Death and Taxes Get Company

We all know there are only two things in life that are certain: death and taxes. But what about hospitals and toilets?

Well, let’s look at the certainty of hospitals today (we’ll tackle toilets another time). After all, the Obamacare debate centers on the argument that “we’ll all use healthcare at some point in our lives.”

If Obama was a trader, he might say there’s a “permanent bid” on healthcare. In layman’s terms, he’s saying:

The DEMAND for healthcare is universal and perpetual.

It’s a pretty powerful concept.

Constant, inelastic demand for healthcare services leads to dampened volatility in healthcare stocks.

Here’s a bar graph showing the Beta – a common measure of volatility – for each sector of the market. The S&P 500 has a Beta of 1.0 because it’s the baseline for all comparisons.

The Financial Select Sector SPDR ETF (XLF) has a Beta of 1.49, meaning that it’s 49% more volatile than the S&P 500. With a Beta of 0.67, the healthcare fund XLV is 33% LESS volatile than the S&P 500.sector is much less volatile.

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Healthcare stocks also hold up better in market downturnrns. Just look at the percentage drops from October 10, 2007 to March 10, 2009. Compared to the broad market, healthcare stocks hold up better in bear markets and are less volatile.

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We’ll take anything resembling “certainty” in today’s uncertain times. So death and taxes, move over. You’ve got company.

If you haven’t done so already read the Survive & Prosper issue on “Healthcare Has Jumped the Shark.