the week that was......
Fidelity Selects: Biotch 41.69 45.49 27.01 +0.4%
Franklin Class A: BioDisA 23.82 26.90 17.68 -0.2%
Franklin Class A: GlHlthA 13.96 18.95 12.86 -0.9%
AMEX Biotechnology Index. 205.04 +3.7%
Dow Jones 30 Industrials. 10,913.32 -1.0%
Nasdaq Biotech Index..... 483.92 +2.6%
***********
OK, even the ill-timed T/FIF, conceived of third-tier stocks in the
middle of the slaughter, is up 24% since 9/1/98. Bounce (up 74%
during the same period), despite not having been managed for some
time, has done much better. The newer portfolios are doing well.
Yes, there were some changes indicated in posts to this thread that
were never entered into the portfolios as shown. I forget what they
were, and do not know if they would have a positive or negative
impact on the numbers as shown. The portfolios are also sitting with
a slug of cash, for the most part (not true for "dry powder", up
15.4% since 4/1/99). I'll be glad to make the revisions if someone
has kept track of which need to be done. I may even get motivated
and go back and do it, regardless.
However, this certainly argues against the point that Mike has made
repeatedly. He points to our flexibility relative to that of von
Emster, the fund manager. These portfolios were constructed and left
largely untended. They were also constructed from different "types"
of companies (thus the relative outperformance of bounce and
Suzbounce to T/FIF).
So, I ask again...... how can von Emster "perform" so consistently?
It doesn't seem possible to be this bad by accident.
As many biotech investors know, 1995 was a huge year. It was a year
where, with little in the way of trading, a relatively naive investor
in anti-virals or in neurochem could have made >300%. At the
Informed Investors forum that provided the incentive to start this
thread, von Emster called the '95 rally "limited".
Franklin...... I'd propose that a variety of retroactive dart
board portfolios would show outperformance relative to FBDIX.
Let's review.... at the II forum, vE said that he could easily say
that the value for summer '98 was in the first-tier. He was correct,
big-time, and investors like Vector1 and Harold Engstrom had a field
day as first-tier exploded. von Emster was correct, and I was
wrong..... T/FIF floundered for months after having been
established, and its performance to date is nothing to brag about.
HOWEVER, it has far outperformed the Franklin portfolios. How can
this be?
During his presentation, I believe (not certain, but this is what my
notes say) that his top ten holdings included AVIR, INHL, ZONA, VIRS,
Chiroscience, CHIR and SANG. Is there a hint to his "performance" in
this list? Other opportunities that he mentioned included VPHM, GILD
and SUGN.
So, Mike.... we set up some portfolios and left them largely
untended. The performance gap between those portfolios and that of
von Emster is mind-boggling. To drive the point, we set up a
portfolio of stocks that, based on his liquidity and timing criteria,
stunk. He was absolutely correct...... like Freudenthal, his
"global criteria" presented at the forum were damn good ones. So,
how, how, how could our diverse and largely ignored portfolios, three
of which were established before the crescendo of third-tier
hammering, outperform his fund by such a wide margin?
He has consistently, in public, blamed the sector for his performance.
It seems to me that we have accumulated evidence, in a proactive
fashion, that says that his performance problems lie with stock
selection and timing.
With wisdom like this behind the only pure play in biotech mutual
funds (not counting the newer funds including that managed by Murphy
et al.), is it not surprising that predictions like "biotech goes
down in summer" become self-fulfilling?
If every fund manager sold biotechs at the beginning of summer and
bought them back in the Fall, or at least invested with the mind set
that research premiums should be seasonal, wouldn't that hamstring
the sector? What's the use of pursuing "big science" if research
premiums are largely going to be dictated by the broken mirror and
black cat crowd?
OK, so..... here's my next challenge.... I publicly challenge von
Emster, the guy who knocks the sector in an attempt to explain his
performance, to establish a portfolio. I will then tie half my brain
behind my back (right or left hemisphere, von Emster's choice) and
pick yet another portfolio. After three months, we'll see who wins.
In the event that I win, we can then set up another contest where I
tie three quarters of my brain behind my back and pick again. We can
keep going (seven eighths, fifteen sixteenths, etc.) until we find
the fraction of my brain that performs like that of von Emster.
Sound fair?
We need sector champions as biotech mutual fund managers. During this
period of illiquidity, our portfolios will be severely restrained if "Joe
Investor" comes back to biotech only to find that his funds are being
socked into companies that are headed toward mediocrity.
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