I like to think that I’m doing some good here on the blog. Your emails, comments, and return visits have led me to believe that. That said, I don’t think that I am a “guru” and that everyone else is wrong. My point on this site is simple: you can invest like Warren Buffett. Still, you don’t have to. And some people clearly don’t want to.
Yesterday, I got a comment that brought me back to 1999.
Please, Excuse The Sarcasm
When this comment came in, a few points really struck me-not quite funny, but disturbing. When your data and reasoning is right, you are right. It’s not my thing; Buffett himself says it. But, when your data and reasoning are as follows, well this is exactly why people lost so much money in the early 2000s:
It’s On Its Way
Amylin is an up and coming biotech company not a big pharma one
I don’t argue that. Up and coming, and burning through cash while it “comes up”-not worthy of my retirement money (or my play money for that matter). F Wall Street is not about Wall Street’s next hot stock; it’s about owning wonderful businesses. Amylin is not a wonderful business; and, until Amylin becomes wonderful, it is nothing more than a stock tip.
Wall Street Love It
Sure you make a good point, but the experts like Meg at Goldman Sachs and many others such as Eastborne and Fidelity seem to have a very different opinion
Does Meg work for Goldman Sachs-the Goldman Sachs that, according to this August 24, 2006 SEC filing owns 1.3 million shares of Amylin? Did Meg tell this visitor that her firm has $62 million riding on Amylin’s stock price?
Or is he putting more faith in Eastbourne Capital Management’s independent review because of their 19,236,767 shares? Maybe we should listen to Fidelity because their 15,577,167 shares are just the right amount to remain impartial.
I know-that just means they’re committed to Amylin’s success, right? Maybe it’s me, but I have a hard time listening to some broker tell me how great a business is when that broker stands to lose $1 billion if we don’t buy the stock. No offense to these institutions, but when push comes to shove, are they going to protect your portfolio…or theirs?
I think we’re better off valuing the business.
It’s The Best Drug In The World
And the drugs (first in class) byetta and symlin are selling well, for injectables, and will continue to grow much more before further clincial trial news comes out this year and prior to the once weekly version of byetta(LAR) comes out in a couple years.
I looked at the business of Amylin, rather than relying on the hope of the sales of their drugs. But, this visitor forced my hand. I spoke with a friend in pharmaceutical sales and was told that Byetta is better, but many doctors are using Byetta as a backup to Merck’s Januvia. For newly diagnosed diabetics, doctors are trying the oral Januvia before committing patients to a lifetime of Byetta shots.
“If Januvia doesn’t do it, we’ll switch you to Byetta.” That doesn’t sound like a commanding moat or a model for market domination. And let’s not forget-they still have to last those “couple years” while burning through more cash.
Cash From Biotechs Is Different Than Other Cash
“You and Zachs really should learn how to value to biotechs, especially those already selling top drugs…
Let’s ask Buffett how to value biotechs-and all other investments:
The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.
Does this visitor have a reasonable, rational basis for determining the cash that can be taken out of Amylin? Does he have a way to determine the value of Amylin? Why is he so married to this tough-to-value company? (Insider or analyst, perhaps?)
It Doesn’t Matter Where Cash Comes From
And finally:
and with over 1 billion in cash on hand!
As of March 31, 2007, Amylin has $634.5 million of cash and cash equivalents. Considering that none of that cash came from operations and $508 million of that cash came from an April 2006 stock offering, I wouldn’t bet my retirement on their financial strength just yet.
…And There’s The Problem
It all adds up to one thing: Massive uncertainty. Is that how you want to invest your money?
The rationale that this visitor used to try and convince me of the superiority of Amylin is the exact reason why people lost so much money in the early 2000s. Wall Street F-ed investors by selling the world on ideas-regardless of the underlying business. F me once, shame on you. F me twice…
Perhaps I won’t sway this visitor, but I’d imagine that thousands of you are not going to commit your retirement money to Amylin until it ceases to become a company with “wonderful” prospects…and becomes a wonderful company. Now the real question-if I can put Amylin’s business in Plain English, why won’t Wall Street?
A Quick Note About Comments
My goal here is not to discourage you from commenting; in fact, I encourage it. Still, if you try to convince F Wall Street visitors to buy anything but wonderful businesses, I’ll fight tooth-and-nail for their retirements.
Filed under: Companies Analyzed (Generals)
Related Stocks: AMLN
No, I am no analyst nor insider, but a regular guy, a pharmacist by profession, who likes to invest in what he knows after finding companies from various searches(message boards) and do my homework in search of the next DNA or AMGN. Sure not for everybody, and not for the faint of heart, and my motivation for that post yesterday was to defend the company/stock I love, not necessarily try to pump it up(did not think it would end up on yahoo). For a stock like Amylin, some of its future success does depend on its pipeline and no analyst nor major investor can guarantee that success, as there can be the smallest of risk from drug failure and competition that can hurt you, but even Amgen and Celgene face that. The lucrative potential for the small investor is to buy some of a company stock(up to their own risk level) before they sell billions not after the balance sheet looks like Amgen’s imo. Also, Amylin did raise more money and does have 1.14 billion dollars on hand. A few other companies I like are Medares and Genvec, both of which are very risky, but have a lot of potential. Also, always diversify and do not put too much money in biotech(of course). And one more thing that makes me ill about competition from Jauvia(Merck’s drug) that is a DPIV inhibitor not exactly the same and does not promote weight loss and not as effective as byetta, but have heard that many Merck reps are calling januvia ‘an oral byetta’ which is untrue….but it is difficult for Amylin to compete or go after every physician that Merck does(or after Merck legally) since Amylin is a much smaller company, and Lilly(who Amylin shares byetta 50/50 with) does not promote byetta that heavily in the U.S. either. Then again, no one expected byetta to do as well as it did thus far and has proven skeptics wrong and short sellers. Finally it is easy to highlight the risk with this stock and future drugs(like any company), but if you dig deep you will find that if any company can find blockbuster potential drugs and bring them to market, it is Amylin, and in my opinion, a pretty good bet! Do your due diligence!
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I do not believe that Joe is saying that the company that you “know” is a bad company he was saying that it he is unsure and uncertain about its current business and its prospects. Both of these can be bad because there are other companies that are more sure and more certain on what types of businesses they are and how they handle ups and downs of business cycles. I agree with the thinking that there are more understandable businesses out there and would be a better place for most people’s money.
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you MAKE SOOOO MUCH SENSE!!!! And to ad to this bulletin, I gave a broker 20k to invest for me thinking that I am being wise because all of my other friends are spending any penny they earn. He puts me in a mutual fund that dips almost the minute he buys it. I come to learn that there are companies with such great financial stability and I am on the phone with him saying, “Why is a company like BIDU up 250% in ONE FREAKING YEAR and you have me in this 8% a year Mutual Fund?” He replies, “Just remember, the stock market is a marathon, not a race.” I told him to close the account and send me the money, 3 weeks later I am managing my IRA and my 20k and I am up 33% in two months. KEEP UP THE GREAT COMMENTS BECAUSE THE TRUTH WILL ALWAYS PREVAIL! He called me a couple days ago because he just opened a big acct and wanted advice from little ol me!
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joe
i sent u mail some time back — did nt get ur reply
can u pl guide and tell me as to how we can estimate the Free Cash Flows accurately in case of a company which has reported – ve earnings in couple of years in last 10 years ?
do v just ignore them ??
pl reply
vinay vaidya
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Vinay: The value of a business lies entirely in its future, regardless of what has happened in the past. Though the past can give us an indication of what the business can achieve under normal conditions, it can not tell us what the business will accomplish in the future.
In the case of a company with negative cash flow, you have to ask: Will this trend continue? If so, for how long? Then what? Only a thorough analysis and understanding of the business will tell you that.
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Joe,
I know that this is an old post, but I just wanted to draw your attention to the closing stock price for AMLN today.
$15.85.
I’ll continue to value businesses conservatively and intelligently. NOT speculatively. This is a prime example of what Ben Graham would have called a ‘Speculative undertaking’ and not an ‘investment’.
With good reason too!
Thanks for all the posts Joe, they keep me sane in an INSANE market.
-Alex
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I love it…keep up the good work!
Georgia
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