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April 3, 2014
Reality-Based Biotech Investing
David Sable has some useful rules for investing biotech stocks (more here). On the surface, many of these may look more applicable to people who are managing larger amounts of money, because he's talking about what to do (and not do) when you're walking around the JP Morgan healthcare conference, and so on. But the lessons behind his advice are sound for everyone - for example:
". . .stop looking for code words, Groucho Marx eyebrow raising, or any other type of "body language" silliness from insiders."
The corollary to that is that if you're thinking about investing in a small company that acts as if it's doing this sort of thing, or has been touted to you on the basis of such, turn around and look somewhere else. (Even worse, if you find yourself working for a company like this, you'd better start making plans). This is a sign of what I think of as the "professional wrestling" school of investing - it's the world of the people who see the market as a titanic battle between Good and Evil, the Good being the people who own the wonderful company's stock, and the Evil, naturally, being the Evil Shorts and Paid Bashers. As with other forms of conspiratorial thinking, it's easy for someone with this attitude to dismiss good advice (if exposed to same) by saying that the person offering it is naive - not clued in, wised up, or verb-prepositioned in general. If you knew how the world really works, you'd realize that the recent moves in the stock are all so transparent - it's the money managers, you see, who are trying to shake the shares from the weak hands so they can accumulate it in front of the Big Announcement.
The world doesn't work that way, I think, or not at the retail market level, at any rate. It's not a show, and there's no script. Many people investing in small biotech stocks have a reality-TV view of the world, when reality would serve them far better.
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