Last week I cautioned investors against the "irrational exuberance" running as wild as the bulls of Pamplona through the biotech sector. Stem cell stocks like Aastrom Biosciences (Nasdaq:ASTM), Cleveland BioLabs (Nasdaq:CBLI), Geron Corporation (Nasdaq:GERN) and StemCells Inc. (Nasdaq:STEM) all have shown tremendous gains recently.
However, it seems many investors took issue with my observations, as evidenced by the volume of e-mails in my inbox and the comments posted on certain forums.
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Hour Of Discontent
Some questioned my mental acuity, while others accused me of trying to stifle share prices by short selling stocks in the sector. (At present, I have no position in biotechs at all. Therefore, such statements are a gross exaggeration of my influence as well as a faulty assumption regarding my holdings).
A few were kind, though. Several folks, sensing, perhaps, that I just needed a vacation, suggested a place I could go (although it sounds way too hot for my liking).
And The Point Is?
Although the number of negative missives surprised me a bit, I was more disheartened by the number of people that missed the point I was trying to make. As a writer whose duty it is to communicate effectively, I must take my share of the blame for this. Thus, I will try, try again to make myself clear.
To begin with, I have no issues with stem cell research. In fact, judging by some of the e-mails I received, I now realize that without such study, mankind is doomed. Second, I understand that a number of companies are doing great work in the field. But none of this means that Acme Stem Cells is going to become the next Berkshire-Hathaway (NYSE:BRK-A), does it?
Learning From History
In my initial writing on the subject, Irrational Exuberance Part II, I referenced Commodore Business Machines (CBM) as a good example of what can happen on the road to investment riches. In the early days of home computers, Commodore indisputably was the king, with sales of the company's Commodore 64 approaching 17 million units from 1982 to 1994, according to the Computer History Museum.
According to Brian Bagnall, author of "On The Edge: The Spectacular Rise and Fall of Commodore", if it weren't for a variety of bumbles and stumbles, CBM would still be flourishing today.
"After the Commodore 64 was released, I think if they had just had competent management - not even spectacular management or above-average management - but just kind of, maybe, IBM-type management, I think they would have done OK - if they could have extended the Commodore 64 line," Bagnall said on the Linux Link Tech Show in September 2006. "Because they had a user base there that was huge and very willing to buy an upgrade to the Commodore 64, as long as it was compatible with all their old software. And I think if they had got that one thing right, they could have rode [sic] that chain all the way out ..."
"I think they would have been like Apple (Nasdaq:AAPL) today," Bagnall concluded.
Agree or disagree, Bagnall presents a great "what if" scenario that emphasizes just how difficult it is to know which road to take in the yellow wood. What if executives at Microsoft (Nasdaq:MSFT) or Yahoo! (Nasdaq:YHOO) had dedicated themselves to developing a better search engine? Would there be a Google (Nasdaq:GOOG)? What if America Online (AOL) had been quicker to recognize the changing internet landscape? Would they still be a dominant service provider? What if I had realized that an all-night New Year's party and shopping for bedroom mattresses the next day don't mix? Would I presently be banned from my local Wal-Mart (NYSE:WMT)?
These are tough questions - the kind investors should probably think hard about before making a pell-mell dash to purchase the current hot stock o' the week.
A Penny Saved...
The point is: be sensible when you invest and know your limitations. I'm not a stem cell expert (nor do I play one on TV), but I do know a little something about speculation. And I've learned that it is foolhardy to try to force one's personal views onto the markets. After all, value, like beauty, is in the eye of the beholder. Just because a company has a great product, doesn't mean it's a great investment.
Just ask the folks that used to work for Commodore.
(For further reading on this volatile sector, be sure to read The Ups And Downs Of Biotechnology.)