I'm newish to stocks and investing and trying to figure some things out. I've noticed there are some outsized winners in biotech - they either languish as penny stocks or go to the moon once there's an FDA approval, they get bought, etc etc.
I've also noticed that it's REALLY tough to figure out the biotech timeables, what will happen with experiments and approvals and getting to market, etc. etc. There's just a lot of uncertainty and the nature of the companies are research-based, which means they tend to lose money when they're small until they strike gold with a medical breakthrough.
So here was my back-of-the-envelope thinking:
There are currently 316 biotech stocks listed in Seeking Alpha.
What if I bought $10 in everyone? Would time take care of outsized returns? So I did a little theoretical calculating.
I know it's looking at the past, and the past isn't the best indicator for these particular stocks, but the back of the envelope math looks like this:
Investment of $10 each in 316 biotech stocks: $3,160
Price performance over the past 1 year of the top 5 of these stocks: 1,167.08%, 5,134.74%, 349.69%, 276.31%, 265.03%
Price performance over the past 3 years of the top 5 of these stocks: 2,396.58%, 1,416.98%, 1,193.48%, 1,113.03%, 941.37%
So just from the top 5 performers in this category, you could make $25,700 after one year, or $50,050 after 3 years. That's a lot of return! Definitely more than an index fund.
Again, this is just weird thinking and trying to figure out a "set and forget" index-style investing, except it's doing it in a hot industry that has outsized returns that are difficult to invest in because of the nature of these businesses, which are heavy on research when they're beginning and tend not to make money until they strike it big.
What am I missing? Is this crazy? I understand results change from year to year. And it's worth noting that of those 316 stocks, 218 of them lost value after the first year. Also, I don't know how many of the "winners" would've been on the SA list of biotech stocks 3 years ago. But this still seems like a model someone has tried or has thoughts about? Please show me what I'm missing before I throw $3k at this experiment lol...