"If you catch one biotech bull market, you may never have to work again."

It's a phrase Steve Sjuggerud said to me more than a decade ago, not long after I began working with him. And it's true.

Steve figured this out by watching the biotech mania during the dot-com boom. The entire sector soared more than 500% in less than two years back then. And it even outperformed the tech sector along the way.

In other words, when biotech booms, it really booms. But it can bust as well.

One of those busts is underway today. And investors are fleeing the space at breakneck speed. The good news is that once that trend reverses, another massive surge higher could begin.

Let me explain...

Given the year we've had, you'd expect biotech stocks to be performing well. But it's quite the opposite.

The sector is down double digits this year. And it's down 33% from the 2021 high as well. In short, this boom-and-bust sector is going "bust."

Between the losses and the length of the decline, investors have had enough. They're not waiting for a rebound... They're selling in droves.

We can see it by looking at shares outstanding for the two largest biotech exchange-traded funds ("ETFs"): the iShares Biotechnology Fund (IBB) and the SPDR S&P Biotech Fund (XBI).

As ETFs, these funds create and liquidate shares based on investor demand. So a falling share count means investors are becoming less interested in biotech stocks. And that's exactly where we are right now. Take a look...

Shares outstanding between these two funds have collapsed in recent months. They're down by more than 20% since peaking late last year. And that's one of the largest declines in the past 15 years.

More important, the two similar declines we've seen in that stretch were great times to buy...

First, shares outstanding plunged through the financial crisis. They bottomed in late 2011. But biotech stocks more than doubled over the next two years.

It was a similar story in 2020. Shares outstanding bottomed after falling for several years. Then, biotech stocks took off... And shares outstanding nearly doubled over the next 18 months.

Now, we don't know if today's negative sentiment has bottomed yet. Even more folks could flee the sector before it turns around. But according to history, we'll want to keep a close eye on biotech right now.

If sentiment bottoms and reverses, prices should follow suit. And it'll be time to put money to work. But again, we're not there yet.

Still, it's worth remembering what Steve once said... If you catch one biotech bull market, you may never have to work again.

The next biotech bull market appears to be setting up now. Once prices get moving higher, this is an area you should consider owning.

Good investing,

Brett Eversole