I’ve been investing in the stock market for three decades.

I can tell you that there are few things more exciting than owning shares of an exploration-focused oil and gas company when it announces the discovery of major deposits.

Case in point…

Driven by a series of results from the incredible exploration of natural gas wells, Contango Oil & Gas Co. (NYSE: MCF) shares soared from a founding price of $0.20 in 1999 to a high of $95 in the summer of 2008.

That means a $10,000 investment made at Contango’s inception was worth almost $1.9 million less than 10 years later.

This is a remarkable example of catalyst-driven investing – when a single event or variable gives the stock’s price a massive swing up or down. The results can be spectacular.

The key to successfully employing a catalyst-driven approach is finding situations in which a successful outcome is not priced into the stock and the underlying fundamentals of the company are strong.

The opportunity for this kind of investing also exists in the world of biotech.

In biotech, you can invest in companies with a great balance sheet, shrewd management and lottery-ticket-type upside.

We saw an example earlier this year when Trillium Therapeutics (Nasdaq: TRIL) tripled overnight on the announcement it was being acquired by Pfizer Inc. (NYSE: PFE).

Biotech is a completely different industry than oil and gas exploration, but both allow for very similar catalyst-driven investment approaches.

The recipe for success in both is making smart bets in front of news that can act as the catalyst that will send the share price soaring.

You aren’t taking much risk if success isn’t priced in.

However, there is one major difference between investing in biotech and investing in oil and gas…

The biotech industry has a huge tailwind.

Over the past decade, the biotech sector has soundly thrashed the S&P 500.

The oil and gas sector definitely can’t say the same.

Biotech investing isn’t risk-free, but with intelligent diversification, it can be a wonderful addition to a portfolio.

Not only has the sector outperformed over the long term, but this catalyst-driven approach to investing also performs well in all markets – even terrible bear markets.

And we all know how nice it is to have a portion of your portfolio performing well when the rest of the market is crashing.

— Jody Chudley

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Source: Wealthy Retirement