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No. of Recommendations: 23
Go ahead, pat yourself on the back after a short-term run-up. Let's hear it from the Geron choir, chanting "I believe in Geron!!!" That's right, folks - you don't need to understand anything about telomerase, or nuclear transfer, or pluripotent stem cells. Come to think of it, the normal operating rules for companies don't apply! Working capital will appear of its own volition, simply because Geron deserves it! Geron is working on the secrets to Life, the Universe, and Everything, and you better get in quick before you miss the boat! -heihojin

You sound like on my favorite Fools, Rimpinths. He's been an anti-Bubbleonian for a while. His anti-bubble port is still negative. He's missed several crash dates he's predicted. I like him. But...

Your arguments apply across the board to the whole "New Economy." Generic arguments don't always apply to specific cases, even if there's truth to them.

First of all, GERN has intrinsic value that can be monetarized. IP and patents and know-how are all valuable. The biotech/pharmaceutical complex is much more complex than the Amazon/consumer relationship. Most successful biotechs are to some extent outsourced components of the big pharmas. Licensing agreements with enormously profitable companies like Merck or Pfizer can be worth millions. None of these large pharmas will doubt the importance of genomics, gene therapy or stem cell research to their long-term viability. Should there be a crash that reduces GERN's market value dramatically, then GERN becomes an attractive acquisition. Should the market continue to reward the possibility of future profits, GERN's stock becomes even more valuable, which then becomes a self-fulfilling prophecy, allowing for expansion, hiring, more vigorous research, acquisitions, and so forth.

The timing and breadth and degree of this biotech boom is unprecedented. This is not at all like previous biotech boomlets. However, even in previous boomlets, AMGN and DNA and BGEN and GENZ did emerge. Trick is to try to find the AMGNs amidst the noise, the companies that will rise and stay up. The point is well taken that nobody knows where it will end. But that's true of any investment. Even ultra-conservative value investors like Warren Buffett cannot predict the future, and in fact he's admitted that he's not happy with some of his decisions over the last few years. He may or may not be vindicated in the end, but BRK stock would have to rise for another five to ten years, while the "New Economy" comes crashing down to even know whether New Economy enthusiasts were dead wrong and Buffett was right in being risk-averse always.

Also, it is rare that a stock comes down anywhere nearly as fast as it rises, even in highly speculative times. Take a look at the charts of IOM and TheGlobe.com. They went up explosively, then slowly eroded away, but so slowly that once you were two or three times up, you had a fairly comfortable margin for selling still at a nice gain. So even with the most speculative biotechs, once you're 100% or more up, you just have to watch the long-term moving averages to know when it might be time to get out, and you have a good chance of getting out with fine gains.

The only exception in this sector would be a hyped-up drug that is not effective in clinical trials, which can take the stock down 30% in a day, but as long as the company is strong despite one failure, the stock'll recover. (And believe me, with the big pharmas even something like 90% of candidates fail, but their pipelines are so big, it usually doesn't matter. That's just part of the biz.)

Now that's worse case. Best case, again, is:

The company makes progress and expands its patent portfolio. The company arranges licensing agreements with other companies, which results in cash flow. The company makes milestones, according to expectations. Within 5-10 years, the company is solidly profitable. Whose eyes are closed? How much of the market cap is really in weak hands or momentum investors? If you look at the charts for these biotechs, it's striking how they DO test support levels. It is a rocket, but still the technical analysis looks solid. Institutional investment is there.

Moreover, no matter what one thinks about the gains, the truth is that these companies for the most part still have relatively small market caps compared to Internet companies that have shot up and stayed up or still remained quite high for several years now. Well, for the life of me, can you still figure how exactly YHOO or LCOS are going to justify by conventional valuation metrics their market caps anytime soon? Nope. Their valuations are *still* based largely on assumptions of the future. Yet they've been strong for some time with no sign of weakening. Clearly, we've got a market that has no problem with a 5 year or more grace period. That's good. That's about the time frame you'll need in biotech to separate the wheat from the chaffe. The investors' job is to try to find out which companies are the wheat in this sector.

Once some of the enthusiasm for biotech (and I believe that the market's enthusiasm is far from over - my feeling - and, yes, this is just a feeling - is that it may last at least another quarter), meeting expectations or milestones will be important, but that doesn't mean one day all of a sudden in 3.152 months, investors will suddenly say: we want big-time profits now. They'll want reasonable feedback about the company, like they're wanting with YHOO and AMZN now, but the strong investors will have realistic expectations. Who are the strong investors? Well, check out the institutional interest in the bitoech sector. It's phenomenal. Institutions do not operate on pump and dump principles.

Be realistic. Diversify. If you can follow ten biotech stocks, own ten. Make sure the science checks out. How? If you understand the science a bit, that's one way. If there's a lot of institutional interest that's a positive, since the institutions have research analysts with Ph.D.'s or M.S.'s in scientific disciplines who are in contact with the companies. So research analysts are a resource, and there's a lot of places on the Web to find analysts' ratings. References and citations in serious scientific journals are another way. Then you just have to wait and see. Read the press releases and third-party write-ups. If things change, you may want to sell. If not, let it ride. Just like you did with tech.

Believe me, stem cells are a HUGE deal scientifically and Geron is very well respected in this area. See the recent issue of Science (http://www.sciencemag.com/), a special issue on stem cell research. That's intellectual capital. We're banking on that intellectual capital eventually meaning profits, but nobody here is saying it's a sure thing. If you want a sure thing, put your money in GM after pulling up a chart.
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