Vijay Kumar Gaba

The pace of vaccination across the globe is accelerating with each passing day. It is hopes that in next 6 months, we may have a reasonable number of people inoculated against Covid-19 infection; and the life may begin to normalize (even if it is new normal!) and become more predictable as compared to the life in 2020.

However, from investors’ perspective a rather strange thing seems to be happening. Many investors had bought shares of leading vaccine manufacturers in the hope of extraordinary gains. To their disappointment, many of them are suffering losses.

Pfizer Inc. (-8.1% in one year) and AstraZeneca (-4.75% in one year) are two examples; though Moderna Inc (up 740% in one year) has done well.

In Indian context, AstraZeneca (-20% YTD 2021); Pfizer (-13% YTD 2021) Dr Reddy’s Lab (-8% YTD 2020) have all performed poorly on stock exchanges. The other listed vaccine prospect Cadila Healthcare (-2% YTD 2021) is also doing poorly.

Obviously, it is a case of the excessive exuberance cooling off. The stock prices may revert in due course. But this has five important lessons for small investors to learn.

1.    The stock prices movement is usually akin to the movement of a pendulum. The far it moves on right (up) side, it usually covers the same distance on the left (down) side also.

2.    Buying something in exuberance, based on some popular news or widely prevalent expectation, is seldom a good idea. One usually ends up buying closer to the peak.

3.    A good stock bought at an elevated level may not eventually give you losses. In due course of time the stock will give decent gains.

But remember, a stock that has fallen 25% from your purchase price (100 to 75), would need to rise 33% (75 to 100) from low for you to breakeven. This journey (100-75-100) could be exhausting sometime and result in significant opportunity loss.

4.    More business may always not mean more profit and higher stock price.

Investors, who did invest in L&T based on the growth in its order book over past 5years, have not been rewarded much. The order book, revenue and profit of the company have almost doubled in past 6years; but the stock price is up less than 25%.

Same thing could be true with profit from the increased revenue from vaccination for these pharma giants.

5.    Environmental, Social and Corporate (ESG) consideration in investing is not only a fad. It is increasingly becoming a norm. A vaccine for pandemic that caused extreme social distress may not be acceptable as a medium to make extraordinary profit. The authorities (mostly socialist governments these days) accelerated approval process may essentially accompany limit on profiteering.

This is an important lesson that needs to be remembered before a hasty decision is taken on the news of some company winning a coal mine bid etc.