are overly broad, and many are dominated by a handful of large holdings. 

 

One goal of the LCINDX is to show investors, especially those who might not focus on our sector, that biotech isn’t simply one homogenous thing.  The reality is that rare disease companies, for example, should be viewed differently than those that are developing drugs for broad CNS indications.  The same goes for cancer immunotherapy.  There are enough legitimate companies focused on immunotherapy now that they can, and should, be tracked as their own group. 

 

The LCINDX will provide a straightforward tool for doing that.  Investors, journalists, and other market watchers will now be able to quantify how immunotherapy stocks are trading during important times such as ASCO and other key events.  Also, you can bet that immunotherapy’s return will be a lot different than the return of those broader biotech indices over time.  The LCINDX will help draw that picture as it is happening live.

 

2.  To highlight cancer immunotherapy – The LCINDX is a rule-based index that was designed to have no biases.  Its purpose is to accurately measure the return of immunotherapy stocks whether they go up or down over time.  That being said, you can bet that I’ll be cheering for the group.  As we have seen with checkpoint inhibitors that have already reached the market, the immunotherapy approach holds a lot of promise in the treatment of many cancers.  I hope researchers are only in the early innings of unleashing its power.

 

The story of this promise is starting to get out there, but a lot of work still needs to be done on that.  A goal of the LCINDX is to give investors and the general public a better understanding of the immunotherapy sector by highlighting major companies involved and quantifying their progress.  I hope that highlighting immunotherapy in this fashion might lead to more awareness within the investment community, more investment in the field, and more progress for patients who battle cancer disease.

 

3.  To make biotech approachable to more investors - As those of us who have lived through it know very well, biotech has been the stock market’s best sector for the last five or six years.  Surprisingly though, 95% of investors have likely missed out on it.  An obvious reason for that is because biotech is a highly technical sector, and investors need to be educated in life sciences in order to pick individual holdings.  Many do not have the time, or the risk tolerance, to do so.
 

However, I am of the strong opinion that an investor does not necessarily need to be a pro if he or she wants to participate in biotech in an appropriate fashion.  Just thinking about the sector in a diversified way would have provided great outperformance over these last few years.  It is a shame that so many people have still missed it.  I am of the belief that more investors participating with a long-term and diversified mindset is a good thing, because additional investment from that can help keep the sector strong and fund next generation technologies for years to come.

 

To get more people on board might call for breaking down some barriers though, because biotech is not as approachable as it could be.  Most biotech indices and funds sound exactly alike, and it is hard to know what holdings they contain.  The current state leaves a lot of room for innovative, diversified financial products that are more approachable.  I hope that the LCINDX is one such thing that fits the bill.  By the Cancer Immunotherapy name alone, most people will have a good idea of what kind of stocks are included in the index, and I think that is how biotech products should be.

 

One of my inspirations for thinking about biotech this way came from an investing hero of mine, the late Sir John Templeton.  In the 1950’s he took another stock market idea that was understood by only a select few, international investing, and packaged it in a way that the general public could understand and participate in easily.  He also had the smarts to take action as globalization was going mainstream.  I think biotech calls for something similar as it goes mainstream now, and so maybe the LCINDX and other products like it can in a small way help move things in that direction

 

4.  To potentially launch an ETF in the future – Many of you who know me and follow me on Twitter are aware that creating biotech ETFs is something I have considered for a while.  For many of the same reasons I have described above, I think biotech could use more innovative products like ETFs.  Surprisingly, there are not many in our sector, and so perhaps there is an unmet need waiting to be filled.  However, good products cannot be rushed.  They need to be done right.

 

When the ETF concept first came out many years ago, most products were simple and based on well-known indices.  You knew exactly what you were getting when you bought them.  Then, as those basic ideas have been taken, we have seen a lot of developers of ETFs get very creative with their strategies.  Many of their innovations have been good and serve important needs, but maybe the same cannot be said for others.  That is why when it comes to ETFs, I am of the old-school mentality that the best ones are based on credible indices.  I feel it is important to float an index first, and let it stand on its own merits and earn public buy-in before moving on down the road.  This is the approach I am taking with the LCINDX, and perhaps if it is positively received, I’ll choose take the idea to the next level.  The feedback so far has been great.

 

Conclusion

 

Thanks again or all of your well wishes and thoughtful ideas today.  I am looking forward to seeing how the LCINDX progresses over time, and I’ll be thrilled if it helps your biotech investing in some way.  If you have additional comments or questions, please do not hesitate to contact me.  I look forward to hearing from you.

Who Am I?

I'm an individual investor from Kansas City.  My focus is on biotech stocks, but I enjoy investing in all industries. I'm an old-school, buy and hold investor who believes the best way to outperform and grow capital is to own innovative companies with good management teams over the long-term. more>>

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