Anyone who has ever attempted to make money trading has learned the lesson all too quickly that timing is everything. Some of the world’s greatest investors have lost nearly everything because their timing of the market was just slightly off. Without getting into individual names, we saw this among some of the greatest value investors in the late 1990s when they bet against internet stocks only to throw in the towel just before the peak, and then more recently in 2011 when some big-name investors went long European sovereign debt only to cover just before yields peaked leading to one of the biggest bond market rallies of our lifetimes. In both cases, the thesis was spot on, but because they were just a little too early, they ended up with nothing (literally in some cases) to show for it.
While the recent performance of biotech stocks hasn’t exactly been monumental, it does provide another example of the importance of timing and the market. With a gain of over 15% in the biotech ETF (IBB) since mid-June, just about any trader will tell you that it’s been a good few months for the group. However, looking at how that performance has been distributed over the last four months, all of the gains have come over the course of just nine trading days. The first leg of the rally came in mid-June when IBB surged 9% in four trading days. For the next two months, IBB did nothing until late August when another four-day rally pushed the ETF higher by 6%. Then from the start of September through yesterday, IBB did nothing until rallying modestly today. So yes, the last four months have been a very good time to be long the biotech group, but if you were late getting in, or tried to time the moves by getting in and out, there’s a good chance you’ve missed out on most of the move.
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