Innovation: The Real Reason “Buy and Hold” Is Dying
Do yourself a favor and take a look at the chart below. It just might change the way you think about making money in the stock market entirely:
Pictured here is the three-month price history of a company by the name of Bio-Path Holdings, Inc. (NASDAQ: BPTH). As you can tell, the company exploded dramatically in value beginning early last month.
Practically on a dime, shares climbed from $2.10 in late February to as high as a $38.86 close in early March. At max profit, that means investors caught around a 1,750% gain off this little company, one that most people have never even heard of, in just a few days’ time.
Shares have come down a bit since the initial spike, but even if you were slow as a tortoise to sell this position, you’d still be up 790% today. Sounds nice, doesn’t it?
For perspective, it would take you over 45 straight years of compounding 10% returns to get that kind of payout.
For further perspective, J.P. Morgan Asset Management’s current capital return assumption for U.S. equities over the next 10–15 years is just 5.25% (annual). Morningstar pegs the number much lower at 1.8%, given a 10-year time horizon. Sounds pretty underwhelming to me…
Adapt or Die
Unfortunate as it is to say, at a time when buy-and-hold has become the mantra of modern-day money managers, the expected rate of stock market returns is ironically dropping across the board. What used to be an expected return of up to 10% a year is now in the mid-to-low single digits.
This, of course, raises the question of what is going on. More importantly, how do we, as investors, respond?
After all, should you really be keeping all your hard-earned capital in a boring, virtually stagnant ETF, when 1,750% returns are happening right under your nose? Probably not.
Economists and money managers will argue all day why expected returns are dropping, but few will recognize the true culprit behind the inevitable demise (or at least depreciating value) of a buy-and-hold strategy.
You see, while most of the financial world is busy obsessing over interest rates and traditional economic indicators, only a select few understand the external technological trends imposing themselves on the market right now.
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“Come With Me if You Want to Live”
It’s no secret that the rate of technological advancement around us has been increasing dramatically, and, with that, we now have disruptive forces that threaten the longevity of even the world’s most dug-in corporations and businesses.
We’ve all seen what happened to Blockbuster, J.C. Penney, Kodak, Borders, Polaroid, Toys “R” Us, Tower Records, Compaq, and a slew of other companies that have failed to respond to today’s rapid pace of technological disruption. As investors, it’s become essentia l that we adapt and respond to these changes, otherwise be left in the dust ourselves.
That all said, let’s circle back to the chart of Bio-Path Holdings (NASDAQ: BPTH) pictured above.
What was it that caused this stock to explode 1,750% in just a few days’ time? Well, none other than the very same force that’s been killing buy-and-hold: technological innovation.
Specifically, Bio-Path exploded in March because it released data for a promising new cancer treatment that leverages a biological process known as RNA interference. On its own, that may seem like a one-off story, but in context, it’s part of a much broader trend.
You see, in 2018, we saw a record number of new drugs green-lit by U.S. regulators , with 61 novel drugs and biologics approved (more than five per month) last year. This is not a matter of coincidence but rather the current state of development in biotechnology.
Thanks in part to recent advances in AI and big data, knowledge and expertise within biotechnology is exploding, and as a result we’re witnessing levels of medical advancement unrivaled by any other point in human history.
Add this all together, and the takeaway is this: Investors are looking at an unprecedented opportunity to profit off disruptive biotechnology developments for gains as high as 1,750% (in a matter of days), while the rest of the market settles for pennies on the dollar.
From cancer to heart disease, medicine is truly on the precipice of a new age, and investors now stand to make a killing off these incredibly valuable new treatments.
If that sounds at all like an enticing opportunity to you, I urge you to stay tuned over the next several weeks.
Our free biotech-trading webinar is currently scheduled for April 18 , and it will clue you in on everything you need to know to be able to succeed trading biotech stocks . Registration opens next Tuesday (April 9), so be on the lookout if you want in on the action.
Until next time,
Jason Stutman
Jason Stutman is Wealth Daily’s senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.