I am out in Las Vegas all week at the MoneyShow investing conference. I am giving a two-hour presentation here on the basics of properly managing a portfolio in the volatile biotech space. The presentation contains a lot of the lessons I have gleaned from over two decades of successfully investing in the biotech sector. Most of these foundational tenets on properly managing and optimizing a biotech portfolio were learned the old fashioned way, by trial and error. Many lessons were quite painful both to my ego and to my pocketbook. However, these learnings have made me much more successful in the biotech arena than I believed was possible a decade ago, and I want to share these learnings with you.

I want to share some of these hard learned lessons in the hopes that you might incorporate some of these concepts into becoming more successful in the intently interesting and lucrative biotech sector. Hopefully, I can help at least one reader avoid some of the trials I have had to go through to get to this stage without absorbing the painful hits I have endured in order to acquire this knowledge.

Diversification is important in managing any portfolio but is absolutely crucial in the highly volatile biotech area especially in the promising but speculative small cap sub-sector of the industry. Over the years, I have a developed a strategy I have dubbed “Shotgun Investing” for the small cap biotech arena. This involves holding many small stakes in myriad promising smaller concerns. This helps me to mitigate the inherent volatility in this high beta sector.

I go into investing in this area knowing that I am going to have numerous “strike outs” as even hedge funds with PhDs in Biochemistry on the staff pick up their share of investments in this area that don’t pan out. Developing a drug that can garner FDA approval is a very complex and challenging endeavor. There are hundreds and hundreds of small biotech companies as well as myriad larger pharma concerns spending tens of billions of dollars annually trying to successfully navigate through the trial process to get a new drug to market. For all of that, The FDA approved just 41 new drugs during 2014. However, the occasional five or ten bagger in this sector one should produce solid returns over time.