Investing in biotech stocks - My experience so far

Moe_The_Bartender

I can’t get excited about EVFM. The effectiveness of the contraceptive is 86% which is not very reassuring.

BrockStoker

thegentleway said:

All your investments are in 5 stocks in one industry?! Wow that’s concentrated. Do you know the base rate for picking individual stocks? Isn’t all the wealth generated by stock market from 4% of shares? So you have a 1/25 chance of picking a stock that will do well...

No. Those are just my individual stock portfolios. Individual stocks make up just a small part of my overall assets. Most of it is in funds, and I also have a large part in cash/property at this stage in time. I should also point out here that Rolls Royce is not a biotech, and Amyris is a biotech that is part of the "basic materials" sector, so it's not all biotech in the health care sector.

I think chances of success with individual stocks really depends on what metric you use to measure success. As I mentioned, only around 3 stocks out of the 25 or so I picked have been unsuccessful for me. My main portfolio (which I first bought stocks for @ the start of Nov 19) has more than doubled in value, and I believe the gains would have been significantly more had I not made some basic mistakes along the way which needed correcting - one of the dangers of learning as you go!

So for whatever reason (I'm not exactly sure, but I've made suggestions along the way) I've managed to buck the trend - if anything I would say my failure rate is something like 3/25 (virtually the complete opposite to 1/25 success rate) although that is over a quite short timescale.

It has to be noted that, when I first started this thread over a year ago now, the consensus (at least it seemed to me) was that my target at the time (to double my investment in 5-10 years) was not achievable, but I've managed it in a mere 14 months. I've also since (last October) started another two portfolios (see a few posts above this one), and both are currently up around 70% after just 3 months.

As I eluded to above, I have yet to pin-point the exact nature of my success, but I believe it may be the combination of some or all of the following factors:

- I virtually only invest in companies in the biotech sector, and I have a good understanding of the sector/science, which I believe may give me the edge over most investors, and possibly even some "specialist" analysts.

- I try to only invest in companies that have been beaten down for no good reason (value investing in growth companies effectively), so there is even a likely profit to be made even if they only "revert to mean", but even more so should they present positive data that contradicts the bear thesis. Biotech is a high risk/reward sector, so going from unloved to loved in a short space of time often means significant % gains in a short space of time. Plus if things go wrong, having bought close to the bottom, potential losses are minimized.

- It's a sub-category of the above point, but I believe there is a disconnect between true valuation and the valuation analysts often assign to disruptive tech, especially biotech IME, which is a "loop hole" I try to use to my advantage. Up till now, from what I have seen many analysts have been using the standard models for traditional "small-molecule" (old tech) drug companies to try to value disruptive new companies (which does not work for many reasons), but it seems they have started to change this (as recently as in the last week - see a few posts back Re: GS)now.

- I tend to look for companies that are not "one trick ponies" and/or have deep pipelines, so if one thing goes wrong, there is something else to fall back on.

- I started with a whole load of what I though were mostly good/great companies and have whittled them down to only the handful that I know/think have the best risk-reward profile.

- I'm willing to wait (sometimes decades) before selling to get the real gains, and willing to hold (or even add) when a stock suffers a significant fall (50+%), which probably beats something like 80% (anyone have any real numbers?) of other retail investors off the bat I would guess? Granted my longest current hold is ARWR @ only 10 months having sold off most of the rest of my portfolio, but I'm now happier with my portfolio than at any other time in the past, and crucially, more confident in the underlying stocks, so I will hold as long as necessary to achieve my goals.

- My philosophy is/has been to take risk, not for the sake of taking risk, but to only take carefully calculated risks with good risk-reward profiles, and because I've always viewed individual company stocks as a punt, I'm willing to go that bit further if I think it's worth the risk. At the same time, preservation of capital is a high priority, and perhaps counter intuitively, a good way to achieve this is to grow your money aggressively. The best form of defense is attack after all. It all works well together because biotech companies are naturally defensive whilst at the same time being very aggressive.

One thing is for sure, I almost never follow the crowd, and if anything try to do the opposite.

So I've outlined everything I can think of at the moment (will add via edit if anything else comes to mind) that I think may have contributed. What do you think? I wish I could put my finger on something in particular, but it's not easy for me to objectively analyze this data, and so I'm relying on other posters on this forum for feedback.

Username999

Wow MSE genius investor!

BrockStoker

Username999 said:

Wow MSE genius investor!

I wouldn't say that. I'm just an observer who likes to take a less trodden path where there may be overlooked opportunities. Along the way I've put together a strategy (based on what I've seen) that seems to work for me in my situation, and tried to make decisions in a calm/logical manner, something anyone with a reasonable level of intelligence should be able to do, although they may not necessarily follow the exact same path - there are many ways to skin a cat. Either that or I'm just blind lucky, like those reindeer:

https://phys.org/news/2020-12-santa-reindeer-outdo-senators-stocks.html

Perhaps I like to see things from a different angle to others, but I don't think I'm a genius (or even close), and if you want to mock someone for having a little vision, I think it probably reflects more on you than it does them.

Either way, my strategy hinges on the science, and if the science is good then there is no reason my portfolio/s should not do well. The data/results that come in over the next few weeks/months/years will prove it one way or the other.

BrockStoker

Moe_The_Bartender said:

I can’t get excited about EVFM. The effectiveness of the contraceptive is 86% which is not very reassuring.

That's actually not that far off the effectiveness of condoms. In real life condoms are about 85% effective at preventing pregnancy.

Michael121

BrockStoker said:

Moe_The_Bartender said:

I can’t get excited about EVFM. The effectiveness of the contraceptive is 86% which is not very reassuring.

That's actually not that far off the effectiveness of condoms. In real life condoms are about 85% effective at preventing pregnancy.

That percent probably includes a bunch of morons that put it on their head instead, GL with your goals though. Seems like its a risk that wont hurt you in the long run so i say go for it.

thegentleway

BrockStoker said:

thegentleway said:

All your investments are in 5 stocks in one industry?! Wow that’s concentrated. Do you know the base rate for picking individual stocks? Isn’t all the wealth generated by stock market from 4% of shares? So you have a 1/25 chance of picking a stock that will do well...

 What do you think? I wish I could put my finger on something in particular, but it's not easy for me to objectively analyze this data, and so I'm relying on other posters on this forum for feedback.

Thanks for answering so very glad to hear it’s only a small part of your assets.
What I think is probably not what you want to hear... May I ask a couple of questions?

1. Assuming that 1/25 stock perform well and you have the ability to recognise a winning stock 22/25 of the time, what do you estimate the probability of you picking a performing stock is?

2. For each stock you’ve picked you have a compelling story as to why it will perform but have you considered some of the ways in which they could fail?
Thanks,

Cus

BrockStoker said:

No. Those are just my individual stock portfolios. Individual stocks make up just a small part of my overall assets. Most of it is in funds, and I also have a large part in cash/property at this stage in time. 

Why do you not use the extra assets to invest more in Arrowhead? You have said often that if you had more money to invest in it you would.

Also, you have done well, but considering that even the basic worldwide healthcare trust has gone up over 50% since the autumn of 2019 means that this has been an exceptional time for this industry anyway.

kinger101

Michael121 said:

BrockStoker said:

Moe_The_Bartender said:

I can’t get excited about EVFM. The effectiveness of the contraceptive is 86% which is not very reassuring.

That's actually not that far off the effectiveness of condoms. In real life condoms are about 85% effective at preventing pregnancy.

That percent probably includes a bunch of morons that put it on their head instead, GL with your goals though. Seems like its a risk that wont hurt you in the long run so i say go for it.

It's probably highly effective if you put it on your head.  Would you sh@g someone with a condom on their head?

Michael121

kinger101 said:

It's probably highly effective if you put it on your head.  Would you sh@g someone with a condom on their head?

What i would do is irrelevant, point is reports say condoms are  85% effective or 98% effective used properly so what are those people doing in between to get the 85% figure. I don't know about you but i have seen some stupid $h!t behind closed doors when people are drunk. To answer your question though i would hope my partner hasn't got a condom on any heads, its not an experience i would enjoy.