Ebola outbreak is not an investing opportunity
As the Ebola outbreak in West Africa worsens, stocks for pharmaceutical companies working on treatments are being batted around Wall Street as potentially hot properties. But trading Ebola stocks is a bad idea.
Salvatore Di Nolfi/Keystone/AP
Want to know the best Ebola trade? Do nothing. The fast money got in on Friday and Monday. And so far, this isn't an opportunity or a scare.
Wall Street has heard of Ebola for a few years now — unlike SARS and bird flu, which were new to our ears. And sadly it seems it's also the difference between Third World vs. Developed World.
If I was still on a trading desk, I wouldn't be trading Ebola stocks — I would be making lists. The last thing you want to do when news breaks is try to find the right stocks to trade. Back when I was a health-care trader and the SARS virus had the world's attention, we broke down every sector to see how it could be impacted. And these opportunities were not just confined to drug makers and medical-supply companies. The virus had the potential to seriously affect the airlines, tourism, restaurants, air-filter companies, quarantine centers. You could cast the net as wide as you wanted.
If you get a phone call this week of someone pitching you an Ebola stock — most likely the guy pitching it is long and wants to get out. There's no real trade yet.
I wonder if any hedge-fund managers considered sending an employee down to scout out Emory University Hospital. They could befriend a couple of nurses at the cafeteria and maybe steal a patient chart or two. Most likely this will be a blip on the radar and we'll file it away, but the second scenario is what you need to be prepared for.
The course of development for a normal drug sometimes spans years or decades. There's discovery, pre-clinical trials, three phases and willing patients to be tested. Not quite the case with Ebola. So they need to go another route, which is the "Animal Rule." It allows companies and the government to develop countermeasures to medical problems before they exist. This isn't like diabetes where we have hundreds of thousands of willing patients lining up to try an experimental drug.
In my opinion there's not much to do other than make a list with different scenarios and be ready if and when. Wall Street is on alert, but it's not time to do anything yet.
Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side." The paperback edition comes out June 17 and Sony bought the TV/movie rights to the book. Duff is currently working on his second book, a Wall Street novel. Follow him on Twitter@turneyduff.