Biotech Values

[DewDiligence]

>>I think the other important concept to grasp is that the proverbial train almost never leaves the station. Many investors think that they need to be in a full position leading up to phase III results. I think most of the case examples in biotech will show that a relatively modest position ahead of phase III results (with put protection if you want) is the way to go. Stocks almost always revisit their pre-phase III prices.<<

This is not unreasonable as a rule of thumb, but each stock ought to be evaluated on its own merits. Clearly, some stocks take off on good data and do not revisit old price levels.

If you approach these situations as backgammon problems, they are easier to handle. I find that most investors think too much in binary or “trinary” terms. (Trinary is binary with an added third case being “I have no idea what’s gonna happen so I will hedge everything to the max.”)

If I like the odds, I will take my chances and play without hedging. I do not expect to win every time, just as I do not expect to win every backgammon match.