Replies to post #17249 on Biotech Values

[Biowatch]

10 second answer - don't fall in love with a stock.

I'm not much of a trader, but I sometimes buy when I think a biotech tanks on what seems like an over-reaction, and I NEVER buy when a biotech spikes on preclinical data. (i.e., what is great for cell cultures or mice is so many years from a marketable product as to be worthless unless you're a daytrader.)

Scientific journals don't publish "failed" preclinical trials, so you can bet that there are far more failed preclinical trials out there than will ever see the the light of day than what makes it to print.

Also, although I can't speak for Dew, he does watch the FDA regulatory calender and tries to handicap the possible outcome in advance.

I've been to some FDA advisory committee meetings, and I know the investment types whip out their cell phones and "phone home" as soon as the votes are cast, so it's best to have an idea up front what the odds are, and what the results mean.

[DewDiligence]

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.