Biotech: Anatomy Of An Investing Mania?

By Atlas Capital

From time to time, humankind has had periods of arrogance where society as a whole believes that many (if not all) of life's mysteries have been solved.

Such was a time in the 1800s when most believed they had advanced as far as possible…just before the Industrial Revolution.

In Denial

The same kind of faulty thinking occurs in capital markets where the enduring truths of finance and economics are discarded. Someone inevitably states: "It's different this time."

Think of the tulip mania, railroad bonds in the early 1900s, Nasdaq during 1999-2000, and the credit bubble of 2004-2007. All are examples of market environments that ran off the rails.

Credit Suisse recently put out a research piece about the biotech industry with some interesting points and graphics.

Related Link: 16 Biotech Catalysts SunTrust Is Tracking

The investment bank believes the biotech space isn't in a bubble.

Agnostics

The graphic from Credit Suisse below is telling, not because it shows how impressively the biotech sector has performed, but for the unprecedented nature of continuous relative outperformance.

Source: Credit Suisse

'Not In A Bubble'

Credit Suisse posits that the sector is "not in a bubble" and supports the notion with eloquent points.

Of course, there's no way to actually know if the sector is in a bubble, but worth noting is that markets have a tendency to stay irrational longer than most investors can stay liquid.

What the past has shown is when the market psychology changes (perhaps because of some random, unexpected failure), the correction can be swift.

Biotech Movers

Below are a few biotech movers from Tuesday:

• BIND Therapeutics Inc BIND
• Ocular Therapeutix Inc OCUL
• Hospira, Inc. HSP
• Organovo Holdings Inc ONVO
• United Therapeutics Corporation UTHR
• Arena Pharmaceuticals, Inc. ARNA

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