I have used this line before but...psst...wanna invest in a hot disease?

Biotech investors send me e-mails all the time about specific companies or potential products. No one asks questions about a disease, but disease trends drive the fundamental underpinning a company. I believe investors should target a disease and either "buy" a disease basket or "create" a disease basket out of several companies approaching the same patient population.

We tend to do this in other market segments. We look for information that will lead us to the next great trend and company. Good examples are personal computers in the early '80s, big box stores in the late 1980s, networking in the early '90s and so on. Then we search for the leaders who are at the forefront of the trend.

That's all well and good, but I have yet to meet an investor who invests in a disease. And that's a pity, because diseases are where it is "at" in life sciences and biotech investing.

If you saw 20 new houses with "Sold" signs, and the name of the developer on the signs was all the same and a publicly held company, wouldn't you check it out as an investment?

When you hear that diabetes has hit epidemic proportions, what do you do? Most likely you reach for some Splenda for your coffee. You may need the Splenda, but you should really be thinking "disease." Actually, you should think boomers first -- as 80 million of them are getting older, and for the most part fatter, and unhealthier every day. You shoudl read about what diseases they have or, most importantly, will likely get.

First, there are the great killer diseases -- heart disease, cancer, and diabetes. Boomers are the generation living longer, that is true, but many are doing so with these diseases. With these diseases you not only get a huge (pardon the pun) patient population, you get patients spending money for many years on treatments.

Second, there are the diseases of aging -- arthritis, Alzheimer's disease and age-related macular degeneration. The boomers will live longer and 50% of everyone over the age of 85 gets Alzheimer's, 65% get some form of arthritis and 5% of the population over the age of 65 will get age-related macular degeneration.

Third, there are the lifelong diseases and their treatments -- HIV, multiple sclerosis, alcoholism and all the vaccines. These treatments cut access all age groups but are used by patients forever.

So, we see there are three gigantic markets representing $100s of billions.

So how do you play them?

You have several choices as an investor:

Focus on the ones you already know something about or know something about a company in that space. If I had to choose one "space" right now, it would be diabetes. This disease has reached epidemic proportions in the United States and the developed world -- and it's the direct result of diet and lifestyle choices.

Direct and indirect revenues from diabetes-related illnesses topped $100 billion last year in the United States alone. And last year not one but three major new treatments were approved by the FDA -- with two of them on the road to being blockbusters already and all three from companies relatively unknown to the public (but part of my newsletter's Buy List).

I still think all three are good buys and they are individually a great, great way to make serious money in a short period of time. Investments in this market segment are far less speculative than in many others. There are lots of companies ranging from Amylin (AMLN) to Polymedica (PLMD) that are pure plays on diabetes. In this area I would pick companies and avoid building a basket.

A second segment, and far riskier for investors, is Alzheimer's disease.

It's the single greatest public health crisis this country will face in the next generation and the typical Alzheimer's patient costs the healthcare and social welfare system $175,000, with that cost rising by double digits. And there are only a couple of modest, relatively ineffective and frightfully expensive treatments for Alzheimer's.

The approach here is to bet the disease will be a huge market and play a mix (basket) of relatively safe stocks -- companies with a potential treatment, but also a great, existing business.

And one great candidate for the basket is the world's largest generic drug manufacturer, and also a maker of proprietary drugs for central nervous system disorders. It's a classic, non-revenue biotech start-up, and is up roughly 25% since I recommend it six months ago. The opposite of this large generic company, and also a good "basket" choice is are small speculative outfits, ranging from Neurochem (NRMX) to Transition Therapeutics (TTH:CA), and others of their kind.

Think about it.

I know from your e-mails that some of you have created "internet stock baskets" or a "specialty retail basket," and that many of those companies are easier for you to evaluate than biotech and life sciences companies. But you can do the same thing with great, huge markets like the ones I mentioned above. Why? Because disease is an ugly word. How? By getting some guidance and investng in a disease!