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, Random Roger (258 clicks)
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Roger Nusbaum submits: Nastech Pharmaceutical (NSTK) dropped over 35% yesterday because Merck terminated its involvement NSTK's inhalable obesity drug.

I don't think I have ever heard of this company and the specifics of the company are not important to this post. Very small ($300 million after the drop) biotechs that rely on one product are very risky. This you know.

Too many do-it-yourselfers cannot resist the lure of these great stories. I am also a sucker for the stories, but I leave the stocks alone.

If you are going to own a biotech stock (as opposed to a Biotech sector ETF), what do you want it to do for the portfolio? Would you be happy if your biotech doubled the return of the broad market? Or maybe tripled the market's return? To me that type of result adds a lot of lift overall.

My clients own either an ETF or they own Gilead Sciences (NASDAQ:GILD), depending on the client. GILD is a big SPX company with many products. Ditto AMGN and DNA (except for the SPX part), and there are others that can give very good returns without taking the type of risk taken with a one drug stock.

This is what I mean when I write about learning a stock. GILD is up a lot in the last year. There have been a couple of warts along the way but the result is still up a lot.

If you can be happy with just doubling or tripling what the SPX does with more risk of course, iShares Biotech (NASDAQ:IBB) was up more than 20% vs. mid single digits for the SPX.

1-yr chart -- IBB, GILD, and S&P 500:

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Source: Smart Biotech Investing: Avoiding One-Product Wonders (NSTK, GILD, AMGN, DNA; ETF: IBB)