Next investment idea: biotech stock(s)

Folks, this is really scary. IFO has just invested in a stock she swore she would never do – it’s just recently left penny stock category going over one dollar per share and it is in an industry she knows NOTHING about!

Now before you start to worry that she’s lost her bearings, note that she made her investment from within her Roth IRA – which is a very small part of her overall net worth. And the amount of money she spent is a very small part of the IRA.

But what about her other investment rules? She’s decided to expand her risk profile while keeping a very close eye on the company and the movement of its price. However, reading a very reliable commenter on a little-known web publication, she has decided that this isn’t quite the risk it seems. And, no, she’s not going to mention the name of the stock. Too risky. Don’t want you be influenced by IFO.

Remember, or maybe you don’t so we’ll remind you, that she also took a flyer on some early web businesses. All went well UNTIL she got too busy WORKING to keep up with the stocks she had bought.

A good company based in Kirkland was started by someone in the industry who was trying to bring it to the internet. It was bought in a stock deal by a company started by mainly venture funders who had no clue about that industry.

The shareholders received prospectuses detailing the operations of both companies. IFO may have been one of the few people who actually read it. Unfortunately, she read it after the share price of the combined stock had plunged to nearly nothing. But when she did read it, she could see that both businesses had had falling revenues and other business metrics.

It didn’t take a genius to see that. The name of that company? Webvan. The fall was so spectacular that people have turned the saga into a business case study.

This case study, BTW, doesn’t mention the merger with HomeGrocer, the company whose stock she had bought. The merger turned her HomeGrocer into Webvan. Ugh.

She did fine with her other Internet investment using some information published in a local business newspaper about Insider Sales. She thought the huge sale of stock reported by the company founder was kind of worrying. She asked him about it and his answer was weak, in her opinion. She sold at a very tidy profit. After a tortured history, the company no longer exists.

What do we learn from this? PAY ATTENTION!

Now, if your company is 75 to 100 years old and has paid dividends most or all of those years, maybe you don’t have to look every day, but even with these guys, Pay Attention.

Remember what happened to IBM. It took the genius manager, Lou Gerstner, to save that company from what looked like certain death. Check this out: Lou Gerstner’s Turnaround Tales at IBM

Summary from the linked article: Gerstner … took over as CEO in 1993, a year the company posted an $8 billion loss, and IBM shares that had sold for $43 in 1987 could be had for $12. IBM’s “prospects for survival are very bleak,” wrote … authors of [one] book.. . A magazine wrote: a company of IBM’s size, however organized, can ever react quickly enough to compete.” And Larry Ellison of Oracle commented: “IBM? We don’t even think about those guys anymore. They’re not dead, but they’re irrelevant.”

 

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About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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