Post by BD on Jun 3, 2015 12:03:23 GMT -5
seekingalpha.com/article/3231856-lessons-i-learned-from-owning-mnkd
Lessons I Learned From Owning MNKD
Jun. 3, 2015 3:44 AM ET | 38 comments | About: MannKind Corporation (MNKD)
Disclosure: The author is long MNKD, GILD. (More...)
Summary
MannKind stock was one of my first holdings as an investor.
As many of you probably know, the extremely volatile MNKD is probably not a good stock for a beginner to own.
But owning a stock like MNKD in the beginning of my investing career taught me many lessons in a short period of time, which have made me a better investor.
Introduction
To avoid people in the comments section complaining that this article is editorialized, for those of you who are not interested in the article's content, which is my personal experience, don't read any further. For those of you that are interested, I trust that you will read through this article and gain valuable advice from my personal experiences. If you haven't learned these lessons the hard way yet, then hopefully the content of this piece will save you from investment pitfalls and allow you to bypass a lot of stress and a lot of unpleasantness. I also want to encourage people reading this to leave a comment because an interactive community is one of the most valuable resources of which an investor can be a part.
How I Got Started
Some people start investing early in their lives and some people start investing later on when retirement starts to come into focus. Some people discover the wonders of the stock market on their own and some people are introduced to the world of finance by family or a friend. But no matter what category you fall under, every investor has a major regret story. A time when a stock you owned just dropped off a cliff or when you sold a stock right before it took off. For me, my major regret story involves MannKind (NASDAQ:MNKD).
My father first introduced me to the stock market when I was about 16 years old. It was love at first sight. The commotion, chaos, unpredictability, exhilaration and adrenaline drew me in immediately. My father gave me $500 and told me that if I could prove myself, he would entrust me with more. My first ever stock pick was Linn Energy (NASDAQ:LINE), which I bought right after it crashed from the mid-$30s down to $20 in 2013. At this point, I knew nothing about operating metrics, but my intuition told me that when a stock drops so precipitously, if there's no damage to fundamentals then it usually rebounds. The stock did indeed rebound and went all the way back up above $30.
LINE Chart
LINE data by YCharts
So why am I telling you this and what does this have to did with MNKD? Well the success of this first investment gave now 17 year old me a copious amount of hubris because I thought that I had cracked the secrets of the stock market like no one else had ever done. Little did I know that my pick had been nothing more than a lucky guess and that the market was about to knock me on my ass and take me on an emotional rollercoaster ride.
Owning MNKD
After my first successful investment, my father came to me and gave me a heads-up on a stock called MNKD that had a revolutionary new drug looking to enter the market. This drug, called Afrezza, had yet to gain FDA approval and was expected to be a big hit. I barely did a shred of research before I jumped in and bought a few hundred shares after the stock dropped from about $8 to the high $6 range. From that moment on, owning MNKD was one of the most stress-inducing experiences of my life.
Soon after investing in the stock, I discovered the fantastic resource that is Seeking Alpha. There was news, analysis articles, earnings reports and much more for me to examine. But I was very inexperienced, very impressionable and MNKD was very volatile. This created a very dangerous combination. Over the next few months, I proceeded to panic and sell my shares whenever the slightest sliver of bad news was released and I would buy back at a higher cost basis after the stock recovered because I didn't want to miss out on a big gain that I knew was coming. Seeking Alpha unfortunately contributed to this development because I was very impressionable and authors sometimes penned very bearish articles that frightened me into selling.
For an inexperienced investor like I was, it was very difficult for me to watch a stock in my portfolio drop off a cliff and still stay calm. This was especially true because my father asked for updates on the portfolio and I was very nervous to tell him the truth. And so, over the span of a few months I promptly threw about half my portfolio's value out the window. And the most frustrating part about the whole ordeal was that I had lost so much money from MNKD yet the stock was at almost the exact same price it had been a few months before when I had initially bought it.
That was my first lesson: if you buy a stock that you believe in, when the price drops a significant amount, don't touch your portfolio. If you believe in the fundamentals of a company, then any event that affects stock price but not those fundamentals should be completely ignored or investors should capitalize on market fears to add to current holdings at a lower entry price (when I use the word "fundamental" I don't mean in the traditional sense of solid cash position, consistent net income etc. but rather in the sense that "fundamentals" are things that are vital to the company's value).
If you have been a MNKD investor for a couple years, you most likely remember the excitement you felt when the FDA approved Afrezza and the stock price soared as high as $11.48. However, you also probably remember how quickly that excitement died away when the stock fell below $5 within just a couple months of FDA approval. That's where I learned a second lesson: long-term investing may be the safest route, but trading can be very profitable. When MNKD stock was up in the double digits I kept getting nervous because I didn't want to sell at a gain and miss out if the stock went even higher. Instead, I ended up with dead money again as MNKD wallowed (and still wallows) in the single digits. The buy-and-hold strategy and the frequent trading strategy are not mutually exclusive however and combining the two yields a hybrid strategy that can potentially provide huge benefits.
The two lessons I learned from owning MNKD molded my investment philosophy today which is to look for companies with solid fundamentals that have taken dips because of short-term investors panicking (like I once did) and to buy in on those price drops. Assuming fundamentals are in fact still intact, the stock price usually rebounds, as MNKD has done a thousand times after dropping. Then when the stock rebounds, investors can either sell a portion of his or her stake for profit and still maintain a position, or just take the winnings and look for another stock. The beauty of this strategy is that, if done right, the probability of gaining profit is very high.
Let's say Company A's stock drops 10% because it guided revenues lower than expected, but this lower guidance is not due to any fundamental issues with Company A. My strategy would first dictate buying into Company A's stock at its depressed price. The second step depends on how the stock moves. If the price recovers over a couple weeks or a month, my strategy would dictate selling a portion of the investment and holding on to some shares if the investor believes Company A will be high-growth, or selling the entire investment for a modest gain. However, if the stock either falls lower or stays unchanged then my strategy would dictate to hold on to the investment because Company A is still fundamentally sound and stock performance will eventually follow company performance.
The only scenario in which this strategy loses is if the investor misjudged the fundamentals of Company A and the stock never again reaches the price at which it was initially bought.
Overall, this strategy has worked very well for me, mainly because stocks drop due to non-fundamental damaging events all the time. This creates tons of opportunities across all different sectors to benefit from the short-term fears and panic of investors.
This philosophy of mine is something that is frequently the focus of my articles in a particular segment I call "Buy on the Drop?" where I analyze whether a stock's drop can be attributed to fundamental damage or market overreaction. If it's the latter, I recommend investors buy the stock at its lower price (If this is something you're interested in, you should consider following me as I use this format quite frequently).
Many of the ideas I have highlighted in this segment have been successful and vindicate the benefits of my strategy. The first article I ever wrote in the "Buy on the Drop?" format was back on December 1, 2014 when I recommended that investors buy Westport Innovations (NASDAQ:WPRT) after a 10.6% share price drop. Two months after my recommendation the stock reached a price 27% higher than when I penned the article.
In another article on Gilead Sciences (NASDAQ:GILD), I recommended buying the stock after it cratered 14% in one day. Shares were back up 7% within 6 days and are currently up 22% from that day.
I admit that some of my picks have been less successful than the WPRT and GILD picks, but before everyone writes off my strategy because of these less successful picks it is important to remember an integral part of my strategy: I believed, and still believe, the companies to be fundamentally solid. This means that sooner or later I expect the stock price to rebound. This strategy of buying on short-term market fears greatly increases the number of stock picks that will yield gains. Some will be quick, like GILD's rebound, and other might take longer. But as long as the fundamentals remain secure, it is unlikely that the investment will end up losing an investor money in the long run.
It is also important to note that for some of my "Buy on the Drop?" picks the return to date is not positive, but this misleading. My strategy dictates that when an investor buys into a stock on a drop in price, the investment is intended as a short-term one. If the stock rebounds a week later, my strategy would be to sell most of my holdings. Then if the stock drops again two weeks down the line, the investor won't have a substantial position anymore because he or she took profits the week before. To sum this paragraph up, my strategy is inherently a short-term one and so return to date is an incorrect method of rating its effectiveness.
Concluding Remarks
I hope this article has given helpful advice to some of you and also hope that it hasn't struck too many of you as completely useless and irrelevant. Personal experience is something that every investor should be willing to share so that others can avoid the same mistakes.
While I can't say I'm particularly happy to have had the experiences with MNKD that I did, I do think that it has molded me into a better investor with a stable philosophy, which I have used to put the days of big losses behind me. I guess in that way, those stock market regret stories I mentioned earlier aren't really regret stories at all.
Experience is simply the name we give to our mistakes.
--Oscar Wilde
Lessons I Learned From Owning MNKD
Jun. 3, 2015 3:44 AM ET | 38 comments | About: MannKind Corporation (MNKD)
Disclosure: The author is long MNKD, GILD. (More...)
Summary
MannKind stock was one of my first holdings as an investor.
As many of you probably know, the extremely volatile MNKD is probably not a good stock for a beginner to own.
But owning a stock like MNKD in the beginning of my investing career taught me many lessons in a short period of time, which have made me a better investor.
Introduction
To avoid people in the comments section complaining that this article is editorialized, for those of you who are not interested in the article's content, which is my personal experience, don't read any further. For those of you that are interested, I trust that you will read through this article and gain valuable advice from my personal experiences. If you haven't learned these lessons the hard way yet, then hopefully the content of this piece will save you from investment pitfalls and allow you to bypass a lot of stress and a lot of unpleasantness. I also want to encourage people reading this to leave a comment because an interactive community is one of the most valuable resources of which an investor can be a part.
How I Got Started
Some people start investing early in their lives and some people start investing later on when retirement starts to come into focus. Some people discover the wonders of the stock market on their own and some people are introduced to the world of finance by family or a friend. But no matter what category you fall under, every investor has a major regret story. A time when a stock you owned just dropped off a cliff or when you sold a stock right before it took off. For me, my major regret story involves MannKind (NASDAQ:MNKD).
My father first introduced me to the stock market when I was about 16 years old. It was love at first sight. The commotion, chaos, unpredictability, exhilaration and adrenaline drew me in immediately. My father gave me $500 and told me that if I could prove myself, he would entrust me with more. My first ever stock pick was Linn Energy (NASDAQ:LINE), which I bought right after it crashed from the mid-$30s down to $20 in 2013. At this point, I knew nothing about operating metrics, but my intuition told me that when a stock drops so precipitously, if there's no damage to fundamentals then it usually rebounds. The stock did indeed rebound and went all the way back up above $30.
LINE Chart
LINE data by YCharts
So why am I telling you this and what does this have to did with MNKD? Well the success of this first investment gave now 17 year old me a copious amount of hubris because I thought that I had cracked the secrets of the stock market like no one else had ever done. Little did I know that my pick had been nothing more than a lucky guess and that the market was about to knock me on my ass and take me on an emotional rollercoaster ride.
Owning MNKD
After my first successful investment, my father came to me and gave me a heads-up on a stock called MNKD that had a revolutionary new drug looking to enter the market. This drug, called Afrezza, had yet to gain FDA approval and was expected to be a big hit. I barely did a shred of research before I jumped in and bought a few hundred shares after the stock dropped from about $8 to the high $6 range. From that moment on, owning MNKD was one of the most stress-inducing experiences of my life.
Soon after investing in the stock, I discovered the fantastic resource that is Seeking Alpha. There was news, analysis articles, earnings reports and much more for me to examine. But I was very inexperienced, very impressionable and MNKD was very volatile. This created a very dangerous combination. Over the next few months, I proceeded to panic and sell my shares whenever the slightest sliver of bad news was released and I would buy back at a higher cost basis after the stock recovered because I didn't want to miss out on a big gain that I knew was coming. Seeking Alpha unfortunately contributed to this development because I was very impressionable and authors sometimes penned very bearish articles that frightened me into selling.
For an inexperienced investor like I was, it was very difficult for me to watch a stock in my portfolio drop off a cliff and still stay calm. This was especially true because my father asked for updates on the portfolio and I was very nervous to tell him the truth. And so, over the span of a few months I promptly threw about half my portfolio's value out the window. And the most frustrating part about the whole ordeal was that I had lost so much money from MNKD yet the stock was at almost the exact same price it had been a few months before when I had initially bought it.
That was my first lesson: if you buy a stock that you believe in, when the price drops a significant amount, don't touch your portfolio. If you believe in the fundamentals of a company, then any event that affects stock price but not those fundamentals should be completely ignored or investors should capitalize on market fears to add to current holdings at a lower entry price (when I use the word "fundamental" I don't mean in the traditional sense of solid cash position, consistent net income etc. but rather in the sense that "fundamentals" are things that are vital to the company's value).
If you have been a MNKD investor for a couple years, you most likely remember the excitement you felt when the FDA approved Afrezza and the stock price soared as high as $11.48. However, you also probably remember how quickly that excitement died away when the stock fell below $5 within just a couple months of FDA approval. That's where I learned a second lesson: long-term investing may be the safest route, but trading can be very profitable. When MNKD stock was up in the double digits I kept getting nervous because I didn't want to sell at a gain and miss out if the stock went even higher. Instead, I ended up with dead money again as MNKD wallowed (and still wallows) in the single digits. The buy-and-hold strategy and the frequent trading strategy are not mutually exclusive however and combining the two yields a hybrid strategy that can potentially provide huge benefits.
The two lessons I learned from owning MNKD molded my investment philosophy today which is to look for companies with solid fundamentals that have taken dips because of short-term investors panicking (like I once did) and to buy in on those price drops. Assuming fundamentals are in fact still intact, the stock price usually rebounds, as MNKD has done a thousand times after dropping. Then when the stock rebounds, investors can either sell a portion of his or her stake for profit and still maintain a position, or just take the winnings and look for another stock. The beauty of this strategy is that, if done right, the probability of gaining profit is very high.
Let's say Company A's stock drops 10% because it guided revenues lower than expected, but this lower guidance is not due to any fundamental issues with Company A. My strategy would first dictate buying into Company A's stock at its depressed price. The second step depends on how the stock moves. If the price recovers over a couple weeks or a month, my strategy would dictate selling a portion of the investment and holding on to some shares if the investor believes Company A will be high-growth, or selling the entire investment for a modest gain. However, if the stock either falls lower or stays unchanged then my strategy would dictate to hold on to the investment because Company A is still fundamentally sound and stock performance will eventually follow company performance.
The only scenario in which this strategy loses is if the investor misjudged the fundamentals of Company A and the stock never again reaches the price at which it was initially bought.
Overall, this strategy has worked very well for me, mainly because stocks drop due to non-fundamental damaging events all the time. This creates tons of opportunities across all different sectors to benefit from the short-term fears and panic of investors.
This philosophy of mine is something that is frequently the focus of my articles in a particular segment I call "Buy on the Drop?" where I analyze whether a stock's drop can be attributed to fundamental damage or market overreaction. If it's the latter, I recommend investors buy the stock at its lower price (If this is something you're interested in, you should consider following me as I use this format quite frequently).
Many of the ideas I have highlighted in this segment have been successful and vindicate the benefits of my strategy. The first article I ever wrote in the "Buy on the Drop?" format was back on December 1, 2014 when I recommended that investors buy Westport Innovations (NASDAQ:WPRT) after a 10.6% share price drop. Two months after my recommendation the stock reached a price 27% higher than when I penned the article.
In another article on Gilead Sciences (NASDAQ:GILD), I recommended buying the stock after it cratered 14% in one day. Shares were back up 7% within 6 days and are currently up 22% from that day.
I admit that some of my picks have been less successful than the WPRT and GILD picks, but before everyone writes off my strategy because of these less successful picks it is important to remember an integral part of my strategy: I believed, and still believe, the companies to be fundamentally solid. This means that sooner or later I expect the stock price to rebound. This strategy of buying on short-term market fears greatly increases the number of stock picks that will yield gains. Some will be quick, like GILD's rebound, and other might take longer. But as long as the fundamentals remain secure, it is unlikely that the investment will end up losing an investor money in the long run.
It is also important to note that for some of my "Buy on the Drop?" picks the return to date is not positive, but this misleading. My strategy dictates that when an investor buys into a stock on a drop in price, the investment is intended as a short-term one. If the stock rebounds a week later, my strategy would be to sell most of my holdings. Then if the stock drops again two weeks down the line, the investor won't have a substantial position anymore because he or she took profits the week before. To sum this paragraph up, my strategy is inherently a short-term one and so return to date is an incorrect method of rating its effectiveness.
Concluding Remarks
I hope this article has given helpful advice to some of you and also hope that it hasn't struck too many of you as completely useless and irrelevant. Personal experience is something that every investor should be willing to share so that others can avoid the same mistakes.
While I can't say I'm particularly happy to have had the experiences with MNKD that I did, I do think that it has molded me into a better investor with a stable philosophy, which I have used to put the days of big losses behind me. I guess in that way, those stock market regret stories I mentioned earlier aren't really regret stories at all.
Experience is simply the name we give to our mistakes.
--Oscar Wilde