Amgen Inc (AMGN) is probably one of those “Black Swan Postive” type of companies that Nassim Taleb speaks about and supposedly writes about in his Black Swan book (I haven’t read it yet). He says in his interviews that you should invest in companies that have the ability to change the world by the discovery of a single compound or medicine, and the biotech industry is rife with those possibilities. He forgets to mention the the biotech industry is rife with volatility too.
If you really want to understand my point of volatility clustering and how they can be good buying opportunities, take a look at this volatility cluster chart vs AMGN’s price for the past 10 years. What you’ll notice is that during the bubble years, the volatility was really high and then equally as high as AMGN sold off.
If you look real closely, you’ll see a huge volatility spike right after the bottom of AMGN’s share price in 2002. That was a great time to buy. Personally, if I were buying AMGN back then, I would’ve been averaging in at select points on the downtrend. Just so you know, my investment horizon can be several years into the future so I can stomach short to intermediate downturns.
How you time your purchases, in this case, is to look for high volatility clusters during selloffs. High volatility clusters at price highs usually signal a high and the possibility of a sell off.
Just for your reference, the last volatility cluster BUY signal was on May 7, 2007.
Update: kjeldahl pointed out a date error in my post. The chart above was built using weekly data points and was a bit misleading. When you drill down to the daily data, the last volatility cluster BUY signal was actually on May 10, 2007. See the revised chart next to this update.
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