Ten Common Biotech Investing Mistakes

By DrKSSMDPhD, August 7, 2016

[Ed. Note: Dr. KSS writes about medicine biotech stocks for the Gumshoe Irregulars. He chooses his own topics, and his words and opinions are his own. Visit his Stock Gumshoe page for his past articles and most recent comments.]

Assessing biotechnology stocks involves use of lots of mental microscopes and magnifying lenses. But the task we’ve committed to at Gumshoe Biotech is not only finding new investment ideas for you in biotech before the chattering classes are all over them but also to impart to you the skill set to be a sturdy, confident biotech investor. As such, for this column I’m introducing no new companies but rather donning a wide-angle lens. The following pointers are a critique with constructive intent based on mistakes and misperceptions I see readers needing to disabuse themselves of.

(1) For reasons I don’t understand, I still see readers fretting and spending cognitive energy regarding quarterly conference calls and earnings from small cap biotechs. I’ve seen readers post, “I am interested in this stock, but will wait for the quarterly numbers before I take a position.”

May I ask why? Indeed, for small cap biotech, which is mostly what we cover, what can you possibly derive from quarterly numbers? Are you somehow not expecting a loss? Are you thinking that a loss less than predicted for a money-losing company ever facing capital crunches is somehow motivating for a buy? Why? Help me out here…..I genuinely cannot grasp what you are possibly thinking.

My number one guiding principle for how I manage the real estate between my ears is that I absolutely will not tolerate it being cluttered with irrelevant, ant-driven, busybody, nerd-worthy factoids. I hate them. I don’t give a flying faffola how many tons of coal Russia imported during the second Five Year Plan! Trends, principles, concepts, big pictures…..that’s all I travel with. That leaves me mentally agile, able to leap tall buildings over sellside analysts, most of whom have risible formulations. If you insist on driving so many nails into a board that only splinters remain you cannot and will not ever be any good at biotech investing. Don’t clutter the thread with pettiness, and more important, don’t clutter your brain with it, either.

For my columns, I utterly ignore quarterly numbers unless the company in question is large-cap and profitable. Almost none of the companies we cover here are profitable. ...

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