Granted, few people are thrilled about the performance of their stock portfolios so far in 2007, not counting the handful of investors who adopted a defensive crouch and are sitting out the current market malaise in hopes for better times later in 2007.

Going back to February 26, after the Big Dip when the stock market tanked some 500 points, before rebounding slightly, the Standard & Poor’s Index has been down about one percent. The Biotech stock indexes have followed suit, falling slightly more to 1.12%, according to the Morgan Stanley Biotech Index.

My favorite biotech ETF, BBH Holdrs has struggled so far in 2007, down 15 points or so since the late February stock market debacle. Some Wall Street gurus jokingly refer to BBH as the Amgen-Genentech fund, and perhaps with good reason. Genentech, Amgen and Gilead Sciences comprise most of the fund, along with Genzyme, Medimmune, and others. So what? That’s like having Manny Ramirez and Chipper Jones anchoring your company’s beer league softball team.

Besides, BBH was hardly alone in suffering a setback in February and March, as the AMEX biotech index and iShares Nasdaq Biotech Index fell in lockstep with BBH and the rest of the equities market. Patent protection is one sour issue impacting life sciences companies – more than 70 drugs will lose their patent protection in the next few years, including Pfizer's cholesterol reducer Lipitor and BristolMyersSquibb's blood thinner Plavix. Business Week estimates that pharmaceutical companies could lose up to $100 in lost sales by 2011.

Still, my feeling is that you can’t get too excited about short-term ups and downs - - a theme I keep returning to in these pages week after week. That’s especially true of biotech, which doesn’t play by the same rules that most industries do when it comes to stock performance. In the biotech world, success is defined by clinical successes and failures – not by shock waves resulting from outside-the-industry market downturns like we saw in February. Companies that comprise the BBH – like Amgen and Genentech -- are insulated from such external pressures, primarily as a result of their well-stocked pipelines and deep reservoirs of cash and R&D talent.

Speaking of big pockets, I'm also seeing an uptick in biotech investing from the venture capital community - - a good sign that biotech does indeed march out of lockstep with the rest of the stock market. In addition, the biotech industry overall should benefit from ongoing pressure from Congress to lower drug prices. True, such pressures could slow the progress of some of the Big Pharma boys, but that will only level the playing field for the rest of the sector.

Besides, stalwarts like Amgen and Genentech should thrive just the same; both stocked with strong pipelines and high demand for its products. Sales at both companies have been strong and should only grow stronger.

That should bode well for BBH, even in a murky biotech environment. I’ve said it once and I’ll say it again: BBH is chock full of companies whose products wind up in pharmacy prescription bins and stacked up on shelves along store aisles. That fact isn’t going to change anytime soon and that’s good news for BBH investors.

Consequently, my view of BBH is that it’s a good long-term play. Companies like Genentech, which is heavily involved in the human genome project, and Gilead Sciences, which is working on new pharma drugs for HIV/AIDs and other diseases, could revolutionize health care.

With Genentech and Amgen swinging big bats at the heart of the order, I believe that the BBH fund continues to be a great way to play the biotech sector -- and should be for the foreseeable future.

 

Managing your own expectations is a big part of your investment planning process. We’ve all heard about “buy-and-hold” investing and why it doesn’t really matter what the market’s doing when you get in, as long as you stay in. And there’s a great deal of truth to that thinking.

Studies show that stocks can grow (on average) up to 10 to 12 percent annually, and bonds can grow up to six to eight percent for longer term Treasuries. Compound interest (your accumulated investment returns rolled over year after year), a long-term outlook, and a  disciplined investment strategy can yield big bucks over decades.

The trick for buy and holders is in staying in the markets so they don’t miss its sharp upticks—money that’s hard to make back. While market-timers, on the other hand—those Wall Street daredevils who weave in and out of the financial markets to try and capture the most  optimal moments—risk missing those market spikes.

Market timers also tend to experience higher transaction costs than their buy and hold counterparts. That’s because every time they buy or sell securities, they incur transaction costs. Even if they achieve above average returns, these costs could be counterproductive.

It becomes obvious, then, that trying to time the market can be risky. Between 1962 and1991, for example, a buy-and-hold strategy was best. Those investors buying common stocks in 1962 would have had returns of 10.3 percent. If those same investors, however, tried to time the market, they’d have missed just 12 of the best performing months. And their returns would have been only 5.4 percent.

There are also tax reporting complications associated with market-timing techniques. Going in and out of the market several times in one tax year (sometimes several times in a month) generates numerous taxable gain and loss transactions. All of which must be accounted for on the investor's income tax return.

So why try to jump in-and-out and time the market? It's high maintenance, complicated, tax-disadvantaged, and the performance of your portfolio suffers.

Hey, other than that, it works just great.