Re: Farmas USA
Como he comentado, pongo la guía de biotech2k para invertir en bio (muy recomendable también seguir el foro, hay información de calidad):
https://www.investorvillage.com/groups.asp?mb=19595&mn=125&pt=msg&mid=18012624
My Ultimate Investment Guide
I haven't posted this one in a long time. It is updated with the new 5 start strategy and includes trading around a core position, designing a portfolio and staying disciplined.
Building Your Portfolio
The first key is to determine your risk tolerance. I am going to use an all biotech portfolio. I currently have mine set at 40% late stage companies, 40% mid stage companies and 20% early stage companies. This gives me less risk at the early stage stuff and a balance in companies that have delivered some real data to sink your teeth into. I define late stage as anything after a good phase 3 trial, mid stage is anything after a good phase 2 trial and early stage is anything before good phase 2 trial data. If your risk tolerance is low, you might want to go with bigger more profitable companies like the CELG, AMGN and REGN's of the world. If your all about big risk, then maybe you want to go more into early stage. First know what your willing to lose, before you try and figure out what you want to gain.
The next step is to determine how many companies to own. This is all about how many you can follow based on your free time. I set mine at a limit of 10. I know I can handle more then that, but I find 10 to be comfortable. If I go too far beyond that, I get confused about details between companies. If you pick 10 like me then your breakdown would be 10% in each of 10 companies for 100%. That would give you 4 late stage, 4 mid stage and 2 early stage if your going with the layout above. You can change it based on your risk evaluation and the number of companies you chose to own.
The last part is the most important. It is about position size. Just because you can have a max position in a very spec company at 10%, that doesn't mean you should. I use a reward winners system. I start all companies at 1/4 position and expand their max core position size 1/4 for each clinical success they have while I own it. So I start XYZ company at 1/4. If they have a good phase 2 trial, I make my max position size now 1/2. I don't expand the position size for a company that fails. It actually goes into probation until it succeeds or fails again. 2 failures is gone. There is no 3rd chances in biotech. This rewards winners and punishes losers making sure your keeping the most money in the winners and the least in the losers.
The final part of wisdom is Cash is King. You can't lose cash. At least, I hope you can't. Nothing ventured is nothing gained, but it is also nothing lost. Most people focus on what they can make in investing. I focus on not losing money. Not going broke is a great way of helping to get rich. I have a 20 for 20 rule. I keep at least 20% cash unless the market has a 20% correction. That makes sure you keep a good rainy day fund to buy at the best time.
Picking the right Companies
This is my 5 star system for fundamental analysis of companies.
1. Management - This is by far the most important of all. Management accounts for 50% or more of the success of a company. A great management can navigate the worst of times while a bad management can wreck even the best of times. I have broken management down into 5 categories by which I rate the overall management team. They are:
-Clinical Development - I want to see game changing science. I like to see at least one indication that has Breakthrough therapy designation. Its not a deal breaker, but it is very nice to see.
-Manufacturing - This doesn't get approved by the FDA until the drug approval process. It is hard to judge a management if they haven't reached this point yet.
-Financial Management - I don't want to see the use of debt. That can blow up in your face if things go wrong. I want a clean balance sheet. The timing of secondaries is important too.
-Commercial Sales - Clearly, the company has to get a drug approved before they can sell it. I want to see the launch and growth continue from quarter over quarter to year over year.
-Good Communications - Some managements go to all the conferences and sell their story to investors with continuous updates. Some companies don't. I like to see a management that is in constant contact with investors.
I don't penalize a company for something they haven't done yet. If I put N/A (non applicable) for any category, I don't count it in the total of the average. You will see my early companies have only 3 scores and I average those 3 scores for the management's overall score.
2. The Science - This is the second most important criteria. If you have good science and management, you will have a winner over long term. You don't have to be a medical professional to judge science. The clinical trials will do that for you. I give a company 5 stars to start and if anything goes wrong, I subtract a star until I feel the issue is resolved. The reasons I remove stars are for clinical failures, clinical holds, patient deaths, and complete response letters. If its is a clinical failure, then it looses a star until it has a clinical success. If it is a CRL, then it looses a star until the CRL is cleared. A company that repeatedly fails trials has got bad science. Also, watch closely the side effects. There can be silent killers lurking under the surface.
3. The potential - This is important since this is where we are going. The future of the company. Any drug that is in late stage phase 2 or phase 3 can be Googled for a "peak sales estimate". I want the upside to be worth the risk. The more early on companies should trade at a bigger discount to late stage companies. If a drug could do $1 billion in sales, then it could have a market cap max of $8 Billion. I use 8x sales for biotech since most of them trade at higher then that. A company in phase 3 with a billion dollar drug might trade at $3 billion market cap; where as, one with a billion dollar drug in phase 2 might only trade at 750 million to 1 billion market cap. I won't own a biotech that I can not justify it doubling every 5 years. I want at least 20% per year in growth.
4. The financials - This is more of a health checkup for our company. You have less risk in a company that has 0 debt, is profitable, has a commercial drug, or has at least a year of cash. I give more stars for how healthy a companies balance sheet is. All spec biotech companies fund research either through partnerships or secondary offerings. Those are expected. What you want to we watchful of is if one is imminent.
5. Risks - I have changed how I look at risks. I use to ding all companies for the potential of clinical failure. No company could have 5 stars in my book for risks. Now I look at 5 criteria and I only penalize a company if they actually have a clinical failure.
- Diversified Pipeline - No one hit wonders allowed. You have to have something to fall back on if a lead drug fails. I want to see 3 drugs or at least 1 drug with 3 indications.
- Stage of Development - I give them 1 star for each stage of development and then an extra star for the drug submitted to FDA and another bonus star after the drug is approved for a total of 5 possible.
- Commercial - I give a company 5 stars if they have reached commercial stage. They get a N/A until they are. That drags down the overall score when they are not commercial.
-Secondaries - The only time a company isn't at risk of a secondary is when it is profitable. A profitable company would be the only one to get 5 stars. Any company with at least 2 years of cash gets 4 stars. The more in need of cash a company is, the lower this rating should be.
- Clinical Failures - I only penalize a company if they have failed a trial, gotten a Complete Response Letter or had a clinical set back. I give 5 stars to companies who execute flawlessly.
Here a N/A (non applicable) is a bad thing. I add up all the scores for risks and divide it by a total of 5. That gives me the combined score for Risks.
Trading around Your Position
My strategy is one that is hybrid. It embraces the long term buy and hold wealth creation with the short term technical trading. It embraces the best of both worlds and has been tested for 21 years of investing. This is a more complete version that encompasses the whole portfolio strategy. I love to be diversified. I have learned from a few bad apples in the past that nothing stops you from getting rich quicker then having 25% of your portfolio into a company that drops 50% in value. Diversification is stupid insurance, and I will be the first to admit I need some of that.
Building my core position starts after I have done all the due diligence and watched the company for at least 3 months. I don't like to rush long term decisions to ensure I am not acting on emotions from a recent press release. I want to make these long term decisions strictly off logic. When I have decided to enter a new company, I buy my first 1/4 position so that I have exposure to the company. That is the just in case of a buy out. Then I try and wait for the company to have a bit of a pull back before I go to my 1/2 of a position. That becomes my core long term position in that company. I try to get at least a 10% discount for my second purchase. Sometimes it never comes down and your forced to pay up. That happens. Trading around the core position requires that you keep that 1/2 position forever and ever. OK, maybe not, but I use the Starship Trooper rule to decide when to sell a company. I keep it until it dies or I find one better. By dies, in this case, I mean it reaches what I feel is a peak valuation or maybe it goes bad in the case of a spec biotech.
Trading around the core position becomes one of technicals. I personally try not to overthink it and just use the money flow to determine overbought or oversold. When I see my company gets oversold - below 20 MFI, I buy 1/4 position and go up to 3/4 position in total. The final 1/4 position I try to hold out for a bigger 15% to 20% discount.
When the stock has a big move up. I fade the rally selling off my highest cost shares first and working my way back down to my core position. I use the money flow again to determine when I sell some shares. I like to see it get overbought at 80 MFI before I start to take some profits. I will never go below my 1/2 core position no matter how high the stock goes.
Trading around the core position helps amplify returns especially when the sector is going sideways for 2 years. I know it is not for everyone. Some folks like to just buy and hold and that is good. Others love to trade a lot and use very tight ranges. Its a strategy you can and use a little, use a lot, or not use at all.
Stay Disciplined
1. Know your Companies
Nothing scares someone out of a company quicker then ignorance. There are a lot a bad headlines out there that try to influence your decisions. The only way you can sort through all the noise is by knowing your companies.
2. Cash is King
I know many people think you have to be all in all of the time to try and beat the market. You can't take advantage of a great sell off unless you have cash to put to work. I keep at least 20% cash and sometimes I go as high as 70% when I think things are over done to the upside. I have a 20 for 20 rule. I keep 20% cash unless the market has a 20% correction. Beating the market after all is about being nimble. Emotion is the killer of making money. People get excited when stock are going up and fearful when they are going down. This causes you to do the opposite of what you should be doing. You have to train yourself to take some profits on those big moves and to buy into outright panic.
3. Stay Diversified
Even if your 100% biotech like me, you still need to be diversified. My rule has been no more then 10% in any one company. I know true diversification is claimed at 5 companies. I like closer to 7 to 10. I will go beyond 10 sometimes if the opportunity is good enough, or I am grooming a replacement company for one I wish to sell. I won't go beyond 15. That is when you become an index fund and should just go buy an index. I know we all want to be in the next Regeneron that goes up 3000%. You don't have to be all in on that one winner to become rich. Even a $10,000 investment in a company that goes up 3000% will become $300,000. My first venture into biotech included companies like Regeneron, Celgene, Alexion and BioMarin. All of these where big winners. Not all the companies I picked were winners though. I think I go through 10 losers before I get one of them big winners. Getting rich is first and foremost about not getting poor. You don't want to be all in on the next Enron even if it means missing some of the next Regeneron.
4. Never buy all at once
This is a key rule. You will never be able to perfectly time the market ever. Buying in increments over time is the best way to get the best cost basis you can. When I build my core position, I try to get the lowest cost basis I can. I will buy 1/4 position each time the stock pulls back at least 10%, and I prefer 15% to 20% on the really volatile companies. Just remember to not violate your max position limits. That is the only thing that keeps you from throwing good money after bad.
5. Never pay up
When I build a core position, I refuse to pay up for a company. If you buy a starter position in a company and it goes up and never comes back down, congratulations you found a winner. Never chase a company. All stocks go up and down. It is only a matter of time before a good sell off will bring that share price back to a better level to buy. This rule is more of a guideline. I strongly believe in rewarding winners and selling losers. Just be sure if your paying up for a company that it is based on real good clinical data and not just on FOMO (fear of missing out). It is hard to be patient for a sell off when stocks are partying like its 1999.
6. Never turn and investment into a trade
This is the key rule. This separates the 20% or 50% trade from the 3000% investment. The only way you will be around for all 3000% of the next Regeneron is if you don't sell out. My rule is the "Starship Troopers" rule. I keep a core company unless it dies or I find better. By dies, I mean the thesis becomes broken. It is good to trade the gyrations of the market around your core positions, but never sell that core position. It is the only way you will keep your winners for the big win.
7. Know when to take your lumps
I know this goes against human nature. We often refuse to admit when we are wrong and we certainly don't like losing money on a company. This naturally sets us up to do poorly. You always have to stay critical about a company and never fall in love. Denial is the root of all losses. This is why position caps are very necessary. Its to save us from or own stubbornness. This is the hardest rule to master. Its is a fine line between a broken stock and a broken company. I use my 5 star strategy to help figure out the difference. Management and clinical failures are the 2 biggest reasons to sell. Some managements seem to be full of excuses. Others just deliver consistently. Time will sort the winners from loser and you sell the losers while growing your winners.
8. Bulls make money, Bears make money, Pigs get slaughtered
This is a rule you probably heard a lot. It is also one that is very hard to actually obey. No one wants to take a profit when the stock price is partying like its 1999, but that is exactly when you should take a profit. This rule is about trading around your core position to amplify your long term gains. I keep 50% of my position as the core that is never sold. I use the other 50% to trade around that core position as the market goes up and down. Many biotech stocks can move 20%, 30% or even 50% or more over the course of a year from the peaks to troughs. Buying some on the beat down and selling some of the big rally is just good portfolio management. Just remember to stay disciplined and not go beyond your position limits. This isn't a necessary rule. Some people are all about trading and others just want to buy and hold. This is the one rule that is optional depending on your investing style.
9. Know your limits
Make sure you set your limits ahead of time. Have a strategy and stick to it. I have my limits set for position size. This is the rule that prevents you from throwing good money after bad. I know I have had companies that go lower, much lower sometimes, after I have reached my max position. I remind myself, "If I am right about the company, it will come back and go much higher from where I bought it." This reminds me that discipline trumps conviction. The worst scenario you can get into is a pattern of selling winners to fund losers. I am also very diciplined about price and valuation. I pick prices I would buy at. I won't chase a company. There are hundred of options out there to risk chasing a stock who's valuation has gotten carried away.
