Past performance is a poor indication of future return. This statement is particularly true in biotechnology stocks. Neopharm (posting 12.27.05) is a good example of a stock that had recently underperformed for a couple of months but then surprised most by opening up 52% in a day. If there is no correlation between past performance and future return, why are we so drawn to looking at charts and looking at past performance? I believe it is because it is in our nature as human beings to relfect, because we don't know what the future holds we look toward the past. Additionally, we are aware of the law of physics that states that an object in motion stays in motion and it takes a catalyst with an incredible amount of energy to change an object's direction. It is this notion that causes the incorrect assumption that a stock's past performance may give us an indication as to the future return. Anyone who has been on the wrong side of a trade when a stock gap's up or down will tell you the past is the past and nothing more.
On New Year's Eve we reflect on the previous year like a stock chart. We look at our past performance and seek to make improvements for the future. We make promises to ourselves that we will improve upon the past. We make New Year's resolutions to join a gym, to work out more, to start a new diet; but somewhere deep down inside we know that in fact we are lying to ourselves and our resolution will likely go on unresolved. We fear that the past momentum is too great to overcome. We know that without an external catalyst we won't loose the weight and developed the six pack we envy.
The catalyst necessary for change can come from multiple directions. A stock's catalyst can be internal or external. Internally a company can make changes that will lead to improved productivity which will improve margins leading toward improved profitability and ultimately this will be reflected in the stock price. The other kind of catalyst are external. We recently saw example of an external catalyst when Hurricane Katrina hit New Orleans devastating that region. Post-Katrina many companies were forced to take charges for losses due to closing and shipping delays. Tenet Healthcare (ticker: THC) is an example of a stock that is arguable one that was hit the hardest with six of their hospitals closing some of which would never reopen.
On New Year's Eve it is good to reflect on the past and look to what internal catalyst we can muster up that will drive positive change in our life. However, internal changes take a great deal of energy and are most likely to disappoint. This New Year's Eve while we reflect on the past and look toward the challenges that lay ahead lets humble ourselves and realize that maybe we don't have the ability to drive the change in our world. Instead of making false promises, that only dissapoint; let the past be the past and nothing more. Don't let your past determine your future return, instead pray that God will act as a supernatural catalyst to drive change in your world.
Jerimiah 33:3 "Call upon me and I will answer you"
Saturday, December 31, 2005
Tuesday, December 27, 2005
Neopharm (NEOL) up 52% on the day
When I turned on my computer this morning it was like getting a belated Christmas present. Neopharm (NEOL) a stock I convinced my portfolio manager to buy was up 47% by the end of the day it was up 52%. In the press release, Neopharm said that the review committee was allowing their phase III cancer drug trial would proceed as planned. The significance of this news was that the stock had recently been pressued by rumors around Wall Street that the trial was under powered. In addition it was rumored that two of their significant investors had given up on the stock and sold their shares which caused the short interest to sky rocket. To add more flames to the fire, the company was pretty short on cash and while the burn rate was not high they would likely have to raise more money before the end of 2006.
You might be wondering why with all these negative forces at play, did I advise my portfolio manager to buy it? I took a stock casting approach. When I first started looking at Neopharm I prayed and I believed that God was directing me toward investing in them. In addition, I particularly liked that this drug was actually having a tangible impact on the extension of these patients’ lives. The drug was for a small population of patients and not very important for the overall U.S. healthcare system. However, the drug would have a significant impact both on this company and, on the lives of these patients.
I conducted my traditional financial due diligence but soon after we bought the stock, bears started giving me all these negative reports. My faith started to waiver. It is hard to have confidence that God is directing you when all you hear and read are negative reports. During this time, I decided to pray and focus on what the word of God says. I read the chapter in the Bible where Moses sent spies into Canaan (Numbers 13) to explore the land and the spies came back with a negative report that the land was full of giants instead of the positive report of the financial bounty the land contained. This reminded me that God wants us to be optimists not necessarily realists in every situation. A realist is a person that looks at the circumstances as they are today and offers very little room in their decision making for faith.
My portfolio manager is a big believer in averaging down, so as Neopharm's share price dropped we bought more stock. The more he bought the more I sweated. The more I sweated the more I prayed. I never used to believe in averaging down, but in retrospect I realize that averaging down is actually a faith move. By averaging down you are in fact saying that despite the circumstance I still believe. That is the essence of faith.
Please do not mistake me, my faith was not blind faith. As I prayed, I also did my work rigorously and conducted more due diligence, seeking insight from doctors who use the competing drug on the market, talking to the company, speaking to other analysts, etc. This additional due diligence gave my portfolio manager the added confidence he needed.
Just a week ago I was telling a good friend of mine who is a talented sell side biotech analyst at a major global investment bank that he should consider looking at the stock and pick up coverage. He basically told me I was crazy. I left him a very nice voicemail on his cell phone this morning reminding him of our conversation. I have a feeling I won't hear from him for awhile.
Disclaimer: This blog is not intended to indicate a recommendation to buy or sell any stock or other investment vehicle, but its sole intent and purpose is to demostrate how prayer and faith can work in your professional/investment life .
You might be wondering why with all these negative forces at play, did I advise my portfolio manager to buy it? I took a stock casting approach. When I first started looking at Neopharm I prayed and I believed that God was directing me toward investing in them. In addition, I particularly liked that this drug was actually having a tangible impact on the extension of these patients’ lives. The drug was for a small population of patients and not very important for the overall U.S. healthcare system. However, the drug would have a significant impact both on this company and, on the lives of these patients.
I conducted my traditional financial due diligence but soon after we bought the stock, bears started giving me all these negative reports. My faith started to waiver. It is hard to have confidence that God is directing you when all you hear and read are negative reports. During this time, I decided to pray and focus on what the word of God says. I read the chapter in the Bible where Moses sent spies into Canaan (Numbers 13) to explore the land and the spies came back with a negative report that the land was full of giants instead of the positive report of the financial bounty the land contained. This reminded me that God wants us to be optimists not necessarily realists in every situation. A realist is a person that looks at the circumstances as they are today and offers very little room in their decision making for faith.
My portfolio manager is a big believer in averaging down, so as Neopharm's share price dropped we bought more stock. The more he bought the more I sweated. The more I sweated the more I prayed. I never used to believe in averaging down, but in retrospect I realize that averaging down is actually a faith move. By averaging down you are in fact saying that despite the circumstance I still believe. That is the essence of faith.
Please do not mistake me, my faith was not blind faith. As I prayed, I also did my work rigorously and conducted more due diligence, seeking insight from doctors who use the competing drug on the market, talking to the company, speaking to other analysts, etc. This additional due diligence gave my portfolio manager the added confidence he needed.
Just a week ago I was telling a good friend of mine who is a talented sell side biotech analyst at a major global investment bank that he should consider looking at the stock and pick up coverage. He basically told me I was crazy. I left him a very nice voicemail on his cell phone this morning reminding him of our conversation. I have a feeling I won't hear from him for awhile.
Disclaimer: This blog is not intended to indicate a recommendation to buy or sell any stock or other investment vehicle, but its sole intent and purpose is to demostrate how prayer and faith can work in your professional/investment life .
Sunday, December 25, 2005
Stock Casting 101: The Stock Market and Faith
Finance and Faith, Religion and Money. Simple words but put in the same sentence these words can cause even the most devote to cringe. Instantly images of televangelists asking little old ladies to put $10 in an envelopes come to mind. So when I sat to write a blog on the stock market and faith, I thought it best to start with an explanation.
STOCK CASTING 1O1: The Stock Market and Faith
The idea of Stock Casting came to me one day when I was reading John 21:6. The passage describes fishermen, friends of Jesus, who had been fishing all day with no results. Their failure that day was not due to their laziness or inaptitude. If you recall these fishermen were not weekend warriors trying to catch a fish on a lazy Saturday, they fished daily for their livelihood.
Jesus, a carpenter by trade, who knew little if anything about fishing tells them to cast their net unto the other side of the boat. It doesn't take a scientist to realize that Jesus advice makes no practical sense. It was the same water under the port or the starboard side of the boat. Casting their nets onto the other side didn't logically seem as if it would produce a different result. However these fishermen proved obedient and because of their obedience they caught more fish than they could bring in their boat.
What does this simple story have to do with the Stock Market and the daily challenge many of us working on Wall Street face as we look among thousands of investment opportunities for the ones that will yield the greatest return? As I read this passage, and although I was an analyst at a hedge fund on Wall Street, I identified with these fishermen. I was out there using all the tools I had and the knowledge I had acquired. But I was relying completely on my own mental acumen to pick stocks. I had a Ph.D from Yale working at one of the hedge funds with a reputation for outstanding results; yet God was not a part of the equation. It dawned on me that if God was willing to help these fishermen cast their nets and catch fish, God would want to help me as well in my daily work of selecting and finding the right stocks.
And what did he want in return? My trust in Him.
Trusting anything or anyone in the Stock Market is a challenge let alone a God that you can't see. Even those with an active prayer life have difficulty knowing the difference between His voice and the voice in their head. Many of the concepts I plan to talk about is how to hear God's voice in our decision making but in particular in stock picks as analysts, traders or portfolio managers. And more broadly how to actively include God in your work life.
If you are asking yourself why would God want to guide me with something like stock picks? My response to you is why would God want to help those fishermen with their fishing? The answer is simple. Because he wants us to relinquish control of our world and trust in Him. When you arrive at a place where you can't do it on your own, that is when you need faith and God can act and show to you that He is real and very interested in your welfare.
I recently started to practice "stock casting" and I believe that I am on to something. In giving up control of the reigns to God I was able to let Him direct which stocks I should buy or sell and the timing as well. This is not a get rich quick scheme. This is not like asking God what are the numbers in the lottery going to be. It is asking God very simply to be a part of my work -- show me where to focus my time and to wait for answers. It is about showing God that I can't do this on my own and I need His help.
The first time I applied "stock casting" was on the first night of my first day on a new job as a senior health care analyst at a small hedge fund. I knew I had to work hard and prove myself and I remember coming home to do some more work and really not knowing where to start. Rather than picking up the first analyst report or 10K I had printed up I decided to pray first. It was actually not a long prayer but a short one where I basically told God I didn't know what I was doing, I didn't know where to start, please help. After praying, I felt instead of reading what I had brought home to read, I decided to go to the CMS website, a site that is dedicated to Medicare and Medicaid. The first thing I noticed at the top of the page was a press release that had just been issued moments prior. As I read the press release, I instantly knew this was big news, big enough news that I decided to write up a quick email summarizing my findings and sending it immediately to my portfolio managers advising them of my recommendations. The next day, all the Medicare stocks were the big winners of the day.
By asking God for his help before staring my work that night, He directed me toward the place where my effort would be best spent. This is the foundation of "Stock Casting" asking God what to do, where to cast your net. I am just getting started on this journey myself and look forward to sharing my views, insights and results and hearing your feedback.
STOCK CASTING 1O1: The Stock Market and Faith
The idea of Stock Casting came to me one day when I was reading John 21:6. The passage describes fishermen, friends of Jesus, who had been fishing all day with no results. Their failure that day was not due to their laziness or inaptitude. If you recall these fishermen were not weekend warriors trying to catch a fish on a lazy Saturday, they fished daily for their livelihood.
Jesus, a carpenter by trade, who knew little if anything about fishing tells them to cast their net unto the other side of the boat. It doesn't take a scientist to realize that Jesus advice makes no practical sense. It was the same water under the port or the starboard side of the boat. Casting their nets onto the other side didn't logically seem as if it would produce a different result. However these fishermen proved obedient and because of their obedience they caught more fish than they could bring in their boat.
What does this simple story have to do with the Stock Market and the daily challenge many of us working on Wall Street face as we look among thousands of investment opportunities for the ones that will yield the greatest return? As I read this passage, and although I was an analyst at a hedge fund on Wall Street, I identified with these fishermen. I was out there using all the tools I had and the knowledge I had acquired. But I was relying completely on my own mental acumen to pick stocks. I had a Ph.D from Yale working at one of the hedge funds with a reputation for outstanding results; yet God was not a part of the equation. It dawned on me that if God was willing to help these fishermen cast their nets and catch fish, God would want to help me as well in my daily work of selecting and finding the right stocks.
And what did he want in return? My trust in Him.
Trusting anything or anyone in the Stock Market is a challenge let alone a God that you can't see. Even those with an active prayer life have difficulty knowing the difference between His voice and the voice in their head. Many of the concepts I plan to talk about is how to hear God's voice in our decision making but in particular in stock picks as analysts, traders or portfolio managers. And more broadly how to actively include God in your work life.
If you are asking yourself why would God want to guide me with something like stock picks? My response to you is why would God want to help those fishermen with their fishing? The answer is simple. Because he wants us to relinquish control of our world and trust in Him. When you arrive at a place where you can't do it on your own, that is when you need faith and God can act and show to you that He is real and very interested in your welfare.
I recently started to practice "stock casting" and I believe that I am on to something. In giving up control of the reigns to God I was able to let Him direct which stocks I should buy or sell and the timing as well. This is not a get rich quick scheme. This is not like asking God what are the numbers in the lottery going to be. It is asking God very simply to be a part of my work -- show me where to focus my time and to wait for answers. It is about showing God that I can't do this on my own and I need His help.
The first time I applied "stock casting" was on the first night of my first day on a new job as a senior health care analyst at a small hedge fund. I knew I had to work hard and prove myself and I remember coming home to do some more work and really not knowing where to start. Rather than picking up the first analyst report or 10K I had printed up I decided to pray first. It was actually not a long prayer but a short one where I basically told God I didn't know what I was doing, I didn't know where to start, please help. After praying, I felt instead of reading what I had brought home to read, I decided to go to the CMS website, a site that is dedicated to Medicare and Medicaid. The first thing I noticed at the top of the page was a press release that had just been issued moments prior. As I read the press release, I instantly knew this was big news, big enough news that I decided to write up a quick email summarizing my findings and sending it immediately to my portfolio managers advising them of my recommendations. The next day, all the Medicare stocks were the big winners of the day.
By asking God for his help before staring my work that night, He directed me toward the place where my effort would be best spent. This is the foundation of "Stock Casting" asking God what to do, where to cast your net. I am just getting started on this journey myself and look forward to sharing my views, insights and results and hearing your feedback.
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