Long and Wrong

"On any other day, that might seem strange."
--Cameron Poe (Con Air)

In his annual Letter to Shareholders, Berkshire Hathaway chairman Warren Buffett often discusses a 'mistake du jour'--an investment error that he made during the previous year.

My mistake du jour in 2009 is shaping up to be getting involved in select pharma names ahead of this market meltdown. I liked the valuation of drugmakers Merck (MRK) and Pfizer (PFE) along with their nice dividends in a low yield world. I also thought that chances were high that the new administration would keep hands off this sector during the weak economy likely to persist over the next few years.

Since President Obama's speech to Congress last week, health care sectors have been leading markets to the downside. Given the president's rhetoric, many believe that health care reforms will now begin sooner rather than later. Should these reforms occur as specified by the new administration, then returns on capital are likely to suffer among the drugmakers (as, of course, will standard of living as innovation and efficiency exits this sector).

Previously, my time horizon (5+ yrs) had me insensitive to near term price fluctuations in these names. But now I wonder whether the long term fundamentals of this sector will not be impaired for many years.

As such, I'm considering an exit strategy for at least part of my position.

positions in MRK, PFE