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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: OT: Rocannon Date: 3/15/2004 3:08 PM
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In case you are interested, I got a couple of scientific posters in electronic form from PTIE that were interesting. If you want them, just let me know..
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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2069 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 12:53 PM
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GoodHindSite,

Yeah, still can't convince myself that PTIE is a nice bargain... :-)

The posters may be of interest - thanks for alerting me. But just to clarify - I am not a life sciences scientist. My training is in physics. I'm no dolt, but I wonder if the posters would mean anything to me. I think these posters are supposed to be available at http://www.paintrials.com but I can't find them at the moment. Can you point me to their location?

Have to thank you for pointing out SKYT.OB. Nice!

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2070 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 2:00 PM
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SKYT is a fairly classical POS where the market was/is handing out free money. When a stock like that goes down as much as it did, it becomes a tax asset rather than an investment - in other words, the value to the legacy holder is as a capital loss so they don't care what price the stock is sold at. Thus, the mass of selling creates a price no longer reflecting reality. It'll probably be a $15 stock as the end of the of this year approaches - the only problem is the lack of a decent public float (worsened by two friggen retail investors with large stakes). Here's the message board we are using:

http://ragingbull.lycos.com/mboard/boards.cgi?board=RB%3ASKYT&origsymbols=skyt

Mr. M is the smart one.

You won't find the posters on their website - they are on my hard drive. I was a math/comp sci guy, and I got the gist of them - you just have to read them over and over. Just create a bogus email address, and I'll send them to you.. When the price of IVIL goes above PTIE, I'll be doubling up on PTIE - I'm hoping PTIE goes down more.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2071 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 2:20 PM
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GoodHindSite,

Thanks for pointing out the message board on SKYT. I went in and got out very quickly, and happily. Don't know if I'll go back in.

The following link makes a statement that the posters will be available at the PTIE website as of today:
http://www.findarticles.com/cf_dls/m4PRN/2002_March_7/83557897/p1/article.jhtml
Hm!

But anyway... My e-mail address associated with TMF is relatively bogus. You can e-mail me there just by checking the box "E-Mail this reply to the Author". Which is what I'm doing with this post, so you should get my e-mail address in that way.

I was a math/comp sci guy, and I got the gist of them - you just have to read them over and over

As a physicist, I'm familiar with that process!

If the files are too large they will bounce.... Give it a try.

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2072 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 3:29 PM
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The info is sent - see if it bounces. As a general rule, I like companies with weak websites. It's kind of like not wanting to invest in companies with beautiful lobbies. Promotion of the stock is not this company's first priority, which is good.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2073 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 4:00 PM
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GoodHindSite,

The info is sent - see if it bounces

Got them without trouble, they look interesting! Can you tell me where these posters were presented and when?

The previous link which mentioned Pain Therapeutics posters was actually from 2002, I didn't read it carefully enough! No wonder there's nothing at their site!

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2074 of 5069
Subject: Re: OT: Rocannon Date: 3/16/2004 4:22 PM
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Check the PR from Nov 11, 2003 on their website. I got hardcopies of the prior posters from the company from IR - I think there are 4 more. The net I got from these other posters is that there were rather striking differences in the way mice behaved when the tiny dose of opioid antagonist was added to an opioid painkiller. Combine this evidence with a p=0.006, and I think it's a slam dunk that the drugs work (better than 95% easily). The only big risk I'm concerned about is related to IP. There's some info in the 10-K on that front.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2076 of 5069
Subject: Re: OT: Rocannon Date: 3/17/2004 10:39 AM
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GoodHindSite,

The net I got from these other posters is that there were rather striking differences in the way mice behaved when the tiny dose of opioid antagonist was added to an opioid painkiller

Ok, I am getting that from these two posters as well, though I need to read a few more times to get a better feel for what they're claiming. The problem with just reading a couple of posters, aside from my somewhat limited understanding of the posters themselves, is the lack of context. I would want to take a look at what's going on in the entire poster session. And I would like to know more about the field, and PTIE's competitors.

For example, in hunting around for these posters I found a set of abstracts from the 2003 meeting of the International Narcotics Research Conference - http://www.inrcworld.org/2003meeting/posterabstracts.pdf
(admittedly most of these abstracts appear to be academic).

And then there are meetings of the American Pain Society, and who knows what all.

You seem to have a good comfort level in this area of research. Maybe I am trying to know too much, but I wonder if I'll ever be comfortable enough to feel like I can make an informed decision about it. I do think I am being ultra-picky. In my non-biotech investments I am confident enough to buy without nearly as much research.

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2077 of 5069
Subject: Re: OT: Rocannon Date: 3/17/2004 2:35 PM
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>>You seem to have a good comfort level in this area of research. Maybe I am trying to know too much, but I wonder if I'll ever be comfortable enough to feel like I can make an informed decision about it. I do think I am being ultra-picky. In my non-biotech investments I am confident enough to buy without nearly as much research.<<

Of course there is more to my investment thesis than just science.

As a general rule, I look for companies that I think can reasonably go up 5 times with protection on the downside. My theory is that if I pick enough of those, that a good percentage will come through and others will hopefully not go down too much. PTIE is a special case. I believe PTIE has a substantially better than 50-50 chance of going up at least 20 times, but with less downside protection. Am I certain? No. But my intuition says to have a good sized position as I think I'm going to need several vacation homes.

But anyway, another part of the thesis.. Check Remi Barbier's holdings. He owns something like 25% of the company. At the current stock price, he's filthy rich *on paper*. He has effective control of the company. But, he hasn't sold a single share. Now, let's look at what his *actions* have been. Oxytrex had a p=0.006 result in a decent sized phase II trial. Surely he could have made a deal with big pharma for at least a 15% royalty and a large up front cash payment based upon those results. This would have at least tripled the stock, if not more, making him really filthy rich. It's also what analysts have been telling him to do for quite some time. Instead of taking the easy money, he's decided that he wants to take a huge risk and go for 40% royalties by taking the drug through phase III on their own. Is he crazy? Why would he do this? ..unless he believed he had a slam dunk.

It's funny.. The stock has been punished because they haven't made a big pharma deal, yet that's one reason to be wildly bullish on the company's prospects. The market is soooo shallow and stupid with these small stocks.

Also note that the IBS drug is out there too in phase III. That's another huge, near-term opportunity.

As far as new research goes, I have little doubt there will be competitive products. But they are constrained by clinical trials and price. Also, opioids are naturally created by the body, so I believe that synthesized opioids will always be a good way to reduce pain. A positive phase III result in any trial for either IBS or pain will send the stock considerably higher.

There's a wimp out strategy also out there. The market should almost certainly move up in anticipation of phase III trial results being announced (late summer). Sell part of your position and let the rest ride if you are concerned. Of course, one of the hardest things about investing is objectively balancing fear/uncertainty with greed/opportunity.

I picked up a few more shares this AM as TWPT stopped pressuring the stock.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2078 of 5069
Subject: Re: OT: Rocannon Date: 3/17/2004 4:22 PM
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GoodHindSite,

Of course there is more to my investment thesis than just science.

I do not doubt this!

I look for companies that I think can reasonably go up 5 times with protection on the downside.

I am also looking for big winners (isn't everyone?).

But my intuition says to have a good sized position as I think I'm going to need several vacation homes

Need them? Really, what for?

Check Remi Barbier's holdings

I tend not to put too much emphasis on insider holdings. Especially with execs, they can have huge egos... it will lead them to do the most nonsensical things with money. Sometimes their behavior is well-founded, other times not. It's a data point, I agree.

There's a wimp out strategy also out there

Well, I do not hold PTIE. When I first found out about them (one of your posts), the price was at around $6 or so, and in the past year it was down to $2... I can rarely bring myself to buy stock that has risen so much in the past year (this is one of the problems that I had with SKYT as well, but I took a chance and it paid off). My instinct is to look for something that's currently beaten down, and PTIE does not look beaten down at the moment - I think I missed that ride. I have to put some trust in my methods and instincts, as they have worked pretty well for me so far. But it's interesting to look at from a purely hypothetical view. I would like to get a better feel for pharma and biotech, both areas of interest with potentially huge rewards.

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2080 of 5069
Subject: Re: OT: Rocannon Date: 3/17/2004 6:17 PM
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>>I am also looking for big winners (isn't everyone?).<<

Nope. Very few do actually. Most people are content to buy larger companies with limited growth prospects. The logic of why escapes me.

>>Need them? Really, what for?<<

Well, it's too cold in the winter time where I live, and I *need* <cough> to play golf.

>>Especially with execs, they can have huge egos... it will lead them to do the most nonsensical things with money.<<

Very true. I met this guy at the analyst meeting where they introduced the IBS drug. He does have an ego, but my judgement is not irrationally so. Seems like your typical Myers-Briggs ENTJ.

>>My instinct is to look for something that's currently beaten down, and PTIE does not look beaten down at the moment <<

The move down below 2 was another engineered move by TWPT. And those were very dark times. Also, if you look at what is public knowledge versus then, there is a drastic difference. Check the IPO price too.. But if you don't like it, that's cool - at the end of the day, you have to sleep at night (duh..). My overall thought process is rather strange anyway.

Problem is, right now there is very little that is down. Prices were quite irrational, in general, a year ago in the microcap area. They aren't anymore. I can't argue with investing in what is down, since I've certainly made a lot of money doing it. At the same time, the object of investing is to find something whose current price is irrationally low. Prior prices shouldn't really matter in that search.

I bought more SKYT today too, just to let you know (as if I didn't have enough of that)..

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2084 of 5069
Subject: Re: OT: Rocannon Date: 3/18/2004 10:18 AM
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GoodHindSite,

Well, it's too cold in the winter time where I live, and I *need* <cough> to play golf.

hehe, ever-ambitious!

The move down below 2 was another engineered move by TWPT

Now I've seen you say the market makers TWPT manipulated the PTIE price somehow, and I don't understand what you mean, plus it sounds very illegal to me in any case. Can you expand on what you think happened there?

Problem is, right now there is very little that is down. Prices were quite irrational, in general, a year ago in the microcap area

I agree that very little is down now. Personally, I think prices in microcaps, and in general, are overinflated now - people want to get a better return than money market rates, and are putting their money in anything and everything. I wonder how long that's going to last.

I bought more SKYT today too, just to let you know

You know, it's funny, I bought in at $2 (I had a GTC order), and once the buy occurred, the price kept sinking a bit, and I was thinking "crud, here we go, why did I buy this junk?...". I went away on vacation and the price popped up while I was away (this happened to me with another stock last fall, maybe I should go on vacation more often). In just a couple of weeks it had more than doubled, and I decided to take my money and run! I hope it pans out for you.

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2089 of 5069
Subject: Re: OT: Rocannon Date: 3/18/2004 3:50 PM
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>>Now I've seen you say the market makers TWPT manipulated the PTIE price somehow, and I don't understand what you mean, plus it sounds very illegal to me in any case. Can you expand on what you think happened there?<<

TWPT is the market maker that walked the stock down. They were persistently at the ask either selling short or selling their client's shares (probably the later). My theory is that they are in cohoots with short sellers in this stock.

>>Personally, I think prices in microcaps, and in general, are overinflated now - people want to get a better return than money market rates, and are putting their money in anything and everything. I wonder how long that's going to last.<<

What do you base your theory on?

>>In just a couple of weeks it had more than doubled, and I decided to take my money and run! I hope it pans out for you.<<

<sigh> The term "hidden gem" is often used. This is an "invisible diamond". A reasonable arbitrage value for SKYT given the value of MNCP.PK is at least $10 - they have $2 a share in cash and 50 mill face value note for MSV where the implied value is around 150 mill. Then you have the verestar acquisition which should be a catalyst, and the spaceops show. The price of the stock is wrong. The reason the price is wrong is that you have to dig for every little scrap of information. You really need to read that message board I posted.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2090 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 9:57 AM
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GoodHindSite,

TWPT is the market maker that walked the stock down

The idea that the market maker is screwing with the stock price makes me shudder, and want to never invest again!

>>Personally, I think prices in microcaps, and in general, are overinflated now - people want to get a better return than money market rates, and are putting their money in anything and everything. I wonder how long that's going to last.<<

What do you base your theory on?


Don't dignify my "feelings" with the word theory! This is just a gut feeling I have. But it's based loosely on something like this:

I once saw a chart which showed that on average Americans are more invested in equities (via mutual funds) than they ever have at any time in history before. This investment has been increasing steadily over time... I wish I could find this chart, now, in case I am mis-remembering. Actually there's a chart here which shows something like that:

http://djurdjevic.com/Bulletins2003/NFlash_07_equities.html

Note the increase in institutional ownership of equities over time. On that page, the author seems very concerned about the drop in equity ownership following 1999, which merely seems to be an appropriate correction to me. But he also says something which echoes my concern "we have demonstrated on numerous occasions in the past that Wall Street Casino is mostly driven by investment cashflows, not by economic news..." etc. A lot of what this guy says is a repeat of the little voices in my head.

Money seems to continue to flood into equities, regardless of whether investment is justified. I'd say this has been happening over the past 30 years or more. Even if there is nothing worth buying, people will buy, because there's nowhere else to put their money which gives as good a return. So they buy without thinking "this isn't worth it" - they buy thinking "I must get a return which beats inflation, and everyone tells me equities historically do 10% or so, better than anything out there - so I'd better invest in equities."

With all the money flooding into equities, mutual fund companies look for new products to sell, and they have discovered microcaps (and junk bonds, etc) can do quite nicely. So now more money floods into microcaps than ever before. This doesn't necessarily make the microcaps more productive, but it does drive up their price. So now *everything* is overpriced, and will get more and more so. I don't know how long this will last.

Anyway, this is all the ramblings of a paranoid lunatic in a padded cell, so take it with a grain of salt.

You really need to read that message board I posted.

I did take a look over there, but it's more than I have time to absorb at the moment...

See, I have read a number of investment books and I even took a class in personal investing, but I still don't understand much about how to value a company, or even how my purchase of shares makes me an owner in the company, let alone the stuff about warrants... To me, buying stocks is a lot like speculation, with the odds tilted in my favor. For Warren Buffet, who can buy large portions of ownership in a company and then can throw his weight around to affect management, it's a different story. But for me with my 200 shares, I'm just riding the wave, hoping that I picked the right one to ride (yes, I try to apply my limited knowledge in doing the picking, I don't throw darts), and hoping not to get wiped out.

In the investment class which I took, one of the students asked the instructor (who worked for a top brokerage firm): "how is stock investing different from gambling?" Basically, he wanted to know how buying shares was actually an investment in the company, rather than buying a "thing" which you then hope rises in value so that you can sell it at a profit later. She never replied to his question; I think she didn't know the answer, and neither do I.

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2091 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 11:31 AM
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>>Basically, he wanted to know how buying shares was actually an investment in the company, rather than buying a "thing" which you then hope rises in value so that you can sell it at a profit later. She never replied to his question; I think she didn't know the answer, and neither do I.<<

The concept is quite simple actually. It's really sad the state of affairs in an investing class when the instructor can't provide a way to meaningfully understand problem. It's not much different than buying a savings bond, but just more complicated.

Now, I want you to really think about this question. It has nothing to do with the mechanics of the stock market.

Let's say there's a small store that sells lemonade (as an example) near where you live. What are all the factors that go into deciding what price you would be willing to pay to purchase that store?

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2092 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 12:40 PM
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GoodHindSite,

It's really sad the state of affairs in an investing class when the instructor can't provide a way to meaningfully understand problem

That's what I thought, too. This was a class at a reputable university in a major city as well. I didn't get a huge bang for my buck, but the reading list was swell!

Let's say there's a small store that sells lemonade (as an example) near where you live. What are all the factors that go into deciding what price you would be willing to pay to purchase that store?

Ah this is just the kind of example I like to use myself. Ok, suppose I have a lump sum of money, and let's assume I don't have a passion about lemonade - that I *must* have a lemonade store - I am also willing to buy something else if the lemonade store is a lemon.

I want to make sure that this is the *best* place to put my money. I don't want to just know whether I can get a positive return on my money, I want the best possible return on my money. So if the shoe store next door is doing a better return, and I could buy them instead, I would do so.

But I can't examine all the stores in town, and many of them are not interested in selling anyway, so as a first shot I approach the lemonade store, whose owner wants to sell.

I ask to look at his books (would anyone be willing to buy without looking at the books? I don't know...). I want to see he's making a profit - how much more money is coming into the business than is going out. (This can get confusing due to tax issues...).

Scenario A ---

Maybe the guy makes a modest income which has not increased over time, and I think to myself this store is a POS - if I buy it I'll never get a raise (as I think in terms of a salaried person)!

But then I look at the capital assets of the lemonade store. During the lifetime of the business, the fellow has bought $X worth of equipment (which have depreciated) and hired N new employees, all of which have led to increased sales. So money is flowing in, but it's going to capital investment and the salaries of numerous employees. Further, he bought the property next door and expanded the business so he now sells 10x more lemonade than what he started out with Y years ago. But you wouldn't know that from his salary, which has barely increased since he started the place. OTOH his business is now "worth" a lot more than the business he started with Y years ago.

Scenario B ---

OTOH maybe, instead, all I see is that more and more customers have been coming to this store over the past Y years (for some reason) and the owner's been making money at an accelerating rate, say 10% increase each year (he's working like a maniac to keep the customers happy without hiring new help). That's real nice too, and a lot simpler to my mind... Unless I don't like to realize these increases, because I get taxed on them at a higher rate than if I plowed my returns back into the business in order to shelter them, hence I'd rather go with scenario A. It all depends on my view...

So what am I looking for, in sum? Indications of "accelerating" wealth: year-over-year capital investment, year-over-year profit increases... If I see a business which is not accelerating, but is rather chugging along with the same return every year, that's nice too, but it's not a growing business. It's like a utility company which pays a dividend, say. That's nice but I think accelerating money is better than constant velocity money, so to speak. Just to make it clear what I mean: with constant velocity, each year you get $N out of the business. With accelerating money, each year you get $N*Y, for example.

Your turn!

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2093 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 3:03 PM
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You are thinking about the right issues. Warren Buffett has said something along the lines of that the value of a business is equal to the future free cash flows of the business discounted back to the present. You would also like to receive a premium on your money depending on how much risk you are taking. Your two scenarios fit nicely into this description - it's just that the venture with growing profits is worth more than the one with flat profits.

Evaluating the fair value of a public company is *precisely* the same exercise as you went through with the lemonade stand. Precisely, though more complicated.

You would look at the financial statements, evaluate the long-term, future prospects for the business, and determine the price you would pay for that business to generate a reasonable return - which is a theoretical exercise. Everyday, however, the market sets a different price that you can buy the business for (or a piece of the business) - simplistically speaking, it's current share price x number of shares outstanding. IF the current market price is at a substantial discount to what you believe the company is worth, then the stock is a buy.

But what you have to understand is that the market is truly crazy. Stock prices, and thus the value of businesses, fluctuate daily - often for no good reason. Some days people are more apt to buy, and other days they are more apt to sell. Just like if on one day of the week, 10 people wanted to buy the lemonade stand and an auction ensued, and another day, 1 person is jerking the owner around with a lowball offer. This is the Ben Graham principle of "Mr. Market". Longer term, however, the value of the business expressed in the market converges to the correct value.

SKYT is a much different situation though. The current market value of the company (shares outstanding x share price) is around 60 mill. The have 30 mill of cash in the bank, and a note whose face value is 50 million (in the financial statements) but I estimate its current value at 150 mill. So basically, you have a company where the market values it at 60 mill, but the assets on the balance sheet are likely worth 180 mill. Or, I'm buying 3 bucks worth of stuff for every dollar I spend on the stock. Over time, if my analysis is correct, the market should easily converge to the correct value which is 3 times higher at least.

The current market value of PTIE (shares outstanding x share price) is something like 250 million. If a single one of their phase III trials is successful, in three years, they could *earn* 250 million dollars for the next 10 years *each year*. Is that a return on investment, or what?

When I bought IVIL in the fall of 2002 at 80 cents a share with a market cap of around 50 mill, I thought that with any luck, they could be earning 20 million a year by 2005. That's looking very probable now.

Most stocks in the market don't have these favorable characteristics, and much of evaluating them is an artform rather than a deterministic process. And most of the time, the stock that I'm looking at are highly complex and contraversial, and they aren't obvious by any stretch. But I only play the game when I find something that I perceive to be highly favorable.

You need to get a handle on how to read SEC filings and evaluate businesses to determine what you believe their value is, and then learn to control your fear. When you are getting greedy, learn to be fearful. When you are fearful, learn to be greedy. At least, this is my perception of what you should learn if you really want to become financially independent. If you can get comfortable with this stuff, you will begin to be able to understand the market and its irrationalities, rathers than seeing it as a bunch of random, fluctuating numbers.



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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2094 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 4:57 PM
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GoodHindSite,

Warren Buffett has said something along the lines of that the value of a business is equal to the future free cash flows of the business discounted back to the present

That is something I have heard before. Unfortunately, at any time in the present, you cannot know the future free cash flows of a business. And given all information today, the future free cash flows for a company may be predicted to be $X at this moment, while tomorrow, given some untoward event occurring, they will be $Y. As a concrete example, you buy PTIE on the assumption that at least one of their drugs will make it through all phases of FDA approval, that no other competing drug will cut into their profits, that no disastrous consequences will come to light once the drug goes on the market... rather more speculative than buying a lemonade store (it seems to me).

But what you have to understand is that the market is truly crazy.

*That* I understand, no problems there!

Stock prices, and thus the value of businesses, fluctuate daily - often for no good reason

Frequently for good reasons, as well!

Just like if on one day of the week, 10 people wanted to buy the lemonade stand and an auction ensued, and another day, 1 person is jerking the owner around with a lowball offer

But that's the difference between the lemonade stand and equity. The market is this huge auction. You know what they say about people who win auctions - they generally overpay. Fortunately they can go back to the next auction and sell it again, to the next guy, who turns out to be a bigger loser... it starts to look like a giant pyramid scheme. I'm not buying a lemonade store, selling a product, and getting my profits. When I buy stock in the lemonade store, I have little or no control over its management. Instead, I'm buying some pieces of paper, which I will probably sell in a few days or a couple of years, in the hopes that the lemonade store will have done well in the meantime. But did my money go towards building up that lemonade store? Did it pay the salary of an industrious employee who increased profits? No, because I bought the piece of paper on the secondary market from some other guy who for some reason wanted to get rid of his pieces of paper...

Longer term, however, the value of the business expressed in the market converges to the correct value.

Aha *but* do you really believe there is a "correct" value? The correct value for Kodak 30 years ago is not the correct value today, because the world has changed entirely. I am suspicious of this convergence point discussion, which I have heard before as well. Do you perhaps mean the market fluctuates about the correct value? That may be more or less true... but the correct value itself fluctuates on a yearly, monthly, or even daily basis, depending on so many things - world events, competing companies, new technologies, changing management. So how can you ever get a handle on a correct value? And what about the butterfly effect, for crying out loud! :-)

SKYT is a much different situation though.

Yeah, I saw parts of that going on. The reason I bought at $2 was the thought that they had more cash than their market cap, whoa that sounded good and unusual! But I was unaware of a lot of the stuff going on at the Raging Bull discussion board, so I bought in with some ignorance (and I knew it). The problem with seeing a heap of cash and nothing else is that the company may just drain down that cash with salaries and company cars.

Going back to the lemonade store... Suppose the owner is going to sell me his store for $100K. And I learn the assets of the store include a bank account containing $100K. Well, I'd be a fool not to buy! But equity is different. I'm not buying the whole store, and I can't get my greedy fingers on the pile of cash sitting there. If the managers decided to give themselves a big party in Honolulu, there'd be little I could do about it, and a week later the big pile of cash is gone. So even with a big pile of cash, if I don't trust the business and its management, I should not invest in the stock.

This is what I meant earlier when I said that buying a few hundred shares of stock is not the same as partial-ownership in the business. When you partially own, you have a say in what's going on. The managers decide to have a party in Honolulu? You fire them. With stock ownership the party may very well be done with before the next board meeting rolls around. Am I wrong to think this way? Things may not be quite so loose in larger companies (maybe shareholders can bring a class-action suit against management?) but with microcaps I wonder just how much leverage the shareholders have.

The current market value of PTIE (shares outstanding x share price) is something like 250 million. If a single one of their phase III trials is successful, in three years, they could *earn* 250 million dollars for the next 10 years *each year*. Is that a return on investment, or what?

I totally agree that would be a great return. And I also think the fact that PTIE got to phase III trials is a good indication that these guys are not just sitting around collecting a paycheck. But in the meantime, they've got 12 million dollars cash to pay for 30 well-compensated employees and expensive operations (labs, equipment, etc...). What's their burn rate, am I wrong in saying it's something like $18 million for 2003 (I'm getting this off the R&D line of the income statement)? So how are they going to pay for 2004, do another stock offering thus diluting the value of current shares? Oy, what if their drugs don't work out? What if a competing company comes along with something better - I mean why doesn't a huge pharmaco set one of their research divisions on this problem and come up with the solution faster? How do I know this isn't already going on?

When I bought IVIL in the fall of 2002

IVIL is a whole other ball of wax! You know, I never would have bought IVIL and still couldn't bring myself to do so. A website for women? What an incredibly stupid idea, how are they still in business? (ditto for the Lifetime channel)! In fact I seem to have a terrible antenna for judging what people are willing to buy. I'm a stranger in a strange land. In cases like these I'd be going against every grain in my body to buy.

You need to get a handle on how to read SEC filings and evaluate businesses to determine what you believe their value is, and then learn to control your fear

I'm actually very good at controlling my fear; I buy things which my rational head is telling me I have no business buying. It's the former thing I need to learn better!

Rocannon

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Author: GoodHindSite Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2095 of 5069
Subject: Re: OT: Rocannon Date: 3/19/2004 6:53 PM
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>>rather more speculative than buying a lemonade store (it seems to me).
<<

Oh clearly. But show me any lemonade store that offers the possibility of multiplying your money by 20 times. Competition issues are present in lemonade as well. PTIE is simply a highly positive expectation bet, IMO, but there is a risk of total failure. A good bet within a diversified portfolio.

>>Stock prices, and thus the value of businesses, fluctuate daily - often for no good reason

Frequently for good reasons, as well!<<

Frequently is the wrong word. If you buy expensive stocks, negative news can crush the DCF model, and cut the stock in half. Cheap selective microcaps are different - very different. It boils down to evaluating risk/reward. If things can't get any worse, they'll usually start to get better - that is, if you picked the stock right.

>>The market is this huge auction. You know what they say about people who win auctions - they generally overpay.<<

Remember what I buy though. Crap that no one else wants - generally.

>>When I buy stock in the lemonade store, I have little or no control over its management. Instead, I'm buying some pieces of paper, which I will probably sell in a few days or a couple of years, in the hopes that the lemonade store will have done well in the meantime. But did my money go towards building up that lemonade store? Did it pay the salary of an industrious employee who increased profits? No, because I bought the piece of paper on the secondary market from some other guy who for some reason wanted to get rid of his pieces of paper...<<

Yes, you are. You bought the right to what someone else paid. The original owner now has capital to put into another venture and the chaotic system of capital formation moves on. You also have the right to future dividends from what someone else put in. This is good stuff to think about.

>>Aha *but* do you really believe there is a "correct" value? The correct value for Kodak 30 years ago is not the correct value today, because the world has changed entirely. I am suspicious of this convergence point discussion, which I have heard before as well. Do you perhaps mean the market fluctuates about the correct value? That may be more or less true... but the correct value itself fluctuates on a yearly, monthly, or even daily basis, depending on so many things - world events, competing companies, new technologies, changing management. So how can you ever get a handle on a correct value? And what about the butterfly effect, for crying out loud! :-)<<

Certainly there is not a *clear*, correct, exact value. But if you immerse yourself in the company, think about the business, competition, etc, you can come up with an approximate value. You buy *only* when the market is drastically wrong. This is what Graham would call "margin of safety", or what Buffett would call "buying dollar bills for 50 cents". Usually, these large inefficiencies are the result of human behaviors - often the herding mentality I talked about on this board before. As far as the possibilities of change for a particular company, you have to think about all the different scenarios you can to understand risk/reward. That's where the art comes in. There's a lot of potential different reasons to buy or not buy a stock - the flexible and open mind wins in the end.

>>This is what I meant earlier when I said that buying a few hundred shares of stock is not the same as partial-ownership in the business. When you partially own, you have a say in what's going on. The managers decide to have a party in Honolulu? You fire them. With stock ownership the party may very well be done with before the next board meeting rolls around. Am I wrong to think this way? Things may not be quite so loose in larger companies (maybe shareholders can bring a class-action suit against management?) but with microcaps I wonder just how much leverage the shareholders have.<<

A BOD has a fiduciary responsibility to protect its shareholders. Part of the investing process is to evaluate exec compensation, insider interests, etc.. In many microcaps, insiders hold a large proportion of the shares, and thus, their interests are aligned much more with yours. Governance in large caps is much worse, as managers are lavished with large salaries because they won't make that much money by owning the stock. Further, I can very often own up to 1% of the companies I buy - the CEO takes my call, and usually, the CEO will take the call of any investor or prospective investor who does call. Try doing that with Disney. A CEO of a microcap loves to hear interest from investors, because there is so little interest generally in the first place.

>>But in the meantime, they've got 12 million dollars cash to pay for 30 well-compensated employees and expensive operations (labs, equipment, etc...). What's their burn rate, am I wrong in saying it's something like $18 million for 2003 (I'm getting this off the R&D line of the income statement)? <<

Check the second line of the balance sheet - 65 mill of marketable securities, which is short term debt securities. Each phase III trial probably costs around 10 mill (they are outsourced), and their burn, I think, is around 10 mill for corporate staff. They have the cash to get through Oxytrex and PTI-901 easily.

>>Oy, what if their drugs don't work out?<<

They're hosed. No question. But what are the chances of that happening? That's the real question.

>>What if a competing company comes along with something better - I mean why doesn't a huge pharmaco set one of their research divisions on this problem and come up with the solution faster? How do I know this isn't already going on?<<

There are other companies working on stuff. They're getting some compound from a fish, I guess. They are also working on electronic devices where electrodes are plugged into the spine. Both are subject subject to lengthy clinical trials, and they aren't total solutions. I'm not gonna hold this stock forever - I expect to hold it through approval and ramp up.

>>IVIL is a whole other ball of wax! You know, I never would have bought IVIL and still couldn't bring myself to do so. A website for women? What an incredibly stupid idea, how are they still in business? (ditto for the Lifetime channel)! <<

Advertising is a *wonderful* business, and internet advertising is *really wonderful*. Imagine a business where people pay you 20% more each year for doing the same thing with little more expense. It brings a tear to my eye - especially since my position is worth 7 figures now.

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Author: Rocannon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2096 of 5069
Subject: Re: OT: Rocannon Date: 3/22/2004 2:13 PM
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GoodHindSite,

You buy *only* when the market is drastically wrong. This is what Graham would call "margin of safety", or what Buffett would call "buying dollar bills for 50 cents".

Yeah, that is what I try to do.

Further, I can very often own up to 1% of the companies I buy - the CEO takes my call, and usually, the CEO will take the call of any investor or prospective investor who does call. Try doing that with Disney.

Yup I've heard about this too. That is a plus to owning small company stock.

Advertising is a *wonderful* business, and internet advertising is *really wonderful*.

Only wonderful if you get a sufficient number of people visiting the website. My feeling was that IVillage would not get eyeballs, so they would fail. I guess I was incorrect.... but then there are many other companies to choose from, and I'm doing well so far without touching IVIL or PTIE (doing well, of course, is a relative term - but I'll be very happy if I can continue to do as well as I have been over time). Everyone has to make the decision about what they are comfortable owning... but it's great fun and educational to discuss the pros and cons of ownership in any stock. I think we're running out of steam here (or maybe that's just me) ... So thanks for the discussion, GHS! Always interesting to talk to you...

Rocannon

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