Is The Biotechnology Bubble Turning Into Mania?

Disclosure: I own shares of AMGN

For more than three years, the big run in a number of small biotechnology stocks that have little or no revenues had all the elements of a bubble.

Now, there are signs that the bubble may be turning into mania, and will eventually burst.

Every stock market bubble is different, and can be easily confused with healthy bull markets. But all stock market bubbles follow a certain profile. First comes investor hype over a popular theme an emerging industry that promises to change the world and bring big returns to those who invest in it.

Somewhere down the road come the role modelscompanies that made it big carrying this themeturning investor hype into contagion.

Then comes easy money by accommodative central banks to provide the air financing for the bubble to grow bigger and bigger. Flurries of IPOs that double, triple, or quadruple the day they make their market debut and sky-high M&A premiums turn investor hype into mania.

Investing in this theme reaches a cascade, as no investor wants to be left behind.

Finally, the bubble soon bursts, as early investors have already cashed out, and there are no more investors to join the party.

Apparently, the ongoing run up in biotechnology has all these elements.

Originally posted here:
Is The Biotechnology Bubble Turning Into Mania?