A recent study from Cowen Research says that biotech investors shouldn’t count on sell-side analysts’ ratings of stocks in the sector. In fact, biotech investors should do the exact opposite of their recommendations, and buy when analysts say sell, and vice versa. According to the report, the worse a stock’s rating, the better its performance the following year. If sell side analysts can’t accurately predict biotech stocks’ performance, what’s an investor to do?
Read Seeking Alpha, of course, and follow a biotech investing expert like Jonathan Faison, who’s created an entire system of discovering and investing in biotech opportunities called Runner of the Year, or ROTY, for short. In his Marketplace service of the same name, Jonathan draws on a decade of investing in the biotech space, and uses a disciplined process based on achieving high percentage gains through exploiting catalyst and revaluation opportunities. Investing sanely in a highly volatile, dynamic space like biotech isn’t easy, but Jonathan applies a rigorous process that prioritizes the “rational” – due diligence and risk management – and strips out emotion. We invited him to join the Roundtable to discuss the drivers behind the ROTY philosophy, themes he’s eyeing in the biotech sector, and some of his current best ideas.
Seeking Alpha: Let’s start with your approach to investing in biotech. Can you talk a bit about your investment philosophy, and what drives it? How have you arrived at your current approach?
Jonathan Faison: My philosophy, which readers have come to know as Runners of the Year or ROTY, is basically a set of guidelines that I made to keep me on a profitable path. Instead of concrete rules, it’s more like a framework for making decisions where priority is given to due diligence, risk management and control of emotions.
I’ve been trading (and