New Sunday Times Feature - Diary of a Private Investor
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Colm Fagan
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I had started a post, but pushed the wrong button and posted it prematurely. I'll start again!
Colm Fagan
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Very interesting question. Of course it can and I'm sure it does happen. For example, going back to post #521 of 7 May in this thread (top of page 27), I told of buying shares in a company Charles Taylor plc, which Lord John Lee, a regular FT contributor, said was one of his long-term holdings and which he had often mentioned in his column. When the 2018 results were announced in mid-March, the share price hardly moved for three weeks. They then jumped 8% when an article by Lord Lee, wondering why the share price hadn't reacted positively to the results, appeared in the online edition of the paper. They jumped another 10% when his article appeared in the Weekend print edition of the paper. Of course the timing of the price rises could simply be coincidence, but someone with a suspicious turn of mind could think that Lord Lee might have used his column to boost the share price. I emphasise that I'm NOT making that allegation.
It’s common enough to have a name. It’s called pump and dump.
The opposite, short selling a share then spreading rumours about the company is even more effective. Bad news is easier to sell.
Illegality is hard to prove in either case.
Very illegal - under the Market Abuse Regulations this is known as "Market Manipulation" (or "pump and dump" as mentioned). It's even questionable whether you could get away with disclosures any more if you were writing glowing pieces (as used to be the case).
And if you had any non-public information and traded - again illegal.
On both, they pick up suspicious activity pretty quickly
For open ended funds, the fund isn't really acting as buyer of last resort - they are selling assets to cover net redemption requirements as the fund can't buy it's own shares. And also - they are the only (rather than last) method of liquidating a holding (some open ended funds allow transfers between parties but that is unofficial)
For a closed ended fund, there is no way of redeeming via the fund. The only way to sell out is to find a third party buyer - in many ways a closed ended fund share acts like a regular equity - you don't sell back to the company. Which means redemption liquidity is never an issue for a closed ended structure
It's variable capital vs fixed capital structures
Colm what about Tesla and Elon Musk misleading the markets by saying that he was getting a large injection of capital (I think from saudi wealth fund). The share price of the troubled company got a big boost on the back of this, of course it turned out to be false. Everything seems to have gone quite with regard to the SEC investigation and the share price is back up again, seems a bit strange?
Colm Fagan
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HI Joe
One could write a book about Elon Musk and the SEC. Come to think of it, it's probably been written already! If you google the two words "Musk" and "SEC", you'll get enough reading material to keep you going for a year.
Elon Musk has been good to me. I've made more than a few bob from shorting Tesla.
You're right: the share price increased recently following the release of good production numbers for the half-year. I'm reminded of the saying: "Sales are vanity; profit is sanity". We've yet to see how the sales figures (at discounted prices) convert into profits. I'm holding on to my short position.
Colm Fagan
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My latest diary update can be found on my website:
I only started to populate the website within the last few weeks. It's still very much a work in progress.
I only started to populate the website within the last few weeks. It's still very much a work in progress.
That cost him $20mm and he had to resign as Chairman. He was also supposed to have any tweets relating to the company vetted by in-house legal. Which he then ignored and ended up back in court in April on a contempt charge (not sure if that has been resolved yet)
Colm,
Pharmas are interesting investment plays and I'm back on my ethical hobby horse! They, en masse, do an awful lot of good but individually they invariably have skeletons - some more than others. I use the products they produce because they are good - albeit often produced by companies that display questionable ethics.
Take insulin. It is estimated that over the last 20 years, after adjusting for inflation, the price has increased by 700%. Profit motivation aside - are there any justifications to such an increase? Would it be a good thing generally if this price trajectory continued? How is it that a vial of insulin costs about $280 (give or take a % or two) from each of the three main producers in the field?
Pharmas are interesting investment plays and I'm back on my ethical hobby horse! They, en masse, do an awful lot of good but individually they invariably have skeletons - some more than others. I use the products they produce because they are good - albeit often produced by companies that display questionable ethics.
Take insulin. It is estimated that over the last 20 years, after adjusting for inflation, the price has increased by 700%. Profit motivation aside - are there any justifications to such an increase? Would it be a good thing generally if this price trajectory continued? How is it that a vial of insulin costs about $280 (give or take a % or two) from each of the three main producers in the field?
Colm Fagan
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Hi @WhiteCoat
First of all, I'll defer to your superior knowledge on medical matters.
As I said in the article, I don't have any other pharma or healthcare stocks. There's a good reason: I'm wary of the sector, for the reasons you've set out. However, I felt that I was missing out on a major sector of the world economy by avoiding it completely. I thought that Novo Nordisk was/is a good company, with a long track record, and that they would not behave unethically.
I have read horror stories of price gouging by pharma companies, but I thought it was mostly confined to companies with rapacious private equity owners. Of course, a pharma company should be entitled to super profits for a while from developing a new drug or treatment. Otherwise, why make the necessary investment? In the case of the new pill I mentioned that Novo Nordisk is developing, it could take ten years to get it to market. I'm sure there are all sorts of risks involved in the meantime, a possibility that the treatment will fail in tests, etc. They're entitled to be rewarded for taking those risks. I thought however that, once a drug goes off patent, normal commercial rules apply, and that the company with the lowest price has an advantage. What you're saying indicates that that's not true, that there's some sort of oligopoly, even for drugs that have gone off patent. That's news to me.
First of all, I'll defer to your superior knowledge on medical matters.
As I said in the article, I don't have any other pharma or healthcare stocks. There's a good reason: I'm wary of the sector, for the reasons you've set out. However, I felt that I was missing out on a major sector of the world economy by avoiding it completely. I thought that Novo Nordisk was/is a good company, with a long track record, and that they would not behave unethically.
I have read horror stories of price gouging by pharma companies, but I thought it was mostly confined to companies with rapacious private equity owners. Of course, a pharma company should be entitled to super profits for a while from developing a new drug or treatment. Otherwise, why make the necessary investment? In the case of the new pill I mentioned that Novo Nordisk is developing, it could take ten years to get it to market. I'm sure there are all sorts of risks involved in the meantime, a possibility that the treatment will fail in tests, etc. They're entitled to be rewarded for taking those risks. I thought however that, once a drug goes off patent, normal commercial rules apply, and that the company with the lowest price has an advantage. What you're saying indicates that that's not true, that there's some sort of oligopoly, even for drugs that have gone off patent. That's news to me.
Hi Colm,
Agreed.
Broadly correct. However, google "patent evergreening" or "insulin evergreening" to see what the Big 3 are doing to renew patents. [My comments yesterday were a little crude as, admittedly, there has been significant R&D spend in improving the general efficacy of insulin products]. Also, it's not so easy for generic manufacturers to get started in insulin production. This is, in part, due to regulations but also because insulin is a biologic which means it is more complicated and costly to produce generically compared with, say, duplicating chemical molecules, etc.
Isn't this at the heart of the current class action against the Big 3 in the States? (That's a question - haven't studied closely). In any event, don't the Big 3 control something like 90% of the worldwide market?
Agreed.
Broadly correct. However, google "patent evergreening" or "insulin evergreening" to see what the Big 3 are doing to renew patents. [My comments yesterday were a little crude as, admittedly, there has been significant R&D spend in improving the general efficacy of insulin products]. Also, it's not so easy for generic manufacturers to get started in insulin production. This is, in part, due to regulations but also because insulin is a biologic which means it is more complicated and costly to produce generically compared with, say, duplicating chemical molecules, etc.
Isn't this at the heart of the current class action against the Big 3 in the States? (That's a question - haven't studied closely). In any event, don't the Big 3 control something like 90% of the worldwide market?
Colm Fagan
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@WhiteCoat Very interesting. Thanks for educating me. No, I wasn't aware of the class action you mention. I've just Googled the largest pharma companies and it says that the top three only have 15.7% between them (Pfizer 5.6%, Novartis 5.4%, Hoffmann-La Roche 4.7%). Novo Nordisk doesn't appear in the top ten. I realise of course that it's necessary to dice and splice the market differently to understand the REAL story on market shares, which I'm sure you're well on top of. If nothing else, my decision to buy Novo Nordisk has opened up an entirely new field of learning for me. That's one of the things I love about managing my own portfolio.
Colm Fagan
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I've just realised that you're probably talking solely about the insulin market. Go to the back of the class, Colm!
Ouch! I'm just reading about it! No wonder the yield is so attractive! For other readers, @WhiteCoat is referring to a class action against Sanofi, Eli Lilley and Novo Nordisk. It looks like this could be another disastrous attempt to broaden my portfolio!
Ouch! I'm just reading about it! No wonder the yield is so attractive! For other readers, @WhiteCoat is referring to a class action against Sanofi, Eli Lilley and Novo Nordisk. It looks like this could be another disastrous attempt to broaden my portfolio!
Apologies - I didn't make it clear what I meant by the Big 3 - haste makes...…..confusion!
Also, for the avoidance of doubt, I've no idea if Novo is a good financial play or not...…..
And I don't know Novo well enough to meaningfully comment on their ethics either.
My original comment (on the Novo strand of this thread) - and probably the only point I can really stand over - is that pharmas generally can be challenging from an ethical investment perspective. We need them - they do good - lots of good but sometimes their business practices can be questionable and sometimes very poor. For this reason, I would argue that investing in individual pharmas should require, as part of the selection criteria, a "comfortable with its ethics" box to be ticked!
Also, for the avoidance of doubt, I've no idea if Novo is a good financial play or not...…..
And I don't know Novo well enough to meaningfully comment on their ethics either.
My original comment (on the Novo strand of this thread) - and probably the only point I can really stand over - is that pharmas generally can be challenging from an ethical investment perspective. We need them - they do good - lots of good but sometimes their business practices can be questionable and sometimes very poor. For this reason, I would argue that investing in individual pharmas should require, as part of the selection criteria, a "comfortable with its ethics" box to be ticked!
Colm Fagan
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That's high on my list of boxes to be ticked for all my investments. I thought Novo Nordisk ticked it. I'll check again in the light of what you told me. Thanks again, and I really mean it.
redartbmud
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There has been a very lively debate, in the last several days. The Woodford and ethics investing debate has been very lively indeed.
Turning to the last diary has given me pause for thought.
I am constantly looking at my principles of investing, and the shares that I hold in my portfolio.
In the area of ethics, I do not hold tobacco/smoking related shares, as i cannot reconcile myself to profiting from the obvious harm that smoking does to my fellow human beings.
I do, however, invest in alcohol related stocks, and can reconcile my conscience on that issue.
More fundamentally, I have been looking at the thinking behind the approach to investing, surrounding management of existing shares in the portfolio and the addition of new shares as diversification.
It is very easy to get too comfortable with shares that form the existing portfolio. They have been thoroughly researched and they have a track record of performance.
What is not so clear is the recognition of change to the fundamental outlook for the company.
The fresh pair of eyes, of a new investor, looks at a share in a different way. They undoubtedly see the impact of key events far more clearly, because they are more detached.
On the one hand, we have the measure of performance, using whatever matrix is applied. They are rules that have stood us in good stead, over years of investing.
Do you, for example sell/reduce if the PE ratio hits a level well beyond the long term norm for the sector and the specific stock? Conversely, do you buy back/add when the PE falls below that norm, always given that the news-flow does not indicate any reason for the change in price.
Am I a long term holder forever, Warren Buffett style, or a butterfly. hopping around from share to share?
I am not clever enough to time the market such that I can buy anywhere near the peaks and troughs, or understand the impact, on the share price, of a new piece of news.
If I am going to 'trade' a share, how do I decide how many to buy/sell at the time? Do I blindly apply a standard formula of a set percentage, say 5% of the value of the holding?
Supposing I choose to sell an entire holding. I have to replace the income that stock provides.
My next consideration is comparison. having replaced A by B, can I discount the emotion of comparison of relative performance? Should share A significantly outperform share B, how do I react to that outcome? Does it impact on decision making in the very short term?
Just a few thoughts, of the many, that create inner conflict in my world of investing.
The thoughts and observations of fellow investors is certainly a therapy to to inner turmoil that comes from being an investor.
Turning to the last diary has given me pause for thought.
I am constantly looking at my principles of investing, and the shares that I hold in my portfolio.
In the area of ethics, I do not hold tobacco/smoking related shares, as i cannot reconcile myself to profiting from the obvious harm that smoking does to my fellow human beings.
I do, however, invest in alcohol related stocks, and can reconcile my conscience on that issue.
More fundamentally, I have been looking at the thinking behind the approach to investing, surrounding management of existing shares in the portfolio and the addition of new shares as diversification.
It is very easy to get too comfortable with shares that form the existing portfolio. They have been thoroughly researched and they have a track record of performance.
What is not so clear is the recognition of change to the fundamental outlook for the company.
The fresh pair of eyes, of a new investor, looks at a share in a different way. They undoubtedly see the impact of key events far more clearly, because they are more detached.
On the one hand, we have the measure of performance, using whatever matrix is applied. They are rules that have stood us in good stead, over years of investing.
Do you, for example sell/reduce if the PE ratio hits a level well beyond the long term norm for the sector and the specific stock? Conversely, do you buy back/add when the PE falls below that norm, always given that the news-flow does not indicate any reason for the change in price.
Am I a long term holder forever, Warren Buffett style, or a butterfly. hopping around from share to share?
I am not clever enough to time the market such that I can buy anywhere near the peaks and troughs, or understand the impact, on the share price, of a new piece of news.
If I am going to 'trade' a share, how do I decide how many to buy/sell at the time? Do I blindly apply a standard formula of a set percentage, say 5% of the value of the holding?
Supposing I choose to sell an entire holding. I have to replace the income that stock provides.
My next consideration is comparison. having replaced A by B, can I discount the emotion of comparison of relative performance? Should share A significantly outperform share B, how do I react to that outcome? Does it impact on decision making in the very short term?
Just a few thoughts, of the many, that create inner conflict in my world of investing.
The thoughts and observations of fellow investors is certainly a therapy to to inner turmoil that comes from being an investor.
As they used to say in one of my previous roles - "Bottom pickers get dirty fingers"
redartbmud
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EmmDee
Should we ever meet, remind me not to shake hands
Should we ever meet, remind me not to shake hands