Stock Gumshoe’s primary reason for existence is to help investors think for themselves, and to avoid swallowing the hyperbole-laden investment ideas that are touted and teased by the investment newsletters and other pundits. That’s not because the ideas are bad — sometimes they are, sometimes they aren’t, in my judgement — but because the influence of marketing and group-think short-circuits our ability to think critically about almost anything, and that goes double for investments and money.
So although we offer something a bit extra to our paid members — a bit more of my opinion, and my more thoughtful and more fully researched writeups of stocks that I own or am considering, a few other tidbits here and there and, in the case of Dr. KSS and other columnists we might have, some outside perspective — I am a strong believer in individual research, in open discussion and debate about stocks and valuations, and in the importance of critical thinking for investors.
Our paid membership, the folks who I call the Stock Gumshoe Irregulars, was started not because we have something brilliant or secret to sell to you — but because, soon after I started writing these teaser solutions and sharing them with people, readers started sending us money. I didn’t know what to do with it, but after a few months of checks in the mail we started more formally inviting people to be paid members to help support the future of Stock Gumshoe, allow me to invest in the site… and, in exchange, get a bit more from Stock Gumshoe as a reward. The “Friday File” and the other writings I share with our paid members are my way of saying that although we value our free readers greatly, I promise to spend at least one day a week writing just for the Irregulars as a way to, well, repay them for helping Stock Gumshoe to survive and thrive.
So in that vein I share my stock portfolio with our readers, and write about my reasoning when choosing to buy or sell a stock, and often write about my asset allocation or other decisions as well, but I specifically do not have a recommended portfolio or trading alerts that I think other people should follow, and our guest columnists do not offer that kind of guidance, either. We are sharing information and research and opinion, not guiding individual investment decisions that you might make. I am not the world’s best investor, not by a long shot, and I may well be below average some or all of the time — all I can offer is my thought process and my research, and hope that our readers find it valuable, interesting, entertaining, or profitable.
Most of what I write here at Stock Gumshoe involves the solving of investment “teaser” ads, the critical discussion of ideas that are hyped by newsletters, and quick explanations of investing concepts that might be sold by pundits as mysterious secrets. But I also write some about my portfolio, and we have guest columnists who write about a variety of topics. I choose guest columnists based on their ability to explain, follow, and discuss interesting stocks and ideas, and because I like to read what they write.
I’ve gotten quite a few questions lately about our columnists/guest authors, and particularly, because his column is very popular and has driven a huge amount of discussion among our readers, about Dr. KSS, who writes a column and moderates discussion of biotech stocks for our readers. Dr. KSS has now been writing for us for a little over a year, and we have a number of new readers on board who may not know what his columns and discussions are about… so I want to give you a bit of history and explanation. Those of you who’ve been around for a year or more probably know most of this, but I feel some responsibility to offer some more clarity — particularly to new readers.
The questions I receive are usually about the qualifications of the columnists we work with, whether they are trading the stocks they write about, and whether I am benefiting from the successful stock picks they might share with our readers…. or, in the case of stocks that are covered that move dramatically up or down, why our columnist is so brilliant or so terrible.
I’ll start with me, for those who don’t know me — Travis Johnson is an individual investor, I was a direct marketer long ago (I got some of the same training as the copywriters whose work I decipher, I imagine — though I was raising money for charities, not selling newsletters), and I’m a recovering academic. I had been blogging about my investment research and my strategies for a couple years, as a side project, before I started Stock Gumshoe in 2007 as a venue for deciphering and demystifying the ridiculous hype and promise of investment newsletter ads. I found it more rewarding than the tenure track, so after a while I left academia and started working on Stock Gumshoe full time.
I don’t manage other peoples’ money or buy all the stocks I write about, and I’m not a particularly active trader, but I invest my family’s portfolio and write about that, and I continue, with most of my time, to write about and decipher the promotions and hype of the stock teasers… which, despite (or perhaps because of) our best efforts, have grown only more ridiculous in Stock Gumshoe’s eight years. Some years I “beat” the market, some years I don’t (last year I didn’t, for sure). I’m in my mid-40s, and most of my investing is done with a long time horizon as I try to build a nest egg for my family — but, like most of us, I can’t resist being opportunistic when something looks interesting as a shorter-term bet. Sometimes when I write about a teased stock, particularly if it’s a small capitalization company with a big, loud marketing push behind the teaser, the stock goes up in part because we’re “revealing” it — there’s not much we can do about that, but I do try to make sure that I don’t profit from any movements like that, which is why I have a three day blackout period after writing an article when I’m not allowed to trade the stocks I cover.
Currently we have two guest columnists who are active (others have been sidelined for health reasons or other commitments, for the most part, though they may return or we may bring more guest writers on in the future), and they’re both in the health/medicine subject area.
Michael Jorrin, who is an old personal friend, is a longtime medical writer who writes about broader medical and health issues and generally doesn’t specifically opine on stocks or on the investment prospects of drugs or companies. He is not a doctor, he is quite obviously not giving individual medical or other guidance to readers, and his articles often spur heated discussion of sometimes controversial topics — particularly hot-button social issues like alternative medicine, genetically modified organisms, vaccination and the like. He is a paid columnist who chooses his topics and is responsible for his own opinions, and we do not fact-check or edit his work to any substantial degree (as with most of our columnists, his work requires just some light proofreading and formatting).
Michael is required to divulge any ownership in the stocks he writes about and to follow the same trading restrictions that I do (not trading a stock he writes about for three days following publication), but he’s usually not writing about the investment side of health so that is rarely a relevant restriction. I gave Michael the moniker “Doc Gumshoe” (he is not, as he is clear to note, a doctor), and brought him on board in the Spring of 2013, largely because health marketing is at least as pervasive as investment marketing and readers were asking me about stuff that I couldn’t easily understand.
Dr. KSS, like most of our columnists in the past few years, came to us first as a reader and commenter, originally under the name karmaswimswami — he participated actively in the discussions of a few biotech stocks that were teased by investment newsletters, and was generous in sharing his time and his medical/scientific insights. Following that, and the outpouring of positive response from readers, I offered him a more formal space as a paid columnist, which he accepted.
He operates under just a couple rules, the same rules that any other columnist follows in this space: First, he has agreed not to republish his columns elsewhere; second, he has agreed to disclose any ownership he has in any stocks he writes about, and to refrain from trading those stocks for at least three days after he covers them.
Those are the same rules I follow as an author at Stock Gumshoe. Dr. KSS has often gone a bit beyond that and pledged, in the text of his columns, not to trade for 7 days following publication, but he does own many of the stocks he writes about and he does not (and is certainly under no obligation to) report his trades or his portfolio to Stock Gumshoe in any formal way (sometimes he mentions trades, or sums up his portfolio, in discussion postings). He has also added to his disclaimers that he has not received any compensation (other than from Stock Gumshoe) for the commentary he shares with us — which I would have hoped would be obvious, but I appreciate his additional disclosure and we’ll include that as a formal rule for any future columnists. Stock Gumshoe has never been paid to cover (or not cover) a particular stock.
Dr. KSS has chosen to be anonymous for our readers. We have accepted that and believe that his work stands on its own, though you’ll have to decide whether or not his anonymity impacts your assessment of his work. We know who he is, since we write a check to him, but he is a columnist here because of his record of thoughtful and intelligent writing in this space — not because of who he is in the “real world.” We have not evaluated, background-checked, or otherwise assessed his scientific achievements or professional status — it is for each reader to determine how much weight to give to the opinions of any guest columnist.
Like all of our authors, Dr. KSS is completely and individually responsible for what he writes. We format and proofread his submissions… we do not edit, review or fact-check the substance of what he writes, and we do not tell him what he can and cannot write about. That is true of all of our guest columnists, though for some of them we have in the past provided more intensive copyediting for clarity. He has chosen to have his columns restricted to be available for the Irregulars only (our paid members), and he is not obligated to share his columns with any particular regularity or for any particular length of time. He could stop writing for us tomorrow if he wished, which is one reason we specifically do not advertise or promote Dr. KSS’s columns as a benefit of membership in the Irregulars. He could very likely sell similar services for far more money to others, or offer a formal biotech investing newsletter as a subscription service, or he could simply choose to stop writing for public consumption, or for Stock Gumshoe specifically, for any reason at any time.
Because we have a large number of readers who have come to follow his writings, and because of the volatile nature of the biotech stocks Dr. KSS usually writes about, including stocks that can often move by 50-100% or more (up or down) on a single piece of news, I (Travis) have chosen not to invest in any of the individual names Dr. KSS usually covers. I did trade a bit in some of those stocks for a while when Dr. KSS first came on board, but have now exited my position in each of them — both because I’m uncomfortable with the valuations and volatility in the sector, and, more importantly, because our group is large enough to impact a stock’s price for a little while if Dr. KSS writes about a company as a compelling buy, and I don’t want my portfolio to be in conflict of interest with our readers if I ever trade in and out of stocks he’s writing about. It’s my intention to do most of my healthcare sector investing through funds — I appreciate Dr. KSS’s efforts to educate people on the science behind these stocks, his columns are extremely well written and erudite, and I too am tempted by the crazy moves these stocks sometimes make, but I’m under no illusion that I’ll become an expert in the sector. Doesn’t mean I’ll never buy healthcare stocks (I currently own two, Ligand Pharmaceuticals and Medical Properties Trust), but it does mean I’m actively trying to avoid trading in the stocks that are most heavily discussed in our biotech threads.
If you are interested in investing in a stock, you should research it and understand it very well — Dr. KSS and other participants in the discussions on this site will in many cases further that understanding, particularly for biotech stocks, but I would urge anyone not to rely solely on discussions on Stock Gumshoe, or on pronouncements of any of our authors or discussion participants (myself definitely included), when making investment decisions. Dr. KSS is a doctor and an excellent teacher when it comes to the science behind medicines and therapies being developed by biotech companies, and he enjoys discussing stocks and medical issues and answering questions, but he is NOT your personal financial or medical advisor. He is offered a space here because of what he writes and because of his interest in discussing these kinds of investments… and because our readers have found his contributions to be valuable, educational, and entertaining.
Because Dr. KSS feels very strongly about the tone and content of the discussions he moderates and has developed with a core group of our readers, I have given him full moderator control of the discussions on his articles. That means he can remove, delete, or edit any comment posted on his articles if he wishes. I also don’t personally read those discussions in full, though I generally skim them to check for spam and will sometimes chime in if I see a question directed at me. There are a large number of readers who follow these biotech discussions ardently, and participate very actively, and they have developed a set of “posting guidelines and etiquette” to police themselves and minimize repetition or irritation, so if you’re interested in getting involved that’s worth browsing. That link also includes links to several spreadsheets that readers have put together to track the stocks they’re discussing — the spreadsheets are not run by Dr. KSS or by Stock Gumshoe and neither of us can vouch for their accuracy at any given point in time, but they’re an admirable effort to make the group’s discussions of various stocks easier to find and track.
Finally, I think it’s also worth noting (seasoned investors can tune out here) that biotech is by far the most exciting area of the stock market right now, and has been for a few years — that means, in my book, that it’s dangerous. You might certainly disagree, and I don’t want to be paternalistic or to urge caution on those of you who have been so successful in biotech investing, or who are already well aware of the risks, but I do want to remind each of our readers, who may well be influenced by the excellent research of Dr. KSS or the ebullient response from many readers to the stocks he analyzes, (or, of course, by many opinions and sources outside of these pages), that this sector of the market is in a five-year bull market boom the likes of which are rarely seen.
I don’t know whether small biotech stocks (or large ones) are in a bubble, that’s hotly debated and is in the investment headlines pretty often these days (and has been in the past as well)… and I don’t know whether the dance will end or they’ll end up being re-valued en masse one day. There are important developments and changes in science and healthcare, new cures and drugs and new discoveries that have clearly reignited the potential for this new era in pharmaceuticals, and it’s quite possible that this new era is in its early days and we’ve only begun to see the potential — I am certainly not an expert at biotech investing, or at forecasting the future for this hotly-debated sector. But the windfall profits made in the past few years on the very best of these stocks, and on the rapacious appetite of big pharma as they refill their development pipelines through acquisition, add rocket fuel to the fire of any discussion of the prospects of smaller companies who are early on the path of trying to develop what they hope will be world-changing drugs. It is hard in the best of times to assess what a drug that might be five years away from FDA approval is worth, calculating the odds and the eventual market size and price and the competitive landscape, as well as the appetite of larger companies to pay premium prices for potential drugs, and I’m very grateful that Dr. KSS gives our readers some valuable perspective on this, and provides a venue for the discussion of the science behind these drugs, their valuation, and the potential of these (often small) biotech companies.
It is a standard saying of investing that you should “only invest what you can afford to lose,” and though that saying has become worn and weak with overuse I consider it absolutely true when investing in small and volatile companies whose future is based on ongoing scientific work, unproven products, or assets that are otherwise not clearly understood or are many years from “realizing” value — small biotech stocks without approved products, small cash-burning technology companies, exploratory mining or energy companies, insert your favorite volatile sector here. There are plenty of stocks in the world where the company has a nontrivial chance of becoming worthless because of a single piece of news, or nearly so, and though I think understanding the science (or geology, or market dynamics, or whatever) behind the products these companies are developing is extraordinarily important and valuable, and it may well increase your odds of success, even dramatically so, it does not, by any means, provide a real margin of safety or a firm foundation for the shares of these kinds of stocks. The only viable risk management strategy for trading in this kind of sector, in my opinion, especially in the smaller stocks, is position sizing — which means, quite literally, only investing what you can afford to lose entirely in any one company. Really.
I know we have many seasoned biotech investors in this space — including both long-term investors who are comfortable with volatility, and traders who like to ride these very volatile stocks and the roller-coaster charts they often create — that warning obviously isn’t directed at you, and I’m not trying to tell you how to invest… but I know, also, that we have many novice investors who read Stock Gumshoe, including new readers and many excited traders who see biotech stocks doubling overnight and want a taste. Please be careful. The worst thing that can happen to an investor who is just getting started, or who is exploring new sectors or strategies, is to strike gold on your first or second trade and see your portfolio double in a few months, that brings with it a feeling of bulletproof acumen and leads to a loss of fear, a loss of perspective, and a failure to diversify. We are, most of us, our own worst enemy when it comes to investing (that’s true of all sectors and all ages — Warren Buffett isn’t smarter than everyone else, that’s not why he’s considered the world’s best investor… he just had the mental fortitude to act differently than most people in the market… and, probably, was smarter than average and lucky on top of that).
So that’s who we are, and what we do, from my perspective. Sorry that I drifted off into talking more about biotech than I had intended, but I always do want to take the opportunity to remind our readers that no writer here is offering a “tip sheet” or a portfolio of stocks to mimic — we’re trying to help you think for yourself and make your own decisions, and to facilitate discussions of interesting investment (and other) ideas. I hope you find it valuable, and I thank you, very much, for helping me to keep growing Stock Gumshoe into a useful resource for all investors.