Biotech Service

powering healthcare

Biotechnology is a Fascinating Group


Unbridled promise & potential.
At the same time,
volatility and value destruction lurk
like steep icy slopes on the way to the summit.

Biotechnology Stocks

Outperforming the Broader Market


Performance of Nasdaq Biotechnology Index (IBB) and S&P 500

Ongoing evolution of science, conquering medical frontiers, and saving lives, all makes the biotech industry an exciting one with the potential to create incredible value. At the same time, uncertainty, complexity, and volatility make biotech investing stressful and unnerving.

Nonetheless, the potential of the biotech industry in delivering incredible investment returns is real and it remains a key group in powering healthcare performance. 

There are unique attributes to the biotech industry that create the potential for outsized returns, but also higher risk. Such a unique risk (volatility) in a biotech investment comes from the binary nature of success or failure of the drug trials. This risk which is present in the biotech indexes is almost not present in an S&P 500 index, which is well-diversified across many industries.

Since the markets recovered from the 2008 Great Recession, biotechs have outpaced the general market quite convincingly.

However, the risk (volatility) encountered in a biotech investment will always be higher compared to an S&P 500 investment, which is well-diversified across many industries and does not have to face the binary nature of success or failure inherent in biotechs.

The chart shows the biotech industry delivering leading returns when compared to the broader market. Over a 12 year period from from 2010 to 2022, the Nasdaq Biotechnology Index (IBB) cumulatively returned 392%, while the S&P 500 (SPY) returned 286%. The volatility or standard deviation over the period was higher for the biotech index at 6.4 and 4.7 for the S&P 500. The risk-adjusted return using the Sharpe ratio was higher for the S&P 500 at 0.55 and 0.15 for the the biotech index. 

Prudent Biotech

- a monthly newsletter service -


Using Quantitative Models for Systematic Investing in Biotechnology

We matched the potential of biotechnology stocks with a systematic, model-driven investment approach.

The Prudent Biotech model portfolio uses quantitative models to further power
biotech performance and improve its risk-adjusted return profile.

We matched the potential of biotechnology stocks with a systematic, model-driven investment approach.

The biotech model goes through multiple iterations processing the quantitative parameters and rules for the biotech stocks and the broader market variables. The output is a list of high potential biotech stocks. 

We use our systematic investing methodology to select up to an 8-stock model portfolio that is shared with members in the monthly Prudent Biotech newsletter service.

The Prudent Biotech focuses on total portfolio returns and not on individual position returns. 

Stocks can go up and down within a portfolio. 

But it is the total portfolio return that must be the focus. 

It is hard to avoid losses on individual positions. For biotechs, such losses are even steeper due to the binary nature of the trial results. But through prudent risk management, the portfolio will likely have more positions that gain over time to offset such losses. 


a model portfolio with a history of significantly
outpacing benchmark performance in most years


Performance of Nasdaq Biotechnology Index (IBB), S&P 500, and the Prudent Biotech model portfolio

In the chart above, we overlaid the performance of the Prudent Biotech portfolio along with the performance of the biotech industry group and S&P 500 that was shown in the first chart.

The quantitative models took a strongly performing biotech industry group and created a promising model portfolio that delivered compelling results in most years to far exceed the performance of the Nasdaq Biotechnology Index (IBB) and the S&P 500.

During the same period from 2010 to 2022, the model portfolio significantly outperformed with a gain of nearly 9,000% as seen in the chart above. Benchmark returns were much lower. The volatility for the Prudent Biotech portfolio was higher than the biotech index, but had a superior risk-adjusted performance. The Sharpe ratio for the model portfolio was 0.55 compared to 0.1 for IBB, indicating the higher-risk was compensated for in terms of returns. Additional metrics are provided in the Performance section.

The model portfolio focuses on generating consistent and robust returns through a disciplined investment approach. This approach combines various dimensions, including process-oriented strategies, market direction analysis, and rules-driven quantitative models that utilize fundamental and technical variables. By blending these elements, the model portfolio attempts to consistently deliver returns that outperform benchmarks in most years.

The power of compounding is an integral part of the approach which leverages the enduring strength of the stock market over the long-term and the magic of compounding to build wealth over time.

Investing in biotechs should be one part of a broader portfolio strategy. Longer term portfolio allocation to growth and speculative segments, like biotechs and small cap stocks, can achieve much higher risk-adjusted performance.

What Do I Get?

What you receive is the Prudent Biotech model portfolio with a systematic investing game plan behind it.

The Prudent Biotech newsletter is a portfolio of up to 8-stocks, almost equally weighted, incorporating the investing rules and quantitative criteria we have developed. The objective is to position the model portfolio to potentially accrue strong returns over time. The systematic investing methodology for the model portfolio incorporates the time-tested investing virtues of patience, discipline, and compounding. Based on your determination of the relevance of this information to your unique situation, you would now have the ability to use a model-driven systematic investing approach to participate in one of the most exciting, promising and volatile sector of the market - the Biotechs.

A systematic investing approach to follow monthly.

A game plan to follow a quantitative investment strategy.

An emotionless investing system that minimizes the judgment risk.

Exposure to promising names within the high potential biotechnology industry.

A biotech diversified portfolio to manage a portion of the stock-specific risk.

Limit risk from prolonged adverse market conditions by knowing when the portfolio is in Cash.

Clear cut layout and updates, simple to understand and follow once a month.

No daily decisions or spending hours reading research and still remaining undecided.

Once you determine the information to be relevant, update the portfolio typically once-a-month.

Instant access to a quantitative model portfolio for $29/month.

It took me some time to get the portfolio in place & getting used to the biotech volatility, but it worked out well and I am happy at
the performance over the years.

Morris S., California

Great tool to get exposure to biotechnology,
not an easy industry group to invest.
I'm glad I found your service and
wish you much success ; )

Douglas R., North Carolina

The Best Time to Plant an Oak was 20 Years Ago.
The Next Best Time is Now...

This is an old English proverb.

After all, one has to start somewhere at sometime.

There is no guarantee of future performance. That is true for our system and for any system.

Nonetheless, there is a strong and large body of empirical evidence that bolsters the thesis that systems outsmart experts consistently by a meaningful margin.

If you feel our system can help grow your portfolio over time and build the investment wealth that you wish for, then don't wait!

The Decision is yours now.

We leave you with a pragmatic quote from Warren Buffett,


While there is no one best system, there is one that works best for you. Once you choose a system, you need to stick with it.

Warren Buffett

Warren Buffett

Economist

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Our newsletter is a monthly service, complemented by occasional market updates and intramonth adjustments when warranted.
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Graycell Advisors, and its affiliates, officers, employees, families, and all other related parties, collectively referred to as ‘Graycell’ and/or ‘we,’ is a publisher of financial information, such as the Prudent Small Cap, Prudent Biotech, and Prudent Healthcare newsletters. We are not a Registered Investment Advisor (RIA). Historical performance figures provided are hypothetical, unaudited, and based on our proprietary analysis and system performance, back-tested over an extended period. Hypothetical or simulated performance results have limitations, and unlike an actual performance record, simulated results do not represent actual trading and consequently do not involve the financial risk of actual trading. The performance results obtained are intended for illustrative purposes only. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Past performance is not indicative of future results, which may vary. All stock and related investments have a degree of risk, which can result in a significant or total loss. In addition, the biotech industry and small caps are characterized by much higher risk and volatility than the general stock market. Information contained herein is general and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. If you decide to invest in any of the stocks of the companies mentioned in the newsletters, samples, alerts, etc., sent to you or available on our websites, you can and may lose some or all of your investment. You alone are responsible for your investment decisions. Use of the information herein is at one's own risk. We are simply sharing the results of our model. Nothing should be construed as a recommendation or an offer to buy or sell any securities, and we are not liable nor do we assume any liability or responsibility for losses incurred as a result of any information provided or not provided or not made available on time, herein or on our website or using any other medium. We cannot guarantee the accuracy and completeness of any information furnished by us. We may or may not have existing positions in the stocks mentioned in our reports. Our models are proprietary and/or can be licensed and can be changed or revised based on our discretion at any time without any notification. Subscribers and investors should always conduct their due diligence with any potential investment and consider obtaining professional advice before making an investment decision.

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Prudent Biotech

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