Hospitals and Toilets

Nothing is certain but – yeah, yeah – death and taxes.

But what about hospitals and toilets?

Well, let’s look at the certainty of hospitals today (we’ll tackles toilets another time). After all, the Obama-care 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 is 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&P500 has a Beta of 1.0 because it’s the baseline for all comparisons.

You can see the financial sector is the most volatile. The Financial Select Sector SPDR ETF (XLF) has a Beta of 1.49, meaning that it’s 49% more volatile than the S&P500.

See larger image

The healthcare sector is much less volatile. With a Beta of 0.67, the healthcare fund XLV is 33% less volatile than the S&P500.

Healthcare stocks also hold up better in market downturns. Just look at the percentage drops from October 10, 2007 to March 10, 2009.

See larger image

So, compared to the broad market, healthcare stocks hold up better in bear markets and are less volatile.

We’ll take anything resembling “certainty” in today’s uncertain times.

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.