Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Developing drugs is time-consuming, costly, and there are no guarantees of success. Look for companies with long patent lives and full pipelines to spread the development risk.
Drug companies whose products target large patient populations or significant unmet needs have a better chance of paying off.
Make sure you have a big margin of safety for pharmaceutical companies with mega blockbuster drugs that make up a large percentage of sales. Any unexpected development can send cash flow, and the stock price, reeling.
Unless you have a deep understanding of the technology, don't invest in biotech startups. Payoffs could be large, but the cash flows are so far out and uncertain that it's easier to lose your shirt than win big.
Don't overlook the medical device industry, which is full of firms with wide economic moats.
Cash is king for firms that rely on development (pharmaceuticals, biotechnology, and medical devices). Make sure firms have enough cash or cash from operations to get through the next development cycle.
Keep an eye on the government. Any drastic changes in Medicare/Medicaid spending or regulatory requirements can have a deep impact on pricing throughout the sector.
Managed care organizations that spread risk - whether through a high mix of fee-based business, product diversification, strong underwriting, or minimal government accounts - will provide more sustainable returns.
Ref: The Five Rules for Successful Stock Investing by Pat Dorsey