Keep away from the hype, don't be tempted to put money into firms creating a Covid vaccine, advisors warn
This creative image, captured in a studio in Paris on November 16, 2020, showing a syringe and vaccine bottle with the logo of a US biotech company Moderna reproduced, illustrates the announcement of an experimental vaccine against Covid-19 from Moderna, which is nearly complete would be 95% effective, a second important step forward in ending the Covid-19 pandemic.
Joel Saget | AFP | Getty Images
A Covid vaccine will likely not be available to most people for months, but in the meantime, you might be wondering if you can invest some of your money in the companies that are expected to provide the treatments – Moderna, Pfizer, and AstraZeneca – implement and make a profit.
It's hard not to get excited about the news from the three companies. Their vaccines have been found to be 90% (or more) effective in clinical trials, and the world now hopes they will help end a pandemic that is killing millions, crippling economies, and turning our lives upside down has asked.
No wonder many experts are predicting growth in stocks. Moderna shares were up more than 600% in early December, according to Morningstar Direct. Pfizer and AstraZeneca shares are now up roughly 8% and 9%, respectively.
However, the hype surrounding businesses should just be a reminder that those following the most successful investment paths are ignoring the blinking lights along the way.
"I firmly believe that it is best for individual investors not to try to compete with traders in the current hot stocks because it is so easy to buy at too high a price and get burned," said certified financial planner Cathy Curtis, founder and owner of Curtis Financial Planning in Oakland, California.
Instead, it invests its clients in exchange-traded funds and mutual funds, which are baskets of hundreds or thousands of stocks.
Usually, knowing about a single company – in this case, being expected to deliver a successful vaccine – does not put you at an advantage.
"The market is designed so that information can be quickly incorporated into the price of a particular stock," said Matthew Schwartz, CFP, advisor at Great Waters Financial in Saint Louis Park, Minnesota. "The price of Moderna or Pfizer is already reflected in the fact that there have been positive studies.
"Buying the stock based on this fact and hoping for an increase would not be a good justification."
To make a profit on individual stocks you need to know something the rest of the market doesn't already know, said Allan Roth, founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado.
"I doubt I know anyone who doesn't know the spectacular Phase III preliminary results," said Roth. "That is the main reason why Moderna shares are up 644% since the beginning of the year."
It is often the things that we don't see coming that determine the fate of a company's stock price. (Who knew Zoom was going to become a household name before the pandemic?)
"What if the actual results don't match the study's results since they're now being used by a larger population?" asked CFP Lawrence Sprung, President of Mitlin Financial, based in Hauppauge, New York. "What if they don't get most of the market share?"
"A lot could go wrong," agreed Roth, announcing some possibilities. "Another vaccine becomes standard, immunity may be longer lasting or easier to distribute. A patent infringement lawsuit. Unexpected delayed negative results from the vaccine combined with more lawsuits."
But Roth doesn't have to be omniscient to get nice returns.
"As with Zoom, I'm not sure I was even familiar with Moderna this year, but I owned it," he said. That's because he invested in a stock index fund, which means he basically owns stocks of every company in the US.
Over the past 31 years, through 2017, the overall market has grown by more than 2,000%, said Roth.
The median inventory on the other hand? Only 7%.
"Any stock is far more risky than owning thousands of stocks," he said.