I wish I could say I wanted to jump across the conference room table and poke his eyes out.
That would be far simpler.
I didn’t want to do that though.
I was really more confused than anything else.
All I knew is that I HATED it.
Well, initially, at least.
It would take years before I really understood the simple, accidental, and profitable brilliance of it.
But when I did finally get it, it would lead to some of the most successful, quick-money trades I’ve ever made.
And now, it looks like the exact same set up...Only bigger.
Better Lucky Than Good
This happened back in 2005.
It was the second week in my first job in the financial research business.
Needless to say, my first exposure to the financial industry was more than a bit of a surprise.
I figured it would be a lot of late nights poring over financial statements, spreadsheets, and financial models.
Now, there were late nights alright. They weren’t in the office though. They were at bars and clubs.
Now that I think about it, there were quite a few models too. Not financial though.
But I digress.
The “hot” analyst at the firm was sitting across from your editor in the glass-enclosed conference room.
This was the same guy who just a few days before was regaling me with tales of his experience as a “Financial Planner.”
That’s basically someone who plugs your stats including income, age, and assets into a simple formula on a computer. Then he spreads your money into a bunch of mutual funds the computer tells him to do, and then charges you 1% of your net worth each year for it.
There’s no top down or bottom up research involved. You don’t even the need to read a balance sheet or how to reconcile an income statement into a statement of cash flows.
It’s just sales. Well-paid sales at that.
But he made the hottest pick in the firm at the time and taught me the best way to get ahead at a research firm like that.
All you have to do is luck your way into a quick, big winner and then hammer your bonus check.
That’s pretty much what happened here.
At this analyst meeting we had to present our best ideas. This “rising star” analyst identified a small biotech stock. It jumped 128% in about three months time. And his “best idea” that meeting was to simply mention that again and again.
The thing is though, even though the stock was up, there wasn’t any news that drove the stock up. No fundamental developments. The sector wasn’t doing especially well either at the time.
In fact, in the last two years it was down 50% while the overall market was up 31%.
Anyone classically trained in securities analysis would have never bought into it.
It was nonsense, but again, it went up. Way up.
I hated it completely and found the praise heaped upon him obnoxious.
And now, more than a decade later, I realized how to stop hating these stocks and learned how to make serious money off of them.
The stock he picked was a dead-in-the-water vaccine company called Novavax (NVAX).
And, as I mentioned above, this was 2005. Late 2005. At the height of the Avian Flu panic.
Remember H5N1? That was the Avian Flu. And it was just entering the mainstream.
In the first half of the year there were about 100 deaths attributable to the Avian Flu. A bad case. It had reached a dozen Asian countries.
The second half of the year it made it to the west. Numerous cases were reported around Europe. And when it got to there, it got serious attention.
No longer was the Avian Flu a backwater disease affecting poor people. It could get to us or, worse, Wall Street.
It got serious from there.
That September the U.S. government committed $4 billion in funding to find a vaccine for it and the growing media hysteria sent all vaccine stocks soaring.
Novavax (NVAX) itself went up 480% in a span of just six months in the second half 2005.
It was crazy to me at the time. It didn’t make any sense at all.
But again, the stock went up.
And that’s really the key part of this all.
Love The Hate
I still don’t like the idea much at all.
Really, none of the vaccine companies are going to have a solution to epidemic du jour.
At least they won’t anytime soon. It takes years to develop, test, and get approval for them.
That, however, doesn’t stop the market from loving them.
That’s why even though I hate it, I can see a potentially big run for Zika Virus stocks.
Especially with the Zika Virus.
The numbers are just too potentially big to ignore.
Consider this. The Zika Virus in Brazil has been traced back to the World Cup in 2014.
Since then it’s estimated to have spread to 1.5 million people.
That’s just in Brazil and just in 18 months.
With numbers like that, it sure could spread quickly around the rest of the Americas.
Now, I’m not here to scare you. Or say this is the Bubonic Plague of the 21st century. There’s plenty of other media sources which are happy to do that.
However, purely from an investment perspective, we’ve seen it too many times before to pass it up.
Whether it was Ebola, Swine Flu, or another epidemiological scare which went mainstream, these stocks can go on massive runs.
That’s why I’ve put some “play money” into Zika Virus stocks.
If the frenzy surrounding it grows, so will their share price.
And when it dies down -- which history has shown it will eventually -- there are trailing stop-losses in place to make sure I’m out before this too crashes.
If there’s money on the table, why not take it?
You don’t have to have the stock-picking skills of a financial planner mutual fund salesman to know the answer to that.