written by reader Lessons taken away from the RGDO crash

August 26, 2014

This discussion came about following the crash of RGDO bio stock 25/8/14. Id be v interested if others could summarise the lessons they’ve taken away from this fiasco. I think it would assist all (especially newbies) to re-evaluate their investing style and focus their DD. Let the weeping begin.

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Elliot
Member
September 5, 2014 2:27 pm

Quite a few of the stocks we follow took some big dips today. Most recovered at least a decent amount, but ACHN doesn’t seem to have. I wonder what is up here. I do not own and have no buy order in, but I am interested in the potential here.

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biotechlong (btl)
September 5, 2014 2:54 pm
Reply to  Elliot

Elliott, Most commentators attribute today’s ACHN dip to profit-taking. Considering that the SP had doubled (from c. 7 to c. 14) in the past month, I tend to agree with their take. I took advantage of today’s reduced SP to purchase addition LEAP (Jan 16) call options.

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David B.
David B.
September 16, 2014 6:04 pm

Oh RGDO, my most painful investment “lesson” since I went big when I thought BNIKF would go easily to $4 and bought way too much at 1.90 or so. RGDO seemed like a very safe small biotech to me–lots of smart money, the blessings of Dr. KSS and my favorite SA author The Behavioral Economist, fast tracked by the FDA and many advantages it seemed over Coumadin and other options. All the stars seemed to be aligned for the share price to skyrocket within a year. So many super smart people couldn’t be misled on this one now, could they? Yep, they were wrong and so was I–major egg on the face. Perhaps management misdirected and misled us, but the share price went to Hades in a hurry and I had taken too big of a position in this “sure thing.”
My take away–small biotech is extremely risky no matter how brilliant your sources might be. I wrote a post probably a couple months ago about taking a “shotgun approach” to small biotech by investing small stakes in promising microcaps in the development phase, but being anchored by solid, revenue producing “big boys” like Gilead, Celgene, NovoNordisk and JNJ for both balance and lower volatility. I must say that 2014 has taught me the wisdom of this approach quite well and I will no longer be taking big stakes in any small biotech company. That’s my advice; now I just need to heed it!

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Alan Harris
Guest
Alan Harris
September 16, 2014 6:32 pm
Reply to  David B.

Wrong……review.

donbarrett
Irregular
donbarrett
September 27, 2014 3:31 pm

I personally never ever would have invested in speculative biotechs because I am not a scientist, and everything sounds good to me. That means I am easily duped and fooled, and so stayed away happily.

Now, however, that we have such a wonderful science expert, and not only one, posting regularly for all of us, I am thrilled to be speculating with the rest of you. It’s enough for me to invest in the good science, knowing that a few will be really successful, some will do ok, and many will fall by the wayside.
It only takes one or two to make someone a lot of money.

I lost $47,000 in RGDO for one reason only — my own stupidity in over investing in one play. I am greedy as hell deep down inside, and so at times throw all caution to the wind.
KSS, that’s not your fault; it’s totally mine, and I gladly embrace it because I can learn and do better next time.

So Doc, never feel badly for anything you say on this list; those of us who have so well learned to trust you will always do so, because you do your absolute best for us, and given your knowledge base, that’s good enough for me.

Those on this list who blame you for anything brihng shame upon themselves, because they would rather blame someone else than look at their own failings and grow as a result.

Peace to all on this list. If we do this right, I am positive the odds are in our favor for success; this isn’t a crap shoot; it’s science at its best making the world a better place, and hopefully money for us in the process.

Don

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Alan Harris
Guest
Alan Harris
October 4, 2014 8:06 am

Ouch! $47k aint to be sniffed at, but I know of at least one Irreg who lost 5 times that thru recklessness fueled by greed. Still its a valuable lesson that may well save you $47k into the future. And that lesson is precisely why I set this thread up. The aim was to share our ‘cautionary’ experiences and the lessons learned (espec with newbies, as I was 2 yrs ago when I lost a bundle on something ‘too good to fail’.) in the hope that everyone reading here had the opportunity to recognise silly behavior BEFORE they fell into the same traps.
I felt it was important that this advice had a home of its own…..all too often ‘pearls of wisdom’ get included in the bio etc threads; then the herd moves on and that wisdom is buried and lost to all new Irregs. So when you read a newbies dilemma, please cut and paste them this link. Trust me, they will Like you.

donbarrett
Irregular
donbarrett
October 4, 2014 9:03 am

Hi All,

There has been a lot of discussion on this wonderful site regarding two very different strategies, buy-and-hold versus taking profits on a regular basis — getting out when you’re ahead.

I just read a great article in Stansberry’s Daily Wealth Trader, which discussed what is probably one of the best things ever said about trading. George Soros, was quoted as saying, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
We all have to use the strategy that we are comfortable with, so I won’t even pretend to tell others how they should invest.
What I will say is that Soros if right on the money. Position sizing is absolutely critical, and having a good exit strategy is also a must.

Our goal is obviously to make more when we’re right than we lose when we are wrong, and I do believe that means that taking profits too soon can interfere with that outcome, thus pushing us toward a break-even rather than a profit-making scenario.

I try to let my winners run, like we did with FOLD, but get out when the news and the SP go against us; that’s what happened with QRXPY and RGDO.
With stocks like CTIX, ESPR, and DRTX, I will hold because the science, the news, and the businesses all appear to be harbingers of higher prices; I don’t want to break even; I want to make a lot when I am right, and lose much less than that when I’m wrong. I did lose a hell of a lot with RGDO, and sure broke the Soros rule, but I won’t make that mistake again. As I said, position sizing is one of the most important strategies we can follow. If you bet and loose too much, we’re out of the game, but if you win and get out too soon, you’re also stacking the deck against yourself.

A good general rule of thumb as it relates to position sizing is to invest no more that three to five percent of your portfolio into any given company; so, for example, if your portfolio is worth $100,000, you would want to invest no more than $5,000 into any given stock, especially if you are playing in a space like the biotech space, where volatility is often the name of the game.
Then, you let your winners run, and you cut your losses with planned exits based upon developments in the science, the news, and the business. Remember, you want to make a lot, and hopefully lose less when you do lose. The higher the speculative nature of the stocks in which you invest, the more losses you are likely to encounter; that’s why keeping them manageable is the key so that when you win, and we sure do from time to time, you win well.

I also want to say that I have never found a better group of people to be involved with in such a turbulent and exciting endeavor. The sincerity, good will, and knowledge displayed throughout these threads have been nothing short of astounding.

Thank you all.

Don

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Alan Harris
Guest
Alan Harris
October 4, 2014 9:20 am
Reply to  donbarrett

Valuable advice….Thanks Don

Alan Harris
Guest
Alan Harris
October 5, 2014 1:29 pm

If the whole market drops 5, 10, 20%, then relatively, nothing has dropped, just cash has risen. I see whole market drops as buying opportunities and whole market rises as selling opportunities. In the end the market always fluctuates then averages.
Look at the market today….So was 2007/8 a buying or selling opportunity? Which one of those ‘crashed’ blue chip stocks wouldnt you like to have bought and still own today?

Opposeablethumb
Irregular
October 5, 2014 2:54 pm

In retrospect I think of the complexity of blood coagulation that the Doc laid out. Also, that Coumadin has troubles but has been in use for a long time – nothing has come along better.
So…. perhaps the target is very complex with many unanticipated pitfalls and any drug will have undesired consequences due to the differences in all of us. Reward would be high as is risk, a small position could return a large profit. No need to take a large position. The fact that some insiders sold a week or two before “D” day could have also been a clue.

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Subramania Kaushik
Member
Subramania Kaushik
October 14, 2014 6:34 pm

Been a while on SG after i lost close to $75k on Regado πŸ™
This has been haunting me for the past several weeks. I normally don’t invest that much on a single biotech but this one was an exception. Still trying to recover from the $75k haircut!

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Alan Harris
Guest
Alan Harris
October 14, 2014 6:44 pm

Quant of money apart….dont feel too bad. We ALL lost money; We all bled.;We all made a mistake. On that level, you are just ‘one of us’ so v normal. Still, tomorrows another day…..older and (hopefully) wiser. Well you have to take some profit from a loss eh?

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Subramania Kaushik
Member
Subramania Kaushik
October 14, 2014 6:54 pm
Reply to  Alan Harris

Alan, it does hurt to have lost so much on one stock. But i have moved on and hopefully will recover what i lost in the next year or so!

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sassykind
Member