It was fun writing the chapter: The Investment Zoo, in my book, Dream. Invest. Live. (which is finally available on Kindle, yea!)
“Lots of news stories make it sound like there are only bulls and bears, but there are also wolves, vultures, turtles, hummingbirds, elephants, church mice, . . . ”
Lately I’ve been feeling like a turtle slowly walking through a storm, keeping my head tucked in, and only poking out when I need to nibble.
Bull markets and bear markets are up markets and down markets. They are also generalizations, and just like with people, generalizations are always inaccurate. People and everyday life are defined by unique details that only match generalizations by chance. I enjoyed matching analogies of hummingbirds to day-traders and elephants to institutions. I’ll leave those detailed descriptions to the book. Within my view of the investment zoo, turtles can be those investors that keep their heads down, tend to be solitary, make slow steady progress, and survive because of a defense that protects them during tough times. They don’t grow quickly. They don’t move quickly. They aren’t flashy. They definitely aren’t noisy. And they can be easily overlooked.
My portfolio has not been a happy place this year. The companies I’m invested in have been doing very well, but the bull market has been growing the larger and more well-known stocks, that was until the world was hit with an unseasonable series of unrests and disasters. Even the broad markets have retreated. The companies represented by my two biggest holdings (AMSC & DNDN) have reported good business growth and are properly positioning themselves to accelerate their revenue growth. In one case that is good news for energy (AMSC). In the other case it is good news for cancer treatments and patients (DNDN). Both stocks started the year undervalued (in my opinion) and have declined. In particular, DNDN has dropped just as I was relying on it to pay bills. I can still pay them, but it takes more shares than I prefer. I’m having to nibble my way through my bills. Good thing that I live a frugal life.
Dendreon recently received FDA approval for its prostate cancer treatment, Provenge. This year the company announced that the treatment works better than previously thought, that they were expanding into Europe without having to share profits here or there, and that they were accelerating the building of more facilities within the US. In rough numbers they made about $40 million in 2010, will probably make about $400 million in 2011, may expand to $1.2 billion after the facilities are operating in 2012, and will more than double that if they successfully treat the European market. They have a potential for a $4 billion revenue stream from Provenge alone. And it looks like the same technology can work against a half dozen other significant cancers. Revenue growth of a hundred-fold and the stock has gone down, ostensibly as they wait for the Medicare authorities to finalize their reimbursement strategies – even though the company is almost running at capacity even without that.
American Superconductor has a similar story: a disruptive technology with few competitors and revenues steered towards accelerated growth, with a declining stock.
Right or wrong, unfortunate for me or not, such disconnects between company prospects and current stock prices are more common amongst small companies. That’s why I buy their stocks, when I can. It’s why it is difficult to be an investor relying on their value to fund a lifestyle. It’s why, at times like this, I become a turtle of an investor.
There are herds of investors that have been spooked into stampeding. The predators like it when the prey run. The media sells drama, not rational thought. Unrests and disasters are traumatic events. For some companies, they are catastrophic. For many people such events are final. Those are the stories we see in the news, and for good reason. Knowing about tragedy is one way we exercise compassion. But a perspective is also necessary. I know many people who are worrying about radiation from Japan. If you have the time and sense of humor I recommend chasing yourself around this chart from a most excellent geek cartoonist (xkcd). Most of the things in the news don’t impact most lives.
As a turtle, I mosey along as I keep my goals in mind, poke my head out to check my progress, graze as required, avoid stampedes, and watch for the clouds for the break in the storm.
The companies that I’m invested in look like they’ll succeed. I hold enough stock in enough companies that I should have “enough” and probably more, maybe not today, but eventually. I’m not one of those investors who gets spooked out of the market, simply because I am not one of those investors who thinks I can guess the right time to jump in as the storm will passes. Being late on such timing misses much of the benefit. I invest for the long term, and in the long term I have been reasonably successful because enough of the companies that I’ve invested in have succeeded and become noticed.
I thought that over the last twelve months DNDN would be worth two, three or four times today’s price. I actually think it is worth that, but unfortunately the price has actually gone down 15% despite good news and real revenues. Maybe “they’re” right. Maybe I’ll be right.
In the meantime, I’ll slowly nibble my way across the investment landscape, keeping in mind that the turtle analogy is not immutable. As the sun comes out and the world gets brighter, I’ll be able to step outside the shell and change into something swifter, freer, and more exuberant. Okay guys, in my head I’m cuing up “Fly Like An Eagle“.
(Side note: I’ll be talking about my kindle experience in my Modern Self-Publishing class scheduled for April 23rd. Send me a note if you want to attend. firstname.lastname@example.org)