5 ms·

This article is a reprint of a summary of a press release based on a study, with no link to the actual study. Recent experience has lead me to be very mistrusti

This article is a reprint of a summary of a press release based on a study, with no link to the actual study. Recent experience has lead me to be very mistrusting of things like that, so I poked around. I didn't find the actual study, but I did find some slides (http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_RD_cost_study_-_Nov_18,_2014..pdf http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_R...) about it. $1.2B of this reported cost is "opportunity cost", based on the fact that you could have taken the money you would've used for drug development and invested it elsewhere... at a 10.5% real rate of return. Which is a rather questionable assumption. Practice epistemic self defense: go to the primary sources!

lumberjack 12y ago
It's not that far off. http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf
- jimrandomh 12y ago
  First result I came up with was http://www.thornburginvestments.com/pdfs/TH1401.pdf http://www.thornburginvestments.com/pdfs/TH1401.pdf which states a 6% real rate of return on the S&P 500.
  - lumberjack 12y ago
    That's well known. But if you have >$1B you don't simply put them into an S&P tracking index fund in the same way that if I had $1K I would not even be permitted to buy into some of the better performing index/mutual funds but if I had $25K I could.
    - clarkmoody 12y ago
      True. But with that kind of money, you have access to institutional investment, which could produce much less volatile returns than the S&P.
    - jbooth 12y ago
      Yeah, but an assumed 10% rate of return with no risk is still ridiculous. How come the government can sell t-bills at sub 1% interest? They wouldn't be able to sell a dime of debt if those numbers were anywhere near reasonable.
    - Retric 12y ago
      There is a lot of evidence that nothing consistently beats S&P 500 index funds after accounting for risks. However, if you have >$1B there are a lot of snake-oil salesman out there. Note: Saying Fund X beat the average is meaningless you have to actually investigate their risk profile which takes a lot of effort.
      - jessriedel 12y ago
        The endowments of the elite private universities beg to differ. Harvard's has earned an average annual return of 12.9% over the past 20 years, and there are many others with similar growth (although not similar size).
        Retric 12y ago
        Harvard like many such institutions use leverage (loans totaled 5.9 Billion) which is generally safe at low levels but not actually risk free. Like most methods of producing steady returns above market rates they trade a small risk of catastrophic loss vs steady above market rates. http://harvardmagazine.com/2009/07/liquidity-leverage http://harvardmagazine.com/2009/07/liquidity-leverage
    - aaron695 12y ago
      This is simply not true. For starters if you think $1000 is an appropriate amount to invest you need to either spend less on junk or continue spending your money on self improvement (Assuming money is a life goal). Brokerage fees are often per transaction so bigger, long term investments means less % costs = more % profit. Of course if you’re testing the waters $1000 is fully appropriate, hobbies cost money so if it’s fun, fair enough. But skipping brokerage fees, S&P 500 is considered probably the best and the same for all. If there was a magical return much greater than S&P 500 that only billions could get then someone would just collate a billion from various sources and take a small cut. Costs are in paper work and handling fees which shouldn’t be different whether it’s $10,000 or $1,000,000. It’ll be a bigger % for small amounts, but as long as you invest reasonably big chunks and not keep moving it around it’s negligible difference.
kaonashi 12y ago
So the opportunity cost is not developing a drug and stuffing the money into a mattress. Sounds like a good trade-off.
- jedmeyers 12y ago
  Not a mattress, but investing it elsewhere.
  - kaonashi 12y ago
    If they're buying treasuries, or other financial assets, it's a mattress. There's an easy way to tell, are you still holding a financial asset after your 'investment', then you haven't really invested by the Wikipedia definition (http://en.wikipedia.org/wiki/Gross_private_domestic_investment http://en.wikipedia.org/wiki/Gross_private_domestic_investme...). In some situations, financial investments can enable real investment by second parties (buying into an IPO for example), but the usual example of bank lending is not one of those cases.

lumberjack 12y ago

It's not that far off. http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf

jimrandomh 12y ago
First result I came up with was http://www.thornburginvestments.com/pdfs/TH1401.pdf http://www.thornburginvestments.com/pdfs/TH1401.pdf which states a 6% real rate of return on the S&P 500.
- lumberjack 12y ago
  That's well known. But if you have >$1B you don't simply put them into an S&P tracking index fund in the same way that if I had $1K I would not even be permitted to buy into some of the better performing index/mutual funds but if I had $25K I could.
  - clarkmoody 12y ago
    True. But with that kind of money, you have access to institutional investment, which could produce much less volatile returns than the S&P.
  - jbooth 12y ago
    Yeah, but an assumed 10% rate of return with no risk is still ridiculous. How come the government can sell t-bills at sub 1% interest? They wouldn't be able to sell a dime of debt if those numbers were anywhere near reasonable.
  - Retric 12y ago
    There is a lot of evidence that nothing consistently beats S&P 500 index funds after accounting for risks. However, if you have >$1B there are a lot of snake-oil salesman out there. Note: Saying Fund X beat the average is meaningless you have to actually investigate their risk profile which takes a lot of effort.
    - jessriedel 12y ago
      The endowments of the elite private universities beg to differ. Harvard's has earned an average annual return of 12.9% over the past 20 years, and there are many others with similar growth (although not similar size).
      - Retric 12y ago
        Harvard like many such institutions use leverage (loans totaled 5.9 Billion) which is generally safe at low levels but not actually risk free. Like most methods of producing steady returns above market rates they trade a small risk of catastrophic loss vs steady above market rates. http://harvardmagazine.com/2009/07/liquidity-leverage http://harvardmagazine.com/2009/07/liquidity-leverage
  - aaron695 12y ago
    This is simply not true. For starters if you think $1000 is an appropriate amount to invest you need to either spend less on junk or continue spending your money on self improvement (Assuming money is a life goal). Brokerage fees are often per transaction so bigger, long term investments means less % costs = more % profit. Of course if you’re testing the waters $1000 is fully appropriate, hobbies cost money so if it’s fun, fair enough. But skipping brokerage fees, S&P 500 is considered probably the best and the same for all. If there was a magical return much greater than S&P 500 that only billions could get then someone would just collate a billion from various sources and take a small cut. Costs are in paper work and handling fees which shouldn’t be different whether it’s $10,000 or $1,000,000. It’ll be a bigger % for small amounts, but as long as you invest reasonably big chunks and not keep moving it around it’s negligible difference.

kaonashi 12y ago

So the opportunity cost is not developing a drug and stuffing the money into a mattress. Sounds like a good trade-off.

jedmeyers 12y ago
Not a mattress, but investing it elsewhere.
- kaonashi 12y ago
  If they're buying treasuries, or other financial assets, it's a mattress. There's an easy way to tell, are you still holding a financial asset after your 'investment', then you haven't really invested by the Wikipedia definition (http://en.wikipedia.org/wiki/Gross_private_domestic_investment http://en.wikipedia.org/wiki/Gross_private_domestic_investme...). In some situations, financial investments can enable real investment by second parties (buying into an IPO for example), but the usual example of bank lending is not one of those cases.