Re: Biotech investing guidelines
Here’s what has worked pretty well for me over a period of several years:
1. Don’t rush. Taking a long position with confidence in a small- or mid-cap biotech requires a colossal amount of due diligence. Take your time. At a minimum, one should read the latest 10K report, cover to cover, and listen to all conference calls and webcasts by the company during the preceding six months. Call the company’s head person in Investor Relations to fill in any holes in your DD and to get a feel for their knowledge and responsiveness.
2. If the company has partners, find out what they are saying. You’d be amazed at how different the information can be from talking to a partner as opposed to the company you are interested in investing in.
3. Don’t overfocus on macroeconomic and geopolitical stuff. For instance, do not let bearish news about interest rates or the price of oil talk you out of making good investments. These macro-level worries will ebb and flow but will never disappear.
4. If you detect even a whiff of overhyped claims, stay away. This may cause you to miss out on a big score from time to time, but by avoiding these companies you will come out way ahead over the long run.
5. Don’t expect a miracle return on investment. Stocks that go up 100-fold don’t come along very often, but 2-to 5-baggers come along all the time. If you have done your homework and like what you see, take a large enough position to make big money with a relatively modest percentage gain. (My two biggest biotech gains, GENR and NUVO, were “only” 2- to 3-baggers, but I put a lot of money into them.)
6. Be prepared to turn on a dime. If the business does not evolve the way you expected, reevaluate the rationale for owning the stock. (For instance, I sold GENR one year ago—my largest position at the time—when I detected that the company was backing off claims about Evizon’s ability to improve vision. Many people said I was overreacting to minutia, but it turned out to be a good move.)
7. Investing should be fun as well as financially rewarding. If you find investing onerous and burdensome, use mutual funds or delegate your investing decisions to a professional.
“The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”
