Biotech Bearish Fundamentals
  • Fundamentals have been bad in biotech land, something that is reflecting in share prices and IPO performance ($XBI has halved since peak).
  • Positive news flow among small and mid-cap biotechs, which hit 60% in 2020, has just fallen below 30%.
  • “But it’s not just small caps, it’s across the sector: Jefferies’ Michael Yee said of 45 major clinical readouts from large and small players, only 20% were positive.”
  • Clinical holds have also spiked – 2022 is off to a bad start (13 holds in 8 weeks) and could surpass the already bad 2021 (>50 vs. 30 average historically.
  • The full article offers some explanations of what is going on.
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If anyone wonders why I own some Swedish match it's because of a pitch I heard on value hive :D stonk down almost 10% since but the co still doing well 😂😂😅😅🤷‍♀️

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High IV Tickers
Interesting high IV stocks with liquid options I noticed today, for any premium sellers out there: $AAPL, $T, $XBI--I'll be trying to setup some iron butterflies/condors as my Friday evening entertainment.
Depends on the ticker, days to expiration, and risk/reward ratio (i.e. price). High IV gives you the ability to make them wider, and the tendency to become profitable faster. I rarely wait until expiration, and take profits at whatever level makes sense given the circumstances. Yes, I sell calls and puts to when appropriate.
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$87 would be a 50% selloff since the all time high set last February. Will it get there--dunno. But, there is a precedent . . . July 2015 to Jan. 2016 was an almost exact 50% drop. Faster than this drop, but similar looking charts. It's piquing my interest.
Stuart's avatar
$82.2m follower assets
January 2021 Portfolio & Investing Update
January was a good month for me; for my actual portfolio and my mindset around it.

Last year I remember that my portfolio hit an all time high and was a great month for me in terms of dollar returns at that time.

That said, I had no plan.

By March when the pandemic started to really hit and we saw what would be the March lows, I had some quick and swift adjustments to make. Ultimately, this helped me reshape my portfolio, but having no plan was a mistake.

Not only did I not have a plan but I wasn't really paying attention to my portfolio. I had built it up since the end of 2013, and largely left it untouched in 2018 and 2019 other than a few top ups to my core FAANG holdings.

You can't manage what you don't measure.

Since June of 2020, I've been much more diligent in assessing my portfolio at the end of the month. While I look at monthly returns, I'm tempted to do this even less.

My investing horizon and style lends itself to these stocks hopefully being in the 3-5 year range at minimum, but ultimately decades. My novel goal of trying to outperform the $SPY on a monthly basis might prove to be the biggest flaw in my game.

While through 2020 I re-organized my portfolio, it wasn't until December of 2020 that I really started to map out a plan.

And while that plan may and I'm sure will change, the mental energy around my stocks and portfolio that I unnecessarily expended dramatically decreased.

This is part of how I break up, and review my portfolio to spend less overall mental energy on it.

Essentially, I'm trying to be more intentional with everything I do around (most of) my investing.

<< --------------------- Returns ----------------------- >>

Since this is a monthly review, I do look at monthly returns.

January 2021: 4.42%
vs
$SPY 0.35%
$QQQ 1.7%
$ARKK 10.23%

Like I said above, given my portfolio and the risk of it, I am looking to not only outperform $SPY , but realistically $QQQ as well. I note $ARKK in there as well as I am constantly evaluating ETFs. If I didn't enjoy picking stocks, I'd definitely be looking more seriously at $ARKK

Some people I have seen have $SPY at a lower number for January than I do around -1.35% .

I'm not too concerned with 1-2% either way, given my general performance goals, but just an FYI.

<< ------------------- Weighting --------------------- >>

Individually, my portfolio is weighted as follows. I track weights primarily for buying purposes rather than selling.

Currently, when I enter a position, I think about entering around 3-7% of my portfolio. Happy to keep buying up till around 10%, but unlikely beyond that.

Even now, compared to a year ago, this is going to be harder and harder to do given my portfolio size. 3% entry is most likely.

January 2021 Portfolio Update by Weight:
$AMZN - 16%
$LMND - 16%
$TSLA - 12%
$FB - 10%
$AAPL - 8%
$CRWD - 7%
$GOOGL - 7%
$NVDA - 7%
$TWLO - 6%
$ESTC - 5%
$MSFT - 3%
$FSLY - 3%
$V - 2%
$ESPO - 1%
$AONE - 1%

While individual position sizing is important. what's potentially even more important to me is the weight of the basket of my stocks.

For these "weight baskets" I break them down into 3 categories: Core Growth, Core Value, 10x.

My current weights for these are: 30%, 36% and 34% respectively. For me, and the timing of the positions, I'm quite comfortable and enjoy this split.

Over time depending on income/expenses and market conditions determine which bucket I'll add to, let alone how much.

Core Growth:
$FB

Core Value:

10x:

I hope that my 10x stocks will turn into Core Growth, and Core Growth into Core Value over time.

<< ----------------- Conviction ------------------- >>

I believe that simply being bullish on a stock and using returns, is not sufficient enough to determine the quality of your investing prowess.

Conviction is part of how I mitigate that and track whether or not I'm making good long term investing decisions which warrant my choice to continue to pick individual stocks rather than a more passive index investing strategy.

Conviction for me, is a measure of a combination of bullishness + returns + risk. Some people use much more sophisticated models and price targets. I am not one of them.

For me, conviction is a much better proxy for my belief in the stock than simply the size of my positions. For example, at this time my 16% weight of $LMND and it being my 2nd largest position, does not mean it is the stock which I believe in the 2nd most.

That said, stocks at the bottom of my conviction list, may be more likely to appear at the bottom of my portfolio weight.

Conviction ranking:
$FB

<< ----------------- Size Changes/Individual Returns ------------------- >>

This month, given my low amount of trading, most of the changes were driven by market returns, $CRWD being the only exception.

Again, I don't think its too important to look at monthly returns of stocks. Personally, I think about 9 months/1year is really the right time period to look at returns.

$LMND is a classic example of that for me where despite it being one of my larger positions, and having some decent conviction on the stock, the trend is just so early. My initiation of that position back in early October was essentially an early option on what I thought their 2020 Q4, and 2021 Q1 earnings were going to be.

January Monthly Position size changes (mostly returns):
$CRWD 28%*
$FSLY 25%
$LMND 18%
$TSLA 12%
$AAPL -1%
$AMZN -2%
$AONE -4%
$FB -6%
$V -12%

<< ----------------- Buys ------------------- >>

This month my only two buys were of $CRWD , while they both ended up around the $200 mark, this was not necessarily intentional.

$CRWD 1/6 @ $200, increase size of 9.6%
$CRWD 1/27 @ $200, increase size of 17.5%

Part of my 2021 plan includes continuing to dollar cost average/leg in to this position through the year. Most likely, 1-2x a months when the opportunity seems to present.

I'm not doing any deep Technical Analysis on these entry points but am starting to look at this more and more.

Depending on both market and personal scenario I may continue to add to $CRWD over the next few months, adding in 30-100% more capital into the position this year. Like I said, its in my plan but may change.

<< ----------------- Sells ------------------- >>

I made no sells, whether trims or exits this month.

If I wanted to be more aggressive in trying to beat the market in the short term, then this would change. I would be taking a much harder look at the stocks at the bottom of my conviction list.

For example, $V capital could be allocated "better". After the Plaid acquisition block, I'm expecting big things of Visa in terms of innovation if they can't grow by M&A, staying ahead of companies like $SQ . Do I really need to make this switch? No. Not yet, anway.

But, given my investing profile and plan, and what each stock is in my portfolio for I believe I will hold most of these stocks for years. The 3 stocks which are most at risk of an exit for me are:
$V - Are they innovating enough?
$FSLY - Have high expectations to meet and may struggle to grow into these expecations
$LMND - Balance between growth and profitability. Defensibility of AI claims.

<< ----------------- Lending ------------------- >>

I do utilize margin lending, that is, I borrow money and use stocks as the collateral for those loans.

I'm currently geared to 18.65% with a maximum allowable gearing of 48.13%

That means, if my loan goes beyond 50% of my portfolio, I'm in threat of being asked to pay down some of that loan. If you don't have the cash to do this, you'll have to sell stocks. At the time of a margin call, your stocks are probably more likely to be down...which is exactly when you may want to be buying.

I started investing in 2014 and took the risk to start investing with leverage out of the gate.

Why leverage? Primarily, I wanted to compound a bigger base. When starting, I was quite lucky to never have a margin call despite being geared around 50% easily.

Additionally, the interest payment is tax deductible so not even concerned with the actual interest rate.

I plan to not raise cash by selling stocks if possible, which is why I utilize margin lending.

I left my FT job in Nov 2019. When/if my "job" situation changes, will determine if I lever up or down.

I'm continue to hold stocks like $V as if they do grow, they help increase my maximum allowable gearing. Increases in my geared stocks mean I can be less concerned with reducing debt.

Obviously, this can go wrong, very quickly in volatile down markets.

What's equally important to the % levels, is my absolute dollar debt level which I am trying to keep within the realm of being able to pay down with cash over time (but a margin call today would force me to sell stocks which is not what I want to do, at all)

I also have no dependents, low cash burn/monthly expenses and other debt in my life.

<< ----------------- What Next? ------------------- >>

February will be an exciting month in terms of another earnings seasons.

We've already seen some great results come out from companies like $AAPL , $MSFT and $FB (and I haven't looked too deeply into $TSLA just yet).

The 2-3 that I'm going to be watching most closely are $FSLY and $LMND given what I've said above. $CRWD would be the next most interesting for me given my plans to continue to add to this position.

All the rest aren't that likely to materially affect my thoughts, that said, I will be reviewing them all to stay up to date...but I'm not going to really trade around them in the short term.

Q1/Q2 2021 Earnings will be much more interesting and meaningful than Q4 2020.

Why?

I'll be watching to see how the cloud expansion and accelerated growth of companies in my portfolio in 2020 are continued, maintained or reduced in 2021. Any maintenance or further increases of growth rates amongst Growth stocks will be very impressive and likely lead me to stay fully invested for the majority of this year.

If the growth companies fail to live up to their growth status, I'll likely maintain my current level of exposure to the market, rather than increasing it.

Stocks that I don't own but will be watching over the next couple of months include:
Other stock watch list:

Again, depending on how the next 2 quarters go will determine whether or not I add these companies to my portfolio, and how much I do. I'm willing to pay a higher price for this.

Depending on risk, income and my returns over the next couple of months, I may move towards a more ETF dominant strategy, in which case something like $XBI may see an addition to my portfolio, as I'd like to increase my exposure to health/biotech

<< ----------------- Thanks ------------------- >>

If you made it this far, thanks for reading. If you found this useful, please leave a comment below, I'd love to hear your thoughts.

I'm looking forward to doing this again at the end of February.

Best,

Stuart
Awesome write up, Stuart.

I exited out of my $LMND position Friday from my buy price of around $55 because it broke a very long term key support (see pic). This added on to my uncertainty about this next earnings. I did think about hedging with some puts but I thought I'd be more comfortable buying after earnings if all goes well. I'm still optimistic for their future and I'm hoping this earnings will help give some clarity on the direction of $LMND.
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