So much for conventional wisdom. Sometimes stuff just happens. A couple of posts ago I wrote about a biotech company that was spun off to concentrate on developing stem cell treatments. ASTY Spins Off and Up. I like their story, and the treatment’s potential, so I bought in for my usual long ride of ups and downs as a company matures. My most recent post was about Adaptable Patience, the idea that “Patience is a virtue. Work brings rewards. Do both and get more than either can provide.” I wrote about work, but the concept applies to investing too. This week ASTY did something completely different. Good.
For those who are new to the blog, welcome to my investment strategy. It isn’t anything new. Long Term Buy and Hold, LTBH, is common enough; but many would say to belongs in a far away time when what a company did was more important than how its stock moved. Find a company that is possibly selling for less than it is worth, buy some, hold on as market irrationality bumps it up and down, and then sell the stock after the company is successful and the stock is in such demand that it is overvalued. Pick your own variant, but I check value based on “Present Value of Future Revenues Discounted for Risk”. Want to know more? I describe it in my book, Dream. Invest. Live.
A little company like Asterias, working on a highly technical treatment, that has to meet FDA approval for a critical condition can expect to take years, sometimes a decade to succeed. I bought after a pop, figured I’d add more later if funds became available. And just added it to my watch screens so I could monitor it the way I monitor all of my stocks, casually.
Well, this was fun. The stock popped a bit more from where I bought it, then dropped back and settled out as I expected. The good news was that it was still above my purchase price. Yay! Okay, time for the boring decade, eh? No. Two boring days, yes; then two days of climb and climb. Since I bought it, ASTY is up over 200%. Annualized that is a hilarious 7,000+% return, which is down from the ridiculous 11,000% return that was extrapolated from a few hours instead of a few days. But hey, I won’t get in its way.
Conventional wisdom is that stocks, on average, return about 7%-10% per year. Averaged out across the market and across the decades that is true. Averages aren’t individuals. If they were, then we’d all be about half woman and half man.
Day traders live off volatility like ASTY’s, though they may prefer a lot more noise and less straightline climbs. There are investors who, very prudently and wisely, make 10%, sell, and walk away to try again. Do that once a year with every stock in your portfolio and your portfolio will beat the average return. Day traders take that logic and try to do it on smaller percentages far more often. At that frequency, the trading becomes tied to the stock price and disassociated with the company. Whether the company is doing anything constructive is immaterial.
I buy stock in small companies, ideally hold them until they become profitable, sell the stock, and then start the cycle over again. To some, my style is speculating because the companies rarely have financial data to analyze, which means estimates (guesses) must be made. To day traders, my style is investing at such a mind-numbingly dull level that they consider it worthless. Within the last few years, as financial institutions are driven by algorithms more than by any notion of service (as long it was profitable), the concept of considering the company is claimed to be anachronistic. When I hear two such divergent opinions about something I am doing, I figure I’m probably standing in just about the right spot.
Today, Friday, September 5, 2014, I thought about selling some of my ASTY. My position was up over 200%. I could sell half, take out my original investment, and let the profits be pure. If I had done so with DNDN or AMSC a few years ago, I might be debt-free now. Many of my friends wonder why I don’t. The reason reaches back into that idea of patience, and also back into my experience.
I’m commonly asked what was my biggest investing mistake. Was it not selling DNDN at $55? Was it riding IRIDF down until it went bankrupt? Was it any of the several times I’ve lost tens of thousands of dollars? Nope. (You knew I was going to say that, didn’t you?) My biggest mistakes all had the same thing in common; I didn’t trust my analyses, responded to fear or peer pressure, and sold too early. The most I ever lost on a bad stock was probably about $100,000. The most I ever lost by selling a stock in a good company was about ten times that. By selling early I’ve missed out on several million dollars.
Investing for the long term is not easy. Being distracted by hourly, daily, or quarterly moves is, however, very easy. The pace of life has sped up to the point that anyone checking data back across a decade is considered silly. I’ve been investing since before 1980. I’ve tracked my data through most of that history, which covers booms, busts, recessions, and the Recession. My recent results are dismal. Yet, the logic remains and the overall data are encouraging.
Asterias is so new that there is very little to learn about it. Investors, or speculators, are in the guessing phase trying to figure out whether the technology has a reasonable chance of succeeding, how much money the company can make, and what are appropriate valuations for now and that eventual then. I counseled myself on the long wait, and I continue to believe that is appropriate – for me. Evidently, about two days ago, some portion of the investment community decided that this was the time to move and buy at prices above what I paid. I don’t know if they are day traders (though they don’t seem to be acting that way), or shorts covering their positions (though the stock has been public for so little time that I doubt they could build big positions), or individual investors buying in because they are champions of stem cell treatments (which I’ve seen happen with ASTM and STEM), or maybe some professionals did some analyses during that two day lull and were willing to buy in at almost any price (maybe, but who knows.)
My opinion of Asterias hasn’t changed since that previous post. There’s been no news or data so there’s no reason to change my opinion. I’m not planning on selling. I’m glad I bought. And, as I repeat the phrase that is frequently a sign of a pleasant investing experience, “I wish I had bought more.” All the more reason to maintain that patience, and keep working.