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10 Rules of Investing BioPharma


So the stock market has taken a beating the past two sessions and investors are panicking. What to do???

Here it is, the 10 Rules of Investing Biopharma.

Here's my advice on the stock market. With sessions down right now its a good time to buy people. Trust in your investments. Stocks always tend to take a beating in the spring and summer months. That's just history speaking. But no need to panic.

10 Rules of Investing BioPharma

1. Do your homework.

2. Resist the urge to constant buying and selling

3. The age old adage, Buy Low-Sell High.

4. Follow the Clinical Trial Process.

5. Don't stock chase your investments.

6. Reinvest your profits. Be Frugal.

7. Seek out proven winners.

8. Beware of the pump and dump!!!

9. If you don't understand the stock sector don't invest in it.

10. Only invest what you are willing to lose.


With that said lets look a little closer at my advice and what it means.

1. Do your homework.

There are plenty of research tools available on the internet. Use them to your advantage. Sites like Google Finance, Yahoo finance, Marketwatch, Forbes, Bloomberg, and Wikinvest are great sites. A business professor of mine suggested a subscription to the Wall Street Journal and follow it for a year before investing. Look up a quote and find news wires and check their financial information. For the biopharma market seek biopharma specific sites. SeekingAlpha is great. BioMedReports, MedicalNewsToday, the whole line of FierceBiotech/Pharma. PR Newswires and Reuters are good newswires to give you up to the minute information. Warren Buffet's BusinessWire is a great tool. I stick to Healthcare sites and BioPharma sites for obvious reasons. It's what I'm good at and it is what I know the best. Find your market sector and stick to it.

But if you are new to the game. Take some business finance classes at a local college. These can help you understand the investment lingo, and the balance sheets and see where companies are hurting or if the are actually making a profit. For BioPharma, learn about the Clinical Trial Process and what the different phases mean. Understand the risks too of those Clinical Trials. Read up on Clinical Trial Data. Go on the FDA's website and look for drugs in the pipeline and drugs that have been approved for various clinical trials.

2. Resist the urge to constant buying and selling.

OK many people think day trading is where it's at but you can't make sound investments overnight. Yeah it might go up that day, but after the hype it tends to settle off. Buy and hold for long term investment is the key to making a profit for later on. Investments are meant to be held for over a year. That's really how you make your profit. 10 years from now you will be kicking yourself when you find that your stock you sold now is making a big name for themselves and you sold out a long time ago. You should seek out stocks for dividends. Dividends are what you can retire on someday and can sit back and drink Pina Colada's in the Caribbean with your special someone while still earning an income. I haven't reached that level yet but I'm working on it. It really does take money to make money. You need capital for these investments so that you can really buy large quantities of these great stocks and earn a hefty return on your investment.

3. Buy Low-Sell High.

Good lord how many times do we have to say it. If a stock is reaching its 52 week high, it might go up but for how long. Some make it, but the market fluctuates over time. It goes up and down. You have to learn to read the charts and see a trend. Buy in the trough of that trend. Sell at its peak. But when investing in small caps and penny stocks, its hard to see that trend. The company is struggling to reach that 15 to 20 to 30 point range so it takes time. Buy when the stock is down. For example, buy today after the market took a pummeling. Most stocks went down today. Buy Buy Buy!!! Seriously, learn about limit orders and stick to your guns. Buy when they take a hit. You will shoot yourself in the foot if you don't. With Biopharma stocks this isn't always the rule though. To some extent but not always. Stocks like google have shown that sometimes that stock really never comes down.


4. Follow the Clinical Trial Processes.

Companies with Multiple Clinical trials are the answer. Pfizer I think has like 1600drugs in clinical trial right now. Glaxo has 1800. Novartis has 1300. You get the picture.

It comes down to the clinical trials and the drug data. Will that drug be approved? Will it fail? Will it be approved and suddenly someone dies from that medication and there are huge lawsuits to be settled? Most investigative drugs fail. It's very close to 1 in a 1000 that make it for approval. Throughout the clinical trial process many fail in Phase I and II. Out of that there usually is a 10% failure in Phase III. This is important to know. ClinicalTrials.gov is a good site to find some helpful info on drugs in the pipeline.

5. Don't stock chase your investments.

Stock chasing is when you try to get in when it's too late. Chasing that stock. It can be a risky gamble. You invest on that Hot Tip.

Many people think stock market investing is all about getting good tips. But this is a fool’s game—better for fun and stimulation than for producing meaningful long term growth in your stock market portfolio.

The financial media is full of stock market investing tips. Go to any newsstand and you can find magazines full of interesting company profiles and interviews with investment advisers offering their latest hot stock market tips.

If your investing orientation is pursuing hot tips, most stock market brokers will happily play your game. It’s their business to push certain stocks that their firms want to sell; and it’s easy to justify their commissions when you think you’re investing in a hot stock that could soar in value.

6. Reinvest your profits. Be Frugal.

These are some of Warren Buffett's Golden Rules. Keep investing. Stock trading should be done for long term investments. Read up on his strategies and be a stock trading superstar. He didn't become a billionaire by going out and buying a new car or playstation after every successful trade.

Be frugal. Save Save Save. If we have learned anything buy this economic crisis in America, it's that we are not saving enough. Save 10-15 percent of your income is a good. Use your companies 401k plan and at minimum use the company match of 6 percent. Stock investments can be a good saving tool for the future. But when you have made a profit, buy more or buy different stocks. Diversify your portfolio and seek dividends for early retirement.

If you already have a 401k plan, start an IRA. Open a online trading account. There are plenty to choose from. Roth IRA's are very popular and tax friendly. But continue to save and reinvest. It's the only way to generate more capital. It really does take money and capital to make money. You can start small, Buffet invested at an early age but he used these principles to get where he is today.

In Buffett’s own words:
I’m 15 percent Fisher and 85 percent Benjamin Graham. (Buffett's Mentors at Columbia University)
The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.

7. Seek out proven winners in management.

Good management goes a long way. Large cap BioPharma companies got there for a reason. They know what they are doing. They have large capital to buy small companies and ideas. But the same applies for small cap. A good CEO and finacial team can ride out the tough times. Many small companies are hiring proven management teams from these large companies and paying them large salaries. This is why Forbes has a list. Look into their lists and see why these executives get paid the big bucks. Especially now with so many mergers and corporate takeovers.

I worked under Fred Hassan at Schering-Plough. He can take a company, mold it and transform it and then sell it to Merck for a huge profit. I didn't like it but hey I can't blame the guy. But he did that for years at Sandoz and Wyeth. Why would he stop now. Others include James Cornelius CEO, Bristol-Myers Squibb, Richard Clark CEO, chairman, and president, Merck & Co., and Tony Zook CEO and president, AstraZeneca US. But there will be others. Look into who is working for the company. See what their credentials are.

This also goes with Ethics. Pharmaceuticals are governed by the FDA. Falsifying data, clinical trials, and critical financial information can really hurt the investor.


8. Beware of the pump and dump!!!

Ah the great investing Pump and Dump. Its been around for decades and now with the information age and internet it's thriving like the plague. It's like Bernie Madoff and his Ponzi Scheme. It's been around for a long time and we fall for it every time. It's really just hype. A company gets great marketing tools available and markets the hell out of the stock. We read these articles and are like Whoa, I gotta have it, I have to get in now. The NY times prints an article, CBS does a 60 minute special, Yahoo has it all over the internet. The stock goes up and up. Hits a peak, then crashes and burns in flames. Sometimes it's legitimate information. But these weasels are in serious debt. They have to find a way to keep their investor's happy so they come up with a great Pump and Dump scheme. This usually is for Penny Stocks and Small Caps. Most large cap stocks are legit. But beware!!! All that hype will bite you in the A@@ so fast you will go home crying to mommy. Where's my money?

Best advice do your homework, check their financial information, and look into their clinical trial data. But just be aware that it's out there. I've been watching Pawn Stars on the History Channel and they are good at seeing through the hype and spotting a fake. Trust no one. Just because so and so said it, doesn't make it true. The Pawn Stars have experts to come in and evaluate what's real and what's fake. But it's the same with the financial world too. And even the experts get burned too. So just use your got. Don't stock chase and look at the charts before you buy into the hype.

9. If you don't understand the stock sector don't invest in it.

I modified Buffett's rule number one of investing from business to stock sector. Hey pick a sector and run with it. Mine is the Health/BioPharma industry. I know the ins and outs of Biotech/Pharmaceutical industry. I have worked for Contract Manufacturing companies and see what goes on and the business behind it. I have a degree in Biochemistry and understand the science. I have worked on Clinical trials and know the process. That's me. That's what I do. But it's my passion and it is what I understand. I'm not on here just hyping companies up that I know nothing about. I think I have proven that.

I know a little bit about the other sectors but I stick with BioPharma. I know that I can find new companies and new investments at anytime and there are great opportunities out there. I know the Big Pharma's are stocks you can retire on with high dividends. With the science today it's a good time for the BioPharma industry. But find a sector and stick to it.

10. Only invest what you are willing to lose.

This probably should be rule number one, but as with many things a 1 and a 10 can mean many things on different scales. Do not invest any money that you are not willing to lose everything. Clinical Trials fail, stock markets crash, terrorist fly planes into the World Trade Center. It's a risky choice to make. Don't invest your lunch money if you aren't willing to go hungry. The market is not a get rich quick scheme. I promise. The market does tend to go up, but as with the financial times right now, anything and anything can go belly up. Just look at Bear Stearns, AIG, all the TARP banks, and the car companies. This is a good time to get in, don't get me wrong, but if a dirty bomb goes off in the US, the market will fall. We are at war, and in a long term recession. Marshall law might not be declared tomorrow but Russia is back in the game. They have resumed their Cold War bombing raids and anything can happen.

But if you are willing to take that risk, you have a least a chance for success. Same with Poker, Same with the Lottery, and Same with Wall Street. Anything can happen