Sorry Rappers

Hi – first time posting but I’ve been lurking on the RAP forum for the past year after a bunch of people at work got the fever and bought in. I warned them not to, not because I’m a good investor (I’m a buy-boring-stocks-and-hold-em-for-life kinda guy, and I even suck at that), but because I had my own painful RAP experience a year ago on a little spec stock called Admedus (ASX: AHZ). Here are a few observations on RAP, on how my spec experience turned out, and on what I wish I had done differently - in the hope that someone can maybe learn from my stupidity.

On RAP – up until 2 days ago, when people were evangelising about the stock, there was a lot of talk of the untapped potential of the third world. Guys, you talk about the third world as a completely abstract concept. I grew up in a third world country. The ‘just $5 per diagnosis’ amount that people like to throw about is often a family’s maize meal or millet or rice for a week or two. In many places, a hole to relieve yourself in is a luxury, let alone a quiet space to cough into a phone – there’s no such thing as a quiet space. And, phones. Seriously. Do you think every household in the third world has a smartphone (or any phone) lying around? Large swaths don’t even have electricity or running water. There is no third world market, unless you’re going in as a humanitarian charity – which is noble, but not profitable.

Then, 95% accuracy. Even if it ever does turn out to be true, 95% isn’t 100%. I have a 5yo daughter, and if she’s sick enough for me to worry about her cough, she’s going to the doctor. I’m not prepared to take that 5% risk. I’m not prepared to take a 2% risk. Of course the favourite argument is, ‘it’s more accurate than a human doctor’. I don’t really buy that – not my doctor (I think you’ll find most people feel that way). I have a relationship with my doctor. He’s known my daughter since birth. If I’m worried enough to seek a medical opinion, I want it from him.

Finally, hype. It’s easy to get lost in, and it’s fun. I love the enthusiasm. But as I learned the expensive way, hype is a loud siren with a big red flashing light. By the time the people like us are getting lost in it, the smart money has already taken profits and moved on. When people start betting the house on a sure thing, don’t walk away. Run.

As for my own expensive lesson – AHZ is a biomed company that’s developing a herpes vaccine, amongst some other smart things. The hype, the evangelising, the big name doctors and investors on board, the slick chairman with all the answers – carbon copy of RAP. But what few of us grasp is just how long and difficult and fraught with obstacles the path to turn a great medical idea into a money spinner is. Even with the smoothest sailing, it’s many years before any of these things hit the market, then many more years before they penetrate (at astronomical marketing and PR expense), then many more years before (if) they’re profitable. In all that time, it only takes one piece of bad news to bring the whole house of cards fluttering down. I bought at $1.03 and I’m still holding at 0.24. Although the board has changed and the company is actually profitable now, with some great tech in ever expanding international markets, the SP is still creeping down from its initial collapse. I had plenty of time to sell and cut my losses, but I’m a human and therefore not very smart.

Moral of the story, don’t expect a quick recovery with RAP (unless there’s some amazing revelation tomorrow morning). Don’t think that this is as low as it can go. And don’t automatically resign yourself to the fact that you’re stuck with your lot – there are other places to put your money, where it can steadily grow back.

Genuinely sorry for everyone who took a knock today. All the best going forward. Loose the money, but don’t lose the lesson.