Over the holidays, I found myself commiserating with my father about the fact that no one warns you that the human body starts to break down around age 45. We don’t bounce back from an injury like we used to, and those small, irritating pains become “conditions” that must be addressed.
Our bodies should come with some sort of meter that measures how many months of pain-free living we have left. After that, we know that we’ll become all too familiar with drug names and co-pays.
Of course, whatever ailments those of us in Gen-X are feeling surely pale in comparison to the health-care problems faced by the boomers. At Dent Research, we measure populations empirically, from the bottom to the top of population waves. The boomer generation wave started in the late 1930s and peaked in 1961, and includes more than 90 million people.
At this point, the entire generation has crossed over the great divide of age 52.
This isn’t the age when AARP kicks in, or when the typical person starts to forget where he put the car keys. Instead, per the Consumer Expenditure Survey, 52 is the age at which spending on pharmaceuticals and other healthcare items ramps up exponentially.
With over 90 million people driving up their healthcare spending, this sector should experience phenomenal growth for years to come. The fact that most developed nations around the world have large, aging populations just adds more fuel to the health-care fire.
But you knew that.
With Age Comes Drugs
No one is surprised to read that people over 50 consume health care at a faster clip than younger people. No one is surprised to read that nations across the globe are aging. What might surprise you is how we can now leverage this knowledge — by combining it with a new source of information — to find profitable investments.
Our research combines population trends and predictable consumer buying patterns to estimate how economies will change for years to come. The great thing about the data we use is that it changes very slowly over long time frames.
This gives us great insight when forecasting overall economic expansion or contraction, and even points out which sectors of an economy should outperform or lag behind. The data shows health care as one of the clearest winners for years to come, but it doesn’t identify which companies are most likely to profit from these trends, and doesn’t tell us when to buy or sell.
For that, we have to look elsewhere. Like just about everything else these days, the answer is on the Internet…but probably not in the format you’re thinking about.
Most companies develop new products and services over time, asking potential buyers what features and benefits are most important to them, and then roll out their new wares amidst a marketing campaign. Health-care companies, and more specifically, drug companies, are different.
They know ahead of time what sort of demand exists for a given treatment because their potential market is based on the number of people diagnosed with a certain disease or condition. The problem with developing new drugs is the cost and scope of clinical trials and approvals required before the medicine can be sold.
Now, there’s good reason for the process, even though it currently seems more onerous than it has to be. That said, every step along the path to approval leaves a new drug open to the possibility of failure.
So drug companies pile a bunch of money into what are seen as the most lucrative potential areas of treatment, and then wait on pins and needles as the results of each clinical trial and every approval hearing is released.
As information on drug trials and approval hearings is released, it spreads across the Internet in seconds. Watching for, and trading on this data is common. It makes sense that investors would want to get involved with a promising new drug, or quickly get out of a company whose latest compound just failed in a clinical trial.
But this approach doesn’t give you an edge, since the information is available to everyone, including high-frequency traders and professionals who can react faster than the average Joe.
That’s why, instead of watching the releases on clinical trials or approval hearings, it’s more advantageous to watch how other people react to the news. In particular, we want to track whether people think the stock of a drug company is set to go higher, or is expected to drop.
New Tool for An Old Problem
Ben Benoy is the latest addition to the Dent Research team, and his research does exactly that. Using software that he developed and programmed, Ben monitors what people are saying on the Internet through social media sites like Twitter and Facebook about different biotechnology companies.
Ben’s program also keeps track of what each individual said about the stock of each company (expected to rise or fall), and then compiles a virtual track record for them. This way, his program can give more weight to those who have been right in the past, and better predict which companies are likely to yield profits.
The best part of Ben’s program is that it’s unique; his nearest competitors simply track the number of times a company is mentioned without the level of sophistication that Ben brings to the process. In this way, Ben has combined the best of both worlds — our existing research and his new approach.
In the sector that our analysis identifies as one of the most favored for years to come, Ben uses social media in a way that no one else does to parse out positive and negative trending information, resulting in high probability trades.
With healthcare representing a growing share of GDP as our population ages, finding a better way to profit from it than simply buying an industry ETF can help us all.
Now if only Ben could use his Internet skills to find the cure for back pain or failing eye sight…
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