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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (55098)3/25/2015 9:38:52 PM
From: Graham Osborn  Read Replies (1) of 78742
 
I agree 100%. Valuations are way above Graham and generally Buffett levels, but they are for the most part not insane. The greatest systemic exception is healthcare and especially biotech. Witness the AbbVie buyout of Pharmacyclics for 30 times sales or the record Actavis debt financing over the past 5 weeks. This has been a long build since the mid 2000s when healthcare was apparently viewed as a safe bet amidst the financial turmoil. The leading biotech hedge funds have been achieving 30%+ annual returns the past 5 years or so. In my opinion such consistent high returns are possible only by some form of front running (beating the institutions to the analysis, utilizing trade execution inefficiencies like Renaissance Technologies, or illegal insider transactions) or by riding a bubble. These are very difficult stocks to short given the buyout risk which just magnifies the problem. We saw that even with a relatively isolated event like the AbbVie/ Shire deal blowup last year that if holdings are substantially leveraged we can see dumping across sectors to raise cash. So I worry how the broader market will be affected by a larger scale replay.

I noted some institutional profit taking in the IYH/ IBB growth favorites last Friday and a bigger selloff today. Definitely concerned and watching closely.
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