Manipulation – When you invest long term be prepared for complete manipulation of your stock. Regardless of your due diligence, and your patience there will be someone out there who will write a negative article while shorting the stock. Understand that this happens a lot in biotech stocks. These manipulators know how speculative these stocks are, and so they know that many investors will dump at the first sign of any negative article.............
Good news that doesn’t move the biotech stock up – There will come times when a biotech company puts out a good press release, with outstanding results but the stock goes down anyways. Why does this happen? Quite simply there are a few reasons. The best thing to do is not panic, and analyze the results yourself for a few days. The first reason is day traders. They see a press release in the morning that is good news, and decide to get in on the trade. They are testing the waters to see if the stock will pop up. Next up is the kicker, if the day trader doesn’t see good movement they will dump their stock. As all the day traders dump the stock, the stock then falls of a cliff. Secondly a lot of people that are long, but decide to take half the profit or some off the table. The point is it creates a domino effect, because when longs see the money going down a lot they then decide to dump. The trick here as I mentioned is to remain calm, and understand what the results mean for the company’s bottom line. Understand why you invested in the first place based off of your due diligence, and not short term reaction.......Money Manager Manipulation – You normally don’t see it, but just because it is not seen does not mean it is not happening. Remember in the biotech world you have a limited amount of money to work with. Money managers work with millions of dollars. Sounds uneven right? Well yes it is, but remember just do your due diligence and remain strong. You will see days where money managers break up small bids/asks to keep the stock from moving as they accumulate shares. This happens all the time! Sometimes they can even go as far as to drop the stock on purpose to take out peoples stop losses. Why would they drop it on purpose? Well they have the control of moving the stock whenever they want. Example: if a stock trades at $2 per share and has low volume, any money manager that comes in and brings the volume up big because they think the stock is undervalued, then the stock will skyrocket up. I have seen this lately on (IDRA) Idera Pharmaceuticals where it sat for months at .75 cents, and then boom one day it shot up 40% on no news. Do you honestly believe this move was all retail investors? I don’t think so, this was a money manager moving it up. Be cautious, but at the same time if you do your homework on the biotech stock and its technology you should be good for the long term.....
Trials Take A Long Time– Going through all the trials take a lot of time. This is one thing you have to understand about the biotech sector. From Investigation in animals, preclinical work, phase 1, phase 2, phase 3, and FDA approval you are looking at 7-9 years. Yes it sucks, although now they have reduced some measures like Fast track approval, and other new regulations. Still, when you do your due diligence decide to go long on a stock until the trials are complete. It does suck to see the stock you invest in to sit at one spot for years, before it actually takes off like a rocket. I can give you one example that will make you understand! PCYC (Pharmacyclics Inc.) sat at $1 per share in 2008. Today PCYC trades at $130 per share, now imagine all those people who got impatient and sold out early, because they didn’t see movement. Like I have said before biotech long term investing is for those who can withstand the patience needed to make money. Now I’m not gonna claim that every biotech will eventually go up, it is not true. Some will languish low forever (sad I know), but you will never know unless you try............
Understand that Different dosages are tested for each trial– There are times where some trials (mainly phase 2 trials) are tested multiple times. What does this mean? Well sometimes a company will run 2 or 3 phase 2 trials at the same time, or one after the other. The reason for this is to determine the right dosage needed to go into the final phase 3 trial. Which is why sometimes you will see phase 2a, and phase 2b trials in press releases. This is not because the biotech is trying to drag out the process. This has to do with phase 2a testing out lower dosage, and then phase 2b testing out higher dosing. This is a good thing because when a biotech enters phase 3 they want to make sure they have the dosing right. If they go into phase 3 with a dose not high enough, or not good enough that’s when the trial collapses......
Short Selling on biotech stocks– Over the years I have learned how the game is played. Yes the stock market is a game, and unfortunately we have to learn to play it. This is how money managers short stocks! One point to make before I mention how money managers manipulate stocks is to just stay out of the way. If you are long and comfortable ignore the game play! If you are short term you can ignore the game play as well just be cautious. Lets use an example: Lets say a stock is trading at $4 per share for instance, then a few days later climbs up to $6 per share. At this time lets say a hedge fund shorted the stock at $4 per share. On some stocks the hedge fund will lose if there is another money manager loading up shares. But if it is on a stock with a low volume count the hedge fund losing money on their short, will short the stock some more. You might ask why? Well to get the share price back below $4 per share so they can cover where they bought it. This way they don’t have to lose any money! You will see this often but if you are long term on a biotech stock it’s best to ignore. I just wanted to let you know that this type of manipulation exists..........
High Frequency Trading – Has become a huge problem recently but investors must understand as of now it is not illegal. Therefore if you are a long term investor stick to your long term thesis and ignore the high frequency trading that occurs in the market. Short term traders you will just have to understand that you are at a disadvantage trading against computers. At the moment you just have to keep on doing what you are doing, or as a suggestion look to start investing long term in nice companies you like. Doesn’t necessarily have to be biotech stocks, you could purchase save dividend stocks and hold onto them long term as they pay dividends. The beauty of the stock market is you choose how you want to play the game even if sometimes there are players that play dirty. There are always a few players that have always had an advantage in the stock market, and until the SEC(ASIC) does something things may or may not ever change..............Stock Market Correction – As noted above biotech corrections is just one part of the equation, there is another phenomena known as “Market Correction” this takes place for all sectors and is a huge market sell off. The problem with this Market Correction is that it can occur for quite some time. So as before you have to make certain decisions? Are you happy with your current holdings if so hang on for the ride, if you are a short term trader you probably have stops set in anyways so you can wait till the entire market correction is done before entering a new position. Like everything else it just depends on your current investment thesis, everyone has their own investment strategy and should stick with it. Have faith in your ability to follow your strategy despite what others do. One big mistake is to play ” follow the leader” because sometimes you regret when you sold stocks when you know you shouldn’t have. Especially after they recover and then end up higher, the best course of action is to always stick to your plan.................There are a few hurdles we face, most are very relevant to MSB holders but we will overcome them .....Vin
BLT Price at posting:
12.0¢ Sentiment: Hold Disclosure: Held
