Avoid the Hype, Don't Be Tempted to Invest in Companies Developing a Covid Vaccine, Advisors Warn

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  • Tempted to invest in companies that may have developed a successful Covid vaccine?
  • The hype around the companies should serve as a reminder that those who travel down the most successful investment paths don't pay attention to the flashing lights along the way, advisors say.

A Covid vaccine likely won't be available for most people for months but, in the meantime, you may be wondering if you can inject some of your cash into the companies expected to roll out the treatments —Moderna, Pfizer and AstraZeneca — and make a profit.

It's hard not to be excited about the news coming out of the three firms. Their vaccines were found to be up to 90% (or more) effective in clinical trials, and the world is now hoping they will help put an end to a pandemic that has killed millions, crippled economies and turned our lives inside out.

Not surprising, many pundits predict growth for the stocks. Shares of Moderna are already up more than 600% for the year as of early December, according to Morningstar Direct. Pfizer and AstraZeneca's stocks, meanwhile, have increased by around 8% and 9%, respectively.

However, the hype around the companies should only serve as a reminder that those who travel down the most successful investment paths don't pay attention to the flashing lights along the way.

"I strongly believe that for individual investors, it's best not to try and compete with traders on the hot stocks of the moment because it's so easy to buy at too high a price and get burned," said certified financial planner Cathy Curtis, founder and owner of Curtis Financial Planning in Oakland, California.

Instead, she invests her clients in exchange traded funds and mutual funds, which are baskets of hundreds or thousands of stocks.

Usually, your knowledge about an individual company — in this instance that its expected to deliver a successful vaccine — doesn't put you at an advantage.

"The market is designed so that information is quickly built into the price of any one given stock," said Matthew Schwartz, CFP, an advisor at Great Waters Financial in Saint Louis Park, Minnesota. "So the price of Moderna or Pfizer already reflects in the fact that there were positive trials.

"Purchasing the stock based on that fact and hoping for it to go up would not be good rationale."

To make a profit picking individual stocks, you need to know something the rest of the market doesn't already, said Allan Roth, founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado.

"I doubt I know anyone that doesn't know the spectacular phase III preliminary trial results," Roth said. "That's the key driver of why Moderna stock is up 644% year to date."

It's often the things we can't see coming that will determine the fate of a company's share price. (Who knew Zoom would become a household name before the pandemic?)

"What if the actual results do not fall in line with what was determined in the study, now that it's being used by a larger population?" asked CFP Lawrence Sprung, president of Mitlin Financial, based in Hauppauge, New York. "What if they don't get the largest part of the market share?"

"A lot could go wrong," Roth agreed, ticking off a few possibilities. "Another vaccine becomes the standard, perhaps the immunity lasts longer or is easier to distribute. A lawsuit for patent infringement. Unanticipated delayed negative outcomes from the vaccine, combined with more lawsuits."

But Roth doesn't need to be all-knowing to reap handsome returns.

"Like Zoom, I'm not sure I was even familiar with Moderna going into the year, yet I owned it," he said. That's because he's invested in a total stock market index fund, meaning he basically owns shares of every company in the U.S.

Over the last 31 years, through 2017, the overall market was up more than 2,000%, Roth said.

The median stock, on the other hand? Just 7%.

"Any one stock is a lot riskier than owning thousands of stocks," he said.

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