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Biotech / Medical : Biotech Valuation

CRSP 55.11

-2.6%

Nov 7 9:30 AM EST

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To: Sam Citron who wrote (7767)	1/20/2003 1:21:35 PM
From: Biomaven	Read Replies (1) of 52153

Sam, I would have done better over the last five years if I had hedged more. I've never been more than about 25% hedged - perhaps because I am an incorrigible optimist, as are most biotech investors. I've used a hodge-podge of hedging techniques. In 1998 and early 1999 I did well writing uncovered calls against the BTK index. In the big run-up that followed I was mostly on margin and unhedged, although I did write a number of distant covered calls when premiums were high and I came completely off margin during the run-up. I actually adopted a "cap" on my porfolio - when the market ran up I sold enough shares to keep the non-cash amount constant. Alas, I was too influenced by my future tax bill (most of my stocks are in a taxable account) to take as many profits as I should have during the bubble. I would have been much better served to have simply taken the short term gains and paid more tax. I've been short the QQQ for a long while - this has been my single most profitable investment over the last two years. I was also short the TTT (telecom holders) at a good time, but closed that out a few months ago. I've also maintained a BBH short until very recently. I will also occasionally short individual biotechs, but I don't really like to do so and rarely post about it when I do. I don't have any scientific basis for deciding what or when to hedge and whether or not to be on margin - mostly just gut feel. I used to use options more, but with the low interest rates now prevailing I think it's generally more efficient to simply short stocks so as to avoid the high transactions costs in the options market. (An individual shorting stocks doesn't get the interest on the credit balance, whereas this interest is built-in to the options prices. But with interest rates so low this becomes much less important). I don't invest much in non-biotechs any more (except I've owned enough MSFT to offset my short position in the QQQs). I'm about 65% invested in biotechs and 35% in safe, bond-like (US and European) instruments. Peter

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