I've never invested in a drug company or HMO, and I doubt I'll ever invest significantly in the healthcare industry. There are three reasons from that:
• Government involvement in healthcare, including Obamacare, has been remarkably favorable for the private sector. Most regulations have increased demand for healthcare without cutting down on the healthcare industry's profits, at least not comprehensively. There's no guarantee that future regulations will be so benign, and I would argue that the regulatory environment can only get worse from here.
• The healthcare industry makes more money by providing sub-standard care. As Guy Spier points out, HMOs make more money by denying people's requests. Similarly, drug companies maximizes profits from drugs that ameliorate illnesses but don't cure them. They make relatively little money by curing people. As Paul Ewald says:
"When it comes to pharmaceutical companies, it’s important to recognize that they are very good at some things and very bad at others. What they are good at is product promotion and marketing, and working in innovative ways when the resulting product can bring in lots of money. The problem is the products that make the most money are not necessarily the products that actually help people the most...
If you think about it, there isn’t very much money to be made off a vaccine because a person uses it once or twice in his or her life and that’s it. Instead, think of the amount of money to be made off a statin when a person is going to take it every day of their life. There’s just not much motive for drug companies to invest in products that are cures or very good preventatives."
• Many people who invest in biotech stocks expect genomics research to revolutionize the treatment of diseases. I think this is wildly over-hyped. Our genes didn't evolve to hurt us. We hear a lot about genetic mutations causing breast cancer, but only 5-10% of breast cancer has a genetic basis. The role that genes play in other diseases is likely even smaller.