If you’ve ever watched The show “Mad Money” on CNBC, you may have heard the term “spec”, which is short for speculative investing.
A speculative investment is when you buy shares in company that is unproven, which makes its future uncertain.
A good example would be a developmental biotechnology company. Most speculative biotech companies’ fortunes depend on their ability to create a drug that can successfully treat a disease. If their clinical trials show results, they may receive FDA approval to commercialize their drug. However, the odds of FDA approval for most drugs are low, so these investments come with a great deal of risk.
I think every investor should have at least one spec in their portfolio. Just make sure you don’t overload your portfolio with them.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
If you’ve read any of my posts in the past, you know that I’m a big believer in investing in artificial intelligence as a way to build wealth. Another sector that I’m ultra-bullish on is biotechnology.
Now, biotechnology has the potential for great rewards, but it does come with significantly more risk. It’s just the nature of partnering with these companies. However, I think you should consider adding biotech companies to your watch list. Here’s why.
During an interview last year, Bill Gates was asked what he would be interested in pursuing if he were enrolled in college today. He said that the three most exciting areas are artificial intelligence, biosciences, and alternative energy.
I will admit that this is not the main reason I like biotechnology, but it’s a great place to start.
The reasons I like it are many.
Biotechnology has been around for about 35 years and is just now starting to hit its stride. We are on the precipice of groundbreaking innovations in areas like gene editing, CAR T-cells, and immunology. People are living longer, healthier lives; innovations in biotechnology are a major reason for this.
Another factor that is enormous is the demographic tailwind that is the baby boom generation. There are 70 million baby boomers. They have wealth, and will live many years after they retire. These 70 million people will demand drugs and medical innovations that improve the quality of their lives.
Let me give you a real-life example of how powerfully demographics can play in a trend. When Home Depot went public in 1981, it was around the time the middle class in this country was starting to thrive. The oldest baby boomer was around 32, and that’s around the time you purchase a house and start a family. As people started feeling wealthier, they started spending.
Imagine 50 percent of baby boomers buying a home. That’s 35 million people. This trend was an absolute boon for Home Depot and its early investors – so much so that a $5000 investment in 1981 is worth a staggering $45,000,000 today! Yes, you read that right – 45 million from a $5000 investment!
I think biotechnology is looking at the same tsunami of demand that will send companies’ shares into the stratosphere!
I will talk about various companies you may want to consider in an upcoming post. Until next time, Joes!
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
