< They have vested interests, and they are paid to maintain them.>
I couldn't agree more... and unfortunately this fact eliminates or lessens the ability of the analyst or fund manager to guard against simple "human nature":
Part of Human learning is recognizing patterns and if one is not careful and diligent he/she will, among other things:
1.) Unwittingly extrapolate recognized patterns to unreasonable lengths.
2.) Seemingly recognize patterns that don't really exist.
Almost by definition they are "too close" to the situation and can be misled if not careful and "diligent" (a word that seems to have lost meaning in the investment world with the extended bull market).
Gilovich's excellent book "How We Know wWhat Isn't So" should be mandatory reading for the fund manager. It points out many other common flaws of human reasoning that can mislead those that aren't diligent in formulating opinion &/or strategy based on their observations. One obvious one is the tendency to overweight easily observable data and ignore perhaps equally important data that may not be in our faces every day (on CNBC?).
It's pretty easy to see how this relates to the biotech sector as a whole, and especially the "non-profitable" (as opposed to investment stage! ha ha good example) portion. Of course the current situation will eventually reverse itself, either by 1.) a sudden paradigm shift brought on by some event ("CHIRON TO BUY 4 BIOTECH COMPANIES"-read all about it) or 2.) a slow reversal... ie. companies will become discovered based on earnings. There are infinite funds following accelerating earnings. Even 2.) will become a shift at some point as products start rolling out and more companies turn profitable. This naturally attracts attention to find the "next one" and so on... until at some point... ooppss, the fund managers are unwittingly extrapolating the recognized pattern to unreasonable lengths! In the meantime, those that recognize these facts must sit tight and accumulate... by definition this is frustrating, boring, not sexy, and certainly not on CNBC.
DAK
Oh yea, by the way:
<Those who have a nose for stories....... Karen Bernstein, Stephen Edgington, Cynthia Robbins-Roth....>
I know Karen Bernstein is @ "BioCentury", where are the others??
Thanks. |
