Investors, Just Say No to “Hopium”

“Hopium” is a popular term for unrealistic hopes that are pursued like a drug. This habit-forming behavior is dangerous to the health of your investment portfolio.

The stock market has been rising on several hopium-induced delusions: the economy will rapidly bounce back, the coronavirus will fade away, consumers will resume their pre-pandemic behaviors, most furloughed workers will be welcomed back, etc.

Perhaps the greatest delusion involves development of COVID-19 vaccines. In recent weeks, the broader market as well as specific biotech stocks have soared up (or down) based on headlines about possible vaccines. However, instead of making emotional decisions based on fleeting headlines, you need to keep a sober mind and invest according to time-tested fundamental rules.

Watch This Video: 7 Rules for Investing During the Pandemic

Below, I pinpoint an investment play appropriate for these uncertain times that isn’t predicated on false hopes. First, let’s examine the madness of crowds and why you should avoid partaking of hopium, the insidious drug that makes everything seem okay. Today, I focus on the “holy grail” of the pandemic, a COVID-19 vaccine.

The FDA’s daunting gauntlet…

Last week, investors were aflutter over a possible vaccine under development by Moderna (NSDQ: MRNA). This week, the hype centers around a coronavirus vaccine pursued by the University of Oxford and AstraZeneca (NYSE: AZN), which shows signs of inducing an immune response to the coronavirus, according to initial clinical trial results published Monday by the influential medical journal The Lancet.

Shares of MRNA and AZN have been on a roller-coaster driven by rampant speculation. However, even the most promising drug therapies must endure protracted and highly expensive clinical trials.

To be sure, in the race to develop a coronavirus vaccine, money is no object as governments and Big Pharma throw billions at the effort, as if it were a “moon shot.” In addition, the U.S. Food and Drug Administration (FDA) has promised to “fast track” new and promising coronavirus vaccines. Public health officials estimate that a COVID-19 vaccine on an accelerated fast track would take about 18 months to get approved.

Many politicians and media pundits are glibly raising expectations that a vaccine will solve the pandemic. But clinical testing on human beings is complex, arduous and rife with failure. On average, without fast track status, it takes about 10 years for a drug to get developed and approved.

There are three phases of FDA clinical testing. Cumulatively, there’s a 50% failure rate for every phase of a trial. A high percentage of treatments that reach Phase III “confirmatory” trials still fail to win approval for the indication being investigated (see chart).

But let’s be generous. Let’s say by some sort of scientific miracle we get a coronavirus vaccine by the end of this year, perhaps as early as this autumn. To manufacture and distribute hundreds of millions of doses would require massive production facilities and infrastructure.

Then we’d have to get people to actually take the vaccine. Many citizens harbor legitimate doubts about a hastily developed vaccine. Many others are in thrall to anti-vaxxer conspiracy theories. A recent survey reveals that only about 50% of Americans would take a COVID-19 vaccine if it were available. Let that sink in.

Rules requiring the wearing of simple face masks have sparked street protests and even violence in America, which doesn’t bode well for any government-mandated program to mass-vaccinate the population. If people are waving firearms to protest masks and social distancing, just imagine the public reaction to a vaccine.

Why the hype over a vaccine? Desperate elected officials seek political cover; investors seek a fast buck; television producers seek ratings. Besides, it’s human nature to want magical short cuts to complex problems.

Perhaps one day in the not-too-distant future we’ll get a COVID-19 vaccine. That is my fervent wish. But in the meantime, as haphazardly implemented containment policies fail, the coronavirus spreads, the death toll mounts, the unemployed can’t pay their bills, and small businesses go bankrupt. When the hopium wears off, we’re in for a stock market dive.

A “boring” solution…

Instead of placing your investment hopes on a coronavirus vaccine, I suggest you consider a time-tested way to build wealth: greater exposure to dividend stocks. This asset class provides the trifecta of safety, income and growth.

Sure, dividend stocks aren’t as sexy as the “story stocks” you see hyped on CNBC, but they’re also much less likely to crash and burn. They’re positioned to weather the broader market sell-offs that we’ll probably see over the near term.

Regulated, U.S.-based utilities stocks are good proxies for dividend growth. Utilities provide essential services, a virtue that tends to make their stocks recession-resistant. During this pandemic-induced economic contraction, people still need electricity. Utilities also are insulated from overseas shocks, such as trade (or shooting) wars.

For the best utilities stocks to buy, click here now. Unlike the unproven remedies touted with great fanfare by the media, these stocks provide immediate inoculation to the pandemic.

Questions about portfolio protection? Drop me a line:

John Persinos is the editorial director of Investing Daily. He also edits the premium trading service, Utility Forecaster.