Eric and Jon on investing, including a highlight on BioTime, a recently hyped company that announced a simple blood test to detect cancer:
Eric’s initial thoughts:
I have heard about various areas of research that are bringing us closer to this alleged cancer test, and remember that keyword: various. They are likely not the only game in town.
The most interesting part to me is the inclusion of Andrew von Eschenbach, Ph.D, former head of the NCI, who has joined BioTime. This tells me (and investors like young Jon here) that they are for real.
Let us know what you think about these few companies, and whether these findings are legitimate in their own right, and not just used to fuel an argument about politics and high finance.
Jon, convention wisdom tells me BioTime is a crapshoot. Trading at slightly over a penny stock at $6, it has all the markings of a typical R&D firm. Continual operating losses, no liquidity, absolutely no free cash flow (important indicator for dividends and continual funds to increase stock performance, and basically a measure of a firm’s overall worth) are all bad signs.
Furthermore, they have a high price/book ratio of 7.39 (over double the S&P average), and a P/E ratio (a Warren Buffet favorite) of N/A, because price ($6) divided by negative earnings yields a negative number, which is a nonsensical measurement.
Bottom line: Again, they may be for real, but this drug alone may not make up for poor management, poor marketing, lawsuits, etc. If they had some cash, I’d say go for it. If you have some money to burn, take it out for a spin. You will either become rich, or lose most of it.
Btw, I bought TBT 3 days ago at what looks like a bottom. Long-term interest rates are (slowly) increasing, so it might be a good time to short 20 or 30 year bonds.
Jon’s response:
Eric,
Yeah, for sure. You are right on everything. Super speculative. Zero fundamentals. This was evidenced by the 10% bump in stock price today. It is actually up 44% this past week, which is insane (rally evidently based on news of possible success for the testing). I usually stay away from any stock that averages less than 500k shares traded in a day (advice from a newsletter that my dad gets that I read called Cabot). This one has 150k. These stocks tend to move really wildly. I would only, maybe, put a minimal amount of cash in it- little enough that if I lost it all I wouldn’t be upset. Like I said, I don’t know the science of any of this and what will eventually succeed and what will fail. Even if the science is good, the company can go bust for the reasons you mentioned. Total long shot. I was just curious to see Jess’s thoughts on the newest and coolest stuff out there.
I’m kind of aggressive with my money to a certain degree, since I figure I’m young enough to make back any losses in the long term. I just put a good chunk of money in SODA, the maker of those soda making machines. Cool device (bought one for my brother). Good company, well received and reviewed product, good business model, etc. They will blow out earnings next quarter in March I’m pretty sure after a bunch of reading and observation. The stock has gotten hammered lately so I’m thinking it’s a good entry point. Anyway, they have their main factory in the West Bank. Not an ideal location… A little Middle East turmoil and I’m looking at a loss regardless to the fundamentals. Almost gambling, I guess.
In my IRA I’m much more conservative. I have a little SODA, a little Under Armour, 1/3 cash and just put 1/3 in NLY- 15% dividend payer good for an IRA since you don’t pay taxes on their dividend in there).
TBT is a great long term bet. I was going to put a huge chunk (probably all) of money there once the market starts to move again. In the short term, I can’t see rates rising much and I am just being greedy trying to find returns elsewhere while I am guessing that treasuries will go sideways. Not sure I can see rates falling from here, though. They can’t hit zero, right? Ha. I would have told you rates were going sideways earlier this year and would have been wrong. This market is nuts right now- Bill Gross at PIMCO even got beat this year with his bond bets, so you know everything is haywire.
I heard a fund manager or economist on CNBC this morning, or maybe yesterday, saying that he wouldn’t be surprised to see the 10 year treasury going to 1.5% at some point next year. I haven’t heard too many people saying that, but I guess it’s possible. As long as Europe is in trouble anyone looking to buy bonds is going to the US which will push rates down. The rates will also stay down as long as the economy sucks. In the long term, it is a 100% guarantee that we will see rates at 6% percent again, at least. And your investment will do very, very (2x for the double leverage, ha) nicely. It’s also an interesting math point to think that from the earlier this year high this ETF lost 50%- from about 40 to 20. On the way back up the gain would be 100%. Sweet.
I think “Operation Twist” didn’t help the 20 year either, right? And that should be temporary.
I may actually put some money there now that I am writing this. Just throw it in and forget about it… As long as you can tolerate a unlikely but possible interim loss there is no way this will be a long term losing bet. It’s the opposite of how my dad paid for my college- back then bonds were at an unsustainable 13% and he bought a ton of them. Now we’re at an unsustainable 2%. I screwed up timing the market this year, so it may be a good idea to just stop trying and think long term investing instead of trading.
- Jon
Eric’s response:
Well done Jon, you’d make a good MBA, Finance student. You fundamentals are solid, and your thoughts on TBT pretty much echo my own. Long-term play for sure. CNBC guy may be correct, but I wouldn’t bet on it. Bonds yields could go down that far, but people are fickle. They will get bored of being pessimistic and start pumping up the S&P as soon as Jim Cramer tells them so, while you and I sit back and laugh at them because we kept our money in stocks, and put in even more of it in during the slump.
Could that take years? Yes. But who cares? We’re not retiring anytime soon, and all the while we’re dollar cost averaging.
That being said, I like NLY, I gave it a look. I may even put some money there. Solid fundamentals, relatively average P/E ratio, and a very low Beta. (You probably know this, but I didn’t until I took finance, S&P Beta is the theoretical benchmark at 1.0. Below is less volatile, above is more, compared to the S&P). That industry is a good bet right now anyway, and even better because most people are afraid of it.
The EU is in uncharted territory, which means we all are, and the euro could be toast, but it doesn’t mean we shouldn’t have at least some money in international stocks. Just keep it diversified.
You are aggressive, you may think about some diversity in your IRA, like ETFs. 2/3 of my IRA is in 3 separate USAA mutual funds, USIFX (International), USIBX (US intermediate bonds, may as well benefit from Operation Twist) and USSPX (S&P ETF). Then the other 1/3 is split between a Vanguard Index REIT ETF (see, I have faith in your industry) and TBT. And like you say, for speculative stocks, as long as it’s money you’re ok with losing, play with it; go with your gut.
And you’re right about Op Twist. I’m annoyed at the Fed manipulating rates even lower, it’s stupid. We keep shirking responsibility, like your articles pointed out. Government is incredibly annoying right now, and it’s fueled by a desire to gain the attention and votes of anti-intellectuals, which sadly, is most of the country (enter Tea Party AND dirty hippy occupiers). Thinking for yourself is hard for most, but I feel it will prevail in the long run. That’s the ultimate long-term play.
Jon’s response:
Hahaha, thanks. The only worry I have is if there is a European default. If that happens, everyone will run scared into US bonds and push them even further down. Like you said, the system is rigged anyway with whatever policy Bernake thinks is right at the time. We’ll have to see I guess. Like we said, in the long run, mortgage rates can’t keep hitting all time lows, so they have to go up eventually…
NLY is pretty good, much better in an IRA, since if you buy it normally you have to pay taxes on the 15% dividend and in an IRA you don’t pay anything. Very stable and I think Warren Buffet owns a nice chunk of it, so it makes me feel better. I think all they do is borrow money really cheap and buy federally backed mortgage securities that can’t default. What they buy pays slightly higher rates back to them than they are paying in interest to their lender. They just mint money and pay it all out as a dividend. I never looked into super in depth, just read enough analyst opinions to know it’s well regarded as safe and well run. I guess if interest rates go up, their borrowing costs go up and they can get hit, though. The chart on it doesn’t move much, as you noted with the low beta, so it should just stay where it’s at and yield me a safe 15% next year. I was sick of just holding cash in my IRA and making 0%.
I was thinking about messing around with some European stocks, but I got burned a bit a few years ago trying to guess a bottom here in the US, so I don’t feel like trying again. It’s the whole “catching the falling knife” thing. I can’t predict what’s going to happen. A Euro index fund is not a bad idea though. Kris did that here when the dow was near the bottom and about doubled his money.
For your IRA stuff, it sounds like you’re set up well and nicely diversified. I may pick a mutual fund from you list in lieu of holding cash.
And yes, the government sucks. I deal with state and local bureaucracy every day. Occupy the bathroom sucks (Adam Carolla had a really funny speech from his Sirius show, if you haven’t heard it, it’s pretty funny http://www.youtube.com/watch?v=uQpXybTnGVg). The Tea Party is just as bad. All I do around here since York gets no good music stations is listen to conservative talk radio and get angry about how stupid the far right is. The extremes on both sides are just killing this country.
Now buy ten Sodastream soda makers. And ten for everyone you know.
And, most importantly,
Barkley is back…. USC will be a preseason #1, go undefeated and win yet another national title. AWESOME
