Forum Archive Index - May 2003

[Jerry&sam <samjer@xtra.co.nz>]

Title:

Thanks, Snoopy, for your response to the ideas I set forward.

 I take your point about my paper losses in CIR,  PLT, and PBO, that is,
if they were subtracted from my profits, I wouldn't not have made any money.
 Indeed, if they go the way of Transrail, Air New Zealand, One Tel or AMP
(all not biotechs, if you take my point), then yes, I will have lost
money overall on biotechs.  However, they all are looking slightly better,
chart-wise, and certainly fundamentally, they look like they will ultimately
make profits. PBO is on the verge of breaking even this year,  PLT  has already
received contracts  for its cervical cancer diagnostic Tru Scan in Italy
and Ireland, and CIR has major shareholdings in AXN, OIL, MBP, ANP and AML
(all looking better), plus a number of other unlisted companies, all of which
have literally hundreds of patents between them,  huge cash reserves, a number
of products already at market, strategic alliances with major international
companies for development and marketing (I'm thinking specifially of OIL
and AXN here) and enough respected science and scientists between them all
to keep the tyro biotech investor glued to his / her computer for the rest
of his / her  life. 

One of the reasons why I post so infrequently here on Sharechat, even tho
I am a daily reader of the forum, is that basic accounting, like discount
cash flows, are completely out of my depth, and I feel overawed by the ability
of posters like you and Gerry who can discuss fundamental analysis so confidently.
 I even have trouble getting my head around amortisation.  (I'm just not
good at conceptualizing where numbers go: balancing the books at the end
of the day at the costume hire where I work is a major struggle).     Consequently,
I have to rely on "mood of the market" (ie, market depth, and TA).  Indeed,
I fail to see how my powers of fundamental analysis would have helped me
with Pan Pharmaceuticals which looked to be a very profitable company, with
a conservative balance sheet,  improving margins over the years, significant
market share in a growth industry (all these oldies taking their suppliments)
and  drug funders switching to generics.  PPH even had a margin lending ratio
of 40% with ASB Securities. (The only factor that kept me out of that one,
was the chart (very range-bound), and the market depth, which was a bit nervous-making
even three weeks ago .... 

This leads to a point that I'm trying to make, that all investing
is, in fact, speculation of sorts.  It's not a nice world out there.  With
capitalism, the drunks are in charge of the brewery, and many managers of
companies are neither compentent or honest.  It would be nice to think that
when I  buy shares in  a company like PBO, I am providing money for their
nice scientists to develope more of their clever assays to diagnose Sars
 or  avian flu or  Hanta Virus. However, I would be a poor manager of my
money if I remained blind to the fact that  things will and do go wrong with
even the best-run company (with the worst run, the sky's the limit in terms
of how much money they can lose). 

I won't bang on again about TA vs FA ... we've all done it to death. However,
what I'm saying, is that the inherent and extreme volatility of biotechs
make it necessary to use every available  tool of investing  in order to
stay in the game.  Where the investing part of it comes in, to my
mind, is in checking out the sceince and scientists in any speculative biotech
one identifies (which is why I didn't buy into Chemeq ... but thank you,
Snoopy for your comforting words, about that one).
> You wrote: 
>
> "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."
 To which, i say, "Yup". Except next time, chances are, I will be the bigger enthusiast", and so the merry day wears on. And I might be right and make some money down the line, if I have followed the company and get their long-term prospects right.   But that's the sharemarket, isn't it?
The thing about investing in biotechs, is, it's very demanding and time-consuming,
not only keeping up with the state of play on so many companies,   (The Australian
board is rife with them), but also the shifts of sentiment and vagaries with
the daily market as it unfolds.
> You wrote:  "Unless of course you use fundamental analysis as a 
> tool to convince yourself to stay clear of the biotech sector altogether 
> ;-)
To which, I would say: If you completely discount TA, then yes, I think the
biotech sector is not for you. But then what is? Retailing?  How does one
know whether increased sales are at the expense of margins until the final
audited figures are announced?  (The Warehouse and Briscoes have dropped
hugely these past months, for that reason. ) Insurance? (AMP, Tower?).  Farming
or forestry (risks of commodity cycles and currency fluctuations).  Mining?
 (even more complex and volatile than biotechs). Infrastructure?  Low risk.
but low profits, as well.   Start up techs like CDX or RBL (same problems
as biotechs).  I really would value your opinion on this problem, Snoopy. 
> You asked:
> "What happens if your market depth information tells you to sell a thinly 
> traded share?   Is it possible to get out in time?"
Not always.  But it's often a matter of "the first loss is the cheapest".
 (Which I've had to learn the hard way.) 

Again, thanks for your input, Snoopy. And helping me to clarify my ideas.

Jerry 
>