Rejuvenation industry: will it dwarf the dot-com bubble?

About twenty years passed since Dr Aubrey De Grey started talking about his plan to put ageing under medical control. The idea of this computer scientist turned biologist is relatively simple. Ageing is the result of an accumulation of damage that the body does to itself as a result of the normal metabolism operations. We can't realistically expect to manipulate the metabolism in order to make it produce less damage (the traditional approach of biogerontology) without doing more harm than good, because metabolism is extremely complicated and we don't know nearly enough about it. And we also can't expect to attack the consequences of this damage accumulation (the traditional approach of geriatrics) with any significant success, because far too things go wrong all at the same time as we get old. So, he proposes a sort of "preventative geriatrics" approach that aims at repairing the damage in order to prevent it from reaching a pathological level. While the processes that produce the damage are extremely complicated, the damage itself is relatively simple: all of it can be classified in just seven broad categories. These categories are:

- cell loss/atrophy
- division-obsessed cells (basically cancer)
- death-resistant cells
- mitochondrial mutations
- intracellular waste products
- extracellular waste products
- extracellular matrix stiffening

In principle, all of these types of damage are potentially treatable. De Grey thinks we can find a way to do it, and in this way we would cure ageing and stay young indefinitely.

Most people called him mad. Admittedly, his bizarre look didn't help:

However, he didn't give up, and he founded a non-profit organization called SENS with a handful of other scientists in order to conduct scientific research inspired by his idea. Slowly, things started to change, and year after year his approch became more and more mainstream. Here is one of the many talks De Grey gave about his plan and the progress that have been done.

A few years ago, the magic happened: private investors became interested, and many startups were created. Some of them grew enough to go public. So now there is a growing industry in which you can easily invest. Should you? Let's give a better look at this.

Biotechnology startups have a huge high risk - high reward factor: the value of a stock can skyrocket if things go well, or go to zero if they don't, often very suddenly. The success or failure of a clinical trial can write the fate of a company almost overnight. If this is true in general, you can imagine how much this applies to an avveniristic and early stage market like the one focusing on rejuvenation. If this idea works, people who bet on it will be rich, no doubt. Of course, it could also fail, or at least take more time than expected. De Grey is very optimistic: he thinks we could be less than 20 years away from achieving robust human rejuvenation, and less than 5 years away to achieve robust mouse rejuvenation (which would serve as proof of concept for human rejuvenation, and therefore attract huge interest from investors, which would make the market skyrocket). However, even he admits that we might not have robust human rejuvenation for another hundred years.

Lots of speculative thinking so far. Let's get more down to earth and see how this market has performed so far. Here is a list of American public companies that, to the best of my knowledge, make up the bulk of this market:

- AgeX Therapeutics
- Alector
- Athersys
- Cohbar
- Denali Therapeutics
- resTORbio
- Scholar Rock
- Unity Biotechnology

Starting from November 29, 2018 (the day AgeX Therapeutics, which is the last of these companies to go public, was listed on the NYSE), the following graph shows what would have happened to one unit of wealth invested in each of these companies:

We can notice two things. The first one is that only two of these stocks now trade at a value higher than at the end of November 2018. The second is the very high volatility. Look for example at the vertical fall that the blue line experienced. That is what happened to the value of the resTORbio stocks after the company announced the failure of the Phase 3 trial for their main drug candidate.

So what if you had a portfolio with your wealth equally split among these eight stocks? Here is what would have happened to your money:

So, at a certain point in time, the losses would have amounted to half the value of the investment. This is a reminder of how risky this stuff is. However, in the last few months there have been some big gains, although there still is a 20% loss on the initial investment. It is also interesting to notice the low correlation with the main market indices, with the value of the portfolio going down while the S&P 500 and NASDAQ were breaking record after record. This is because the fate of these companies has little to do with the general state of the economy, and everything to do with the results of their clinical trials (and until results are announced, with how much investors trust these clinical trials will be completed successfully).

To sum it up, here is what I think. This is very high risk - high reward stuff. You don't want to invest a very big fraction of your savings into this because the risk of huge losses is just too big. However, it is also undeniably fascinating stuff. If this works, the world will never be the same again, and if you invested in it, you would be rich. So, if you have some money that you are willing to risk, you might give this a try. I would simply place an equal amount of money on each of the stocks in the rejuvenation industry, and then wait. It is especially important to not be emotional: you have to be ready to look at a -50% return without panic selling. Just buy and wait a few years. If things go as hoped, you'll celebrate on your yacht.

An Introduction to Stock Investing with R: Second Edition

The second edition of my book is ready. It is available on the Kindle Store at the same price of the first edition. I thoroughly revised and expanded it, and it now features more in depth explanations where was needed, it provides more codes, and it uses an updated dataset. Don't miss this opportunity to learn how to invest on your own quickly, effectively and with minimum costs. And please, leave a review on Amazon if you liked the book!

The great coronavirus market crash

So it happened. The markets stopped their bull run. Sure, I didn't expect it to be suddenly replaced by one of the worst economic crisis ever, but here we are. So, what now? Well, let me put it straight: we are facing doomsday scenario here. Actually, things might even get worse, at least in some countries.

Let's go with order. The general consensus, with which I happen to agree, is that there will be no V-Shaped Recovery, but rather an L-Shaped Recovery. This is hardly surprising: the virus is still around, only a minority of the world population have been infected and are immune to it, and so we simply cannot go back to normal. We have to travel with the v-brake (pun intended) activated, which would be bad for the economy in normal times, let alone after months during which billions of dollars of wealth have not produced because of the lockdowns. Sure, central banks and governments are throwing in the usual monetary and fiscal stimulus, and more of it might arrive. However, this is not going to help much: in order for a stimulus to work, you need something to stimulate. If businesses cannot go back working at full speed because of the COVID-19 containement measures, not much can be done. Hopefully we will have a vaccine by next year, but it may also be that we won't have one anytime soon and we will have to wait for global herd immunity...

So, we are the middle of the desert, with a punctured tire which we can't repair or substitute, only blow air in it that will come out in a matter of minutes, and the nearest place where we can get some help is many km away. How could things be worse? Well, we might run out of water because we've drank all of it earlier, thinking we would arrive at our destination safely with no accidents. That's the situation highly indebted countries with a sluggish economy are in. Their economy may completely sink, which implies falling tax revenues, and at the same time their public expenditure will go up. Their public debt would become unsustainable. A particularly interesting situation can be found in the EU: countries that kept their expenditures in check during good times will suffer from the crisis, but have the means to survive. Those who didn't...well, they can only ask the former to help them stay afloat. And that's the kind of solution we're going to see. Is this going to end well? I don't think so.

Will the stock market crash?

 
Now, the million dollar question: is the stock market going to crash? People have been asking this question for the past few years, but so far the market continues its bull run. Some really believe the euphoria is going to end very soon. Granted, sooner or later bearish market will kick in, so if there constantly is someone claiming a correction is going to happen, sooner or later we will see someone "predicting" the crash. Markets go up and down, it's in their nature. Telling when they go up or down is another story. So I really don't want to participate in this pointless game. I do want, however, make a broader discussion about stock markets behaviour.

Let's focus for a moment on the American stock market, which is the one everybody's eyes are on. The S&P and NASDAQ are breaking records, and some say companies are overevaluated by euphoric investors. Still, the american economiy is doing good, maybe not so good to enterely justify such a bull run, but it's certainly not completely irrational. There is real growth behind it. Point is, even stock markets of European economies that are not doing good at all are breaking records. Just to provide a couple of examples, the french GDP growth rate is not exactly breathtaking, and Italy is barely growing at all. However, stock markets in those countries seem to not care; the italian FTSE MIB earned almost 30% last year, despite economic and political instability. So why are the investors so optimist? If I had a fully satisfactory answer to this question, I would already be a millionaire. But I do know one thing: the markets are distorted. Think about it: what do investors base their decisions on? Their outlook on the state of the economy? Yes, also. But what else? Interest rates. Investors are betting that central banks will keep their low interest rates policy indefinitely. They feel safe, because they assume the central bank is there to keep them afloat no matter what. If this is not a distortion, I don't know what it is.

Now another question from finance 101: what is it that goes down when interest rates are low, while the stock market thrives? Bonds yields, of course. Including those of sovereign bonds. This is why there are countries like Italy showing increasingly unsustainable debt to GDP ratios while still managing to get away with sovereign bond yields that are ridicolously low* compared to the seriousness of the economic situation. Too bad, there are no free lunches in this world, so someone must be paying the price, and in fact someone is. But this is only an appetizer. As I mentioned, these policies are distorting expectations, and distorted expectations can create bubbles, that sooner or later have to burst. But I don't want to sound too austrian, so let's assume no bubbles are being inflated. We still have to face the fact that sooner or later central banks will have to raise interest rates. How will the market react? And what about the highly indebted countries? The combination of a recession and increasing bond yields could be fatal for them. Sooner or later the bill for the lunch will have to be paid. Try not to be seated at the wrong table when the time comes.

*Source: investing.com

My book "An Introduction to Stock Investing with R" is out now!

The first post on this blog is to announce the publication on Amazon Kindle Store of my book "An Introduction to Stock Investing with R". American readers can find it here. Readers from other countries can find it by searching for the title on the Amazon website they usually shop from.

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