Many investors bought the compelling story of investing in health care stocks: an aging population; institutionalization replaced by cheaper drug therapies; and global demand for health care as economies advance.
Yet of the 10 major economic sectors of the U.S. stock market, health care is the only one in the red this year.
If you want to be a health care investor today, you have to think like a scientist. In particular, Charles Darwin.
Darwin showed that species evolve in a somewhat random manner, as successful animals survive, only to be replaced by more successful - or luckier - animals. The same is true on Wall Street.
Seventeen of the 20 largest heath care companies are developers and sellers of therapeutics - medicines and medical devices. Only three are health care service providers.
In other words, investors - as well as governments and the public at large - have favored therapeutics over services.
A major life-enhancing drug or device continues to be the pot of gold at the end of the health care investing rainbow.
Yet there are signs that the biggest therapeutics marketers have become dinosaurs. Other members of the health care world are doing a lot better.
The American Stock Exchange index of 15 major drug stocks has lost 27 percent in the four years of the Big Pharma-friendly Bush administration.
By contrast, an index of small-company health care stocks is up 29 percent - beating the 5 percent loss in the benchmark Standard & Poor's 500 index.
On another plane, the Bloomberg News index of real estate investment trusts owning health care properties, such as nursing homes and medical office buildings, has nearly tripled in the four-year period.
The problems at drug giants Merck, with its Vioxx pain reliever, and Pfizer, with Celebrex, could reflect a Darwinian autumn of Big Pharma.
"Five years ago, the majority of health care sector funds had very concentrated positions in large-cap pharmaceuticals," said Kris Jenner, manager of the T. Rowe Price Health Sciences Fund. Today, "we have only one large-cap U.S. pharmaceutical company in our top ten" stocks.
The big drug companies, like the proverbial dinosaurs, are victims of their success.
"It's not to say the large companies aren't bringing important new medicines to the marketplace," Jenner said, "but many of these companies have ongoing patent expirations, where they have to bring something new just to replace something that is dropping off."
Critics point to the urgency of replacing off-patent drugs, to keep investors happy, as the cause of lax safety in marketing new drugs. Big Pharma thereby threatens public confidence in therapeutics.
Small drug companies, without the baggage of pending patent expirations, may deliver greater returns. But chances of success are random. You must own a lot of these stocks.
Here's the 7 percent solution: The 10 largest drug companies comprise 7 percent of the S&P; 500 index, an appropriate core equity holding. Own the S&P; 500 index, where Big Pharma stock returns will compound through dividends.
Your separate health care bet should be highly diversified among all aspects of health care, with an emphasis on smaller drug companies.
Let Darwin work for you.
Bill Barnhart is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at yourmoneytribune.com.