Forum Archive Index - May 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Jerry

I appreciate your long and thoughtful post which I think shares some 
very useful insights into investing in the world of biotechnology.   I'm 
not saying I agree with it all, but that is part of the value of this forum.  
Getting other peoples views that are not in accordance with your own.

It makes you stop and think, which has to be good.

> 
> making money in biotechs,
> which I have in SIR, VCR, PTD and NAL.  I've also taken paper losses
> in CIR, PLT, PBO   (haven't sold these, because I  still have faith in
> them, and bought them when I was still learning those hard lessons
> about sticking to one's set Stops. ) 
> 
> I've been investing for three years, and have made every mistake
> going, but I've made enough in biotechs alone this year to pay my
> son's university fees.
>
>

Hmm, well I've no doubt that some people do make money out of 
biotechnology but I'm not sure if you are one of them given the 
information presented in this post Jerry.    Have you still made enough 
to pay your son's university fees if you subtract the 'paper losses' that 
you have incurred on CIR, PLT, and PBO? 

>
>
> I don't think getting in at the ground floor with a newly-listed
> biotech  is the way to go.  For the  biotechs engaged in drug research
> and development,  so much time and risk is required to get the product
> to market, that your money could be tied up for years, literally.  
> Plus the necessary capital- raising along the line usually dilutes 
> the shares so much, that there's little value left in one's original
> investment.   
>
>

Yes very good advice I think that all biotech investors should heed!

> 
> 
> Instead of getting in at the ground floor, I think,  to make money, 
> an investor needs to treat all biotechs as short-term trading stocks,
> even if one ends up holding them for a longish time  ( so long as they
> are on an uptrend).  
>
>

I think what you are saying here, even though you are not saying it in 
as many words, is that investment in biotechnology is speculation.   I'm 
not saying this in a negative sense as it is possible with discipline like 
stop loss to be a successful speculator.    What I'm saying is that it is 
very rare  that by projecting profit flows you can discount back to get a 
present value valuation of a biotechnology stock.

If you are an enthusiast of a biotechnology share you will need a 
bigger enthusiast to come out and take the shares off you if you are to 
make a profit.

>
>
> In order to  know when to buy and what to buy,
> you really do need to love the science, that is, learn all you can
> about the company,  study their websites and follow daily company
> announcements on the stock exchanges.
>
>

It would be interesting to know if full time traders like Phaedrus trade 
biotechs.   My guess is that they do not as I can see that back testing 
on very thin data might be a problem, as indeed liquidity might be too.

>
> 
>Fundamental analysis, except in its crudest forms (like does
> the company have enough money to keep going long enough to get their
> product to market?) is completely pointless with biotechs, esp since
> institutions often take share placements  to keep the company going.  
>
>

I tend to agree.  Unless of course you use fundamental analysis as a 
tool to convince yourself to stay clear of the biotech sector altogether 
;-)

> 
> 
> 
>another thing I've found ... with biotechs, you never
> buy on a good announcement that is more than several hours old.  
>
>

Yes, although that is probably true for all shares.

>
> 
> An inportant part of  keeping tabs on the mood of the market for a
> stock, is checking its market depth, often.  If there are
> significantly more buyers than sellers, then the price will go up. 
> When you see big sellers move into the market, it's time to get out. 
> Market depth is also a great way of figuring when to buy into a stock
>
> This checking of market depth works particularly well for
> biotechs, since they tend to be rather thinly traded, so a change in
> depth shows up clearly.
> 
>

What happens if your market depth information tells you to sell a thinly 
traded share?   Is it possible to get out in time?

>
>
> Lastly, even tho understanding science, or at least,  scientific
> methods  (I have a psychology degree, for what it's worth) is
> important with biotechs, it's easy to outsmart yourself.  I watched
> Chemeq go up and up in classic TA trend mode and didn't buy because I
> had severe doubts about the science. I still do, but Gerry and others
> have probably done very well out of it, thank you.  
> 
>

I wouldn't say that just because you missed out on a deal 'with 
hindsight' that you did the wrong thing.

At the risk of bastardising one of Warren Buffetts baseball analogies 
(because Warren doesn't use T/A)  

"It is not necessary to swing at every pitch!"   

Thanks again for your insight Jerry.

SNOOPY


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