2007 New Year's resolutions -
Though resolutions are often broken, here are some general investment strategies/guidelines I'm going to try to follow in 2007 -
1) Diversification - the bulk of equity investments spread widely across the US and global stock markets, with some modest real estate, natural resource, and gold related exposure included for diversity. Biotech is limited to 10% of the total portfolio, and then diversified among numerous small/mid/large cap names. No bio company is to represent more than 2.5% of the entire investment portfolio. If a position grows to more than 2.5%, it is trimmed back by taking profits.
2) Dollar Cost Averaging - automatic monthly or bi-monthly investments into each investment category.
3) Long Term Buy and Hold Strategy - avoid short term trading.
4) No Leverage - no margin or borrowing allowed.
5) No Shorting allowed.
6) No Naked Options. Some covered options on individual stocks allowed, like covered call writing, or hedging of a long position with puts.
Most folks on this board have probably had a bad 2006 due to an overweighting in Cortex. or some other bio long shot. I know the feeling, and had my disasters in previous years. The key though is to learn from these mistakes and not make them over and over again. I only wish I had followed something resembling the above rules 10 years ago.
Dew has said that the efficient market hypothesis is BS. True, there is a big pricing delay/inefficiency in this sector, due to the huge amount of uncertainty surrounding drug development. The outcome is extremely uncertain, so the market can't accurately assign a price to most bio stocks at any given time. The bigger BS however, and the dangerous part, is the notion that an investor can consistently know more than the market does. To be right once doesn't mean anything, unless you walk away from the casino altogether and never return. For success, one needs to beat the system *consistently* over a considerable period. The odds simply won't allow this to happen in biotech, even for the brainiest bio-sleuth. Of course everyone thinks they'll be in the skillful/lucky 1%, but that is laughable. What happens is that greed and hubris get us into trouble, and then we try to make back what we lost, but only dig our hole deeper.
I guess everyone ultimately has to learn for themselves the hard way. But if your massive bet on Cortex does somehow manage to work out, save yourself a lot of grief and just leave the casino. Don't think you can do it again by ploughing the winnings back into another foolish speculation. It just doesn't work that way for us mere mortals. End of sermon :o)
AI
