Introduction
Health sector has registered mixed results in the recent past. This is mainly due to counterfeit products sold in markets worldwide. For instance, pharmaceutical companies suffer heavy losses from sale of generic drugs by counterfeit manufactures. Effectively, health care stocks have been unpredictable despite heavy research on their current trends. In the process, several reversal strategies have been proposed to help monitor this trend. Historical and current experiences have shown complex relationship between health status and economic growth. Nonetheless, sustained growth in economy has shown a general improvement in health sector. Reversal trends have made prediction on health sector to be quite difficult. In fact, health sector has witnessed difficulties in recent times. Its performance has never been a reflective of other sectors of economy. This paper will try to establish why health sector reversal is driven and explore its uniqueness. Moreover, it will explore effect of systematic risk on heath sector, as well as recommend reversal strategies to investors (Hjalmarsson, 2009, p. 1-15).
Why the Sector reversal is driven
Stocks in health sector are quite sensitive to changes in momentum. In fact, other segments like industrial, among others, have been more reflective of economic performance than health sector. This is mainly because health issues usually affect both developed and developing worlds on a measurable scale. Moreover, the kind of issues faced tends to vary with culture and geographical location. For instance, sub Saharan Africa mainly faces subtropical health issues, which require different approaches from those faced in other parts of the world. In essence, investing in health sector can be rewarding at odd times due to its uniqueness. This makes it suitable for reversal strategies as opposed to other sectors like commerce, where trends are more predictable. Reversal strategies are quite profound in health sector in the contemporary world. This is mainly because over the years stocks in health sector have become rather recurrent. For instance, it goes up and down over a given period. It is, therefore, quite important that studies be done on heath sector stocks to apply reversal techniques for effective management of investment and profitability. This is however quite risky since it does not offer high profits. Nonetheless, management of risks is very important in health sector where a downturn can be quite unpredictable. The sector is therefore more reliant on reversal strategies for sustainable investment on its volatile stocks (Scherer, Judice & Kessler, 2010, p. 332–345).
What makes it health sector unique
Health sector has witnessed mixed results. This is mainly because the use of reversal strategies has had an improved effect on its stocks. Many issues plague health sector. These range from politics, industrial development, infrastructure, natural calamities, global warming and microeconomics, among others. Microeconomic stability has a great effect on health sector. This factor impairs growth of the sector whenever microeconomics is unstable. Moreover, origin, duration as well as extent of instability usually determine the repercussions on health sector. This, among other factors, makes it unique and prone to instability. In this regard, reversal strategies help ensure growth and continued returns on profit albeit in a small proportion. When such events occur, microeconomic adjustment policies are usually employed in implementing short-term austerity actions. Long-term measures are also researched for ways of minimizing risk. Health sectors also get involved in sectorial adjustment as laid out by international financial institutions such as IFIs (International finance institutions). The scope of such implementations is usually found to be impractical and draw various criticism and debate on their pupated effect on economy. This makes health sector unique and increases volatility in its stocks, which eventually causes investors to employ reversal strategies for sustainability (Soros, 1987, p. 15).
Recommendation using a reversal strategy to an investor
Investors count on heavy research and experiences for stock valuation. This enables them to act on different stocks. For instance, some investors buy stocks that perform well for higher profitability. At the same time, they minimize risks by selling stocks that perform poorly. Reversal strategies involve initiating techniques to protect stocks against unfavorable factors such as downward turns. Similarly, it shields stocks from very high profits since risks are well maintained to manageable levels. This is very important to health sectors, as it enables investors to be sure of a given profit. On the other hand, since heath sector often goes against economies of scale and other fundamental factors that stabilize stocks, it is important for investors to consider reversal strategies. Furthermore, given the high risks involved in health sector, investors do not have alternative options but to shield their capital. Factors such as microeconomic instability, among others, have the capacity to derail development in health sector. It is therefore quite necessary for investors to plan well on reversal strategy in order to achieve full potential of their investments. In essence, Health sector involves several risks, which range from systematic to microeconomics. These together with others make the overall system highly volatile and hence demanding (Schwager, 1992, p. 224).
Why performance of securities in Health Sector is affected by systematic risk
Health sector is unique in its relation to economic ratios. Its macroeconomic factors are quite define and complex to ascertain. In fact, this is mainly why reversal techniques are quite viable. Health sectors can have severe repercussions on investors especially when it takes a down turn. Systematic risks have been found to take toil on the securities of health sector with impact of over 70 percent. Health sectors involve various industry players such as pharmaceuticals, biotechnology and life sciences, among others. However, only the named industries play a big role in its development. This is mainly because systematic risks have taken toil in other segments of the sector. Systematic risks influence the larger portion of this sector because it forms the core to its governance. In fact, since federal policy dictates and regulates security industry, this impacts its performance and leads to increased exposure to risks (Jubin, 2010).
Conclusion
Stocks are generally volatile. This therefore calls for great composure and proper research from investors. Several strategies have been introduced to help in ensuring sustainable investment in stocks. Investors usually consult financial analysts to establish a common ground on riskless investments. This has its advantages, as well as repercussions. For instance, it assures the investor of profits whatever happens, however, profit margin is usually low. Health sector presents a formidable investment segment; however, the risks involved are usually severe, especially when on a downturn. Interestingly, since everything that goes up also comes down, studying the stocks for on regular basis can help in implementing reversal strategies for a maximized output. This is important as it assures investors’ profitability albeit on a small margin (Economist Newspaper Limited, 2011, p. 1).
Reference List
Economist Newspaper Limited. (2011). Momentum in financial markets: Why Newton was wrong. economist.com. Web.
Hjalmarsson, E. (2009).Diversification Across Characteristics. papers.ssrn.com. Web.
Jubin, B. (2010). Short-term reversals. readingthemarkets.blogspot.com. Web.
Scherer, B., Judice, D., & Kessler, S. (2010). Price reversals in global equity Markets. Journal of Asset Management, 11 (5), 332–345
Schwager, D. (1992). The New Market Wizards: Conversations With America’s Top Traders. New York, NY: John Wiley and Sons
Soros, G. (1987). The Alchemy of Finance, Simon and Shuster. New York, NY: John Wiley and Sons