Trader's Corner

[gambler2075]

Investors should choose stocks now Outside the Box - MarketWatch

HELLO ???!!!???

Where was this guy 2 years ago in Mar/09 ? And NOW he is advising people to buy stocks? As a contrarian I am thankful there are idiots like this guy to buy my overpriced shares that they were puking up at the bottom...

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[gambler2075]

15 Fundamentals To Win The Battle | The Kirk Report

This advice is not for beginning traders... but then again, trading itself is not for beginners. If someone doesn't have years to devote to learning how to trade, then IMO people shouldn't bother spending the time trying... They might as well just go out and spend their energies living life, living with their families, and doing what is really important.

That being said, the above link is worth posting.

My comments:

1) Completely true... what everyone knows is already factored in, so you need to know far more than the masses know. I believe that biotechs, by their specialized nature, are not amenable to all investors understanding them. That is why I feel I can know more than what almost everyone knows in biotech, by doing deep DD, and I feel that gives me an informational advantage, as well as being able to stick with my contrarian positions

4) The truth is never as rosy as optimistic investors expect... so you might as well trade people's EXPECTATIONS rather than wait to see what is behind the curtain (and be disappointed)

8) This one is controversial, but I can say that all the great traders became much more concentrated in their positions than the average non-trader. And I think that if I had adhered to traditional diversification teaching, my gains would be far less than the thousands of percent that they are over the past few years.

10-15) Very true, especially #15...

14) This is completely true... I can't tell you how many times people ask me "how do I make some quick money in the stock market?" and I am reminded of the passage from Jesse Livermore's book. The problem is that most non-traders have absolutely no idea how hard trading is, and as a result, a little knowledge can be very dangerous. If you tell someone the bare minimum they need to know to open an account and start trading, then IMO you have basically guaranteed that they are going to lose all their money. And so, by not telling people how to trade, you are actually doing them a FAVOR by keeping them from losing money.

How to Trade in Stocks

" The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get rich quick adventurer. They will die poor. Over a long period of years I have rarely attended a dinner party including strangers that someone did not sit down beside me and after the usual pleasantries inquire: "How can I make some money in the market?" In my younger days I would go to considerable pains to explain all the difficulties faced by the one who simply wishes to take quick and easy money out of the market; or through courteous evasiveness I would work my way out of the snare. In later years my answer has been a blunt "I don't know." It is difficult to exercise patience with such people. In the first place, the inquiry is not a compliment to the man who has made a scientific study of investment and speculation. It would be as fair for the layman to ask an attorney or a surgeon: "How can I make some quick money in law or surgery?"

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[gambler2075]

I call XNPT bottom here at 9.06, for a 10% bounce to 9.90 or so.

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[Slug]

I call XNPT bottom here at 9.06, for a 10% bounce to 9.90 or so.

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Scary. Thin volume bottom. Too risky for me, but interesting to watch.

What's your time horizon on $9.90?

[gambler2075]

Scary. Thin volume bottom. Too risky for me, but interesting to watch.

What's your time horizon on $9.90?

Looks like I might have to wait to really get in. Hopefully tomorrow, for the bounce, maybe 8.70 around noon... typically if these bounce it is within 1 trading day that it bounces around 10%. For historical examples, look at AVNR, look at what % it fell from the high, and then you can see...

same percentage for XNPT is actually 8.50 but it just doesn't feel like it is getting there. IMO 8.60-70 is more like it, imo.

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[Slug]

XNPT still trending down today on higher volume 8.66

No entry for me...yet

[gambler2075]

Yeah, I lost about 2K$ today trying to buy XNPT today... oh well. Would be down more if I still was holding.

I can't believe I missed the big moves recently... CYH I was watching at 26 but did not buy a couple of days back... XNPT if I had just had the guts to go short 70K shares when I sold at 10.90 I could have made another 150K$... oh well.

Meh... back to sitting wishing watching waiting... I will say though, that the trading mentality I have is completely different from the investing mentality that some of my friends have... I did a ton of research to see if I thought XNPT was going to be APPROVED, not if it was going to be a blockbuster drug. My friends couldn't understand why I would buy a "lightweight" drug indication, but I kept trying to explain that, as a trader, I don't really care about any of the fundamentals that have to do with market share, etc etc... all I cared about the fundamentals were for the determination of if XNPT would be approved. I guess if I was a better trader I could have converted my short to a long at 10.90, but I did not, and so I missed out on all that potential gain. Darn it. Maybe next time.

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[Slug]

Since you've been sharing some reading. Here's a recent interview with Nassim Taleb I enjoyed.

Nassim Taleb on Living with Black Swans - Knowledge@Wharton

By the way your trading mentality makes perfect sense to me. You're looking for catalysts for change, things to trendbreak. Your friends are looking for long-term gains. A company with a product that will capture a market and steal share from its competitors in a meaningful and long-term way to drive revenue and new investment. I do both of these.

[jpg7n16]

You're looking for catalysts for change, things to trendbreak. Your friends are looking for long-term gains.

Agreed with this. You're evaluating short term factors, they're evaluating long term factors. They won't always indicate the same thing.

[gambler2075]

Agreed with this. You're evaluating short term factors, they're evaluating long term factors. They won't always indicate the same thing.

I think part of it is that I have spent a long time trying to evaluate sentiment in a stock. It is crucially important that I be able to evaluate what the average retail Joe is thinking, because I can't buy contrarian unless I can judge how close to maximum fear the overall sentiment is. Most investors don't think this way, so they are evaluating fundamentals and things which may matter 5 years down the road.

With XNPT I realize that yes, it was a lightweight indication, but the thing is that that doesn't matter when approval day comes around. The massively greedy/optimistic longs believed it was worth 20$, when in fact it was a horrible idea to buy at 11, in retrospect.

As far as the Taleb interview goes, reading "Black Swan" really changed the way I looked at risk in trading, and was a big part of the reason I took a significant amount of money out after I had made it, to pay off some med school loans. There is no predicting the future, so any money in the markets could be lost back. The concept of a black swan always makes me conscious of minimizing my holding period for a stock, as it opens me up to risks that I cannot forsee... the shorter I can hold a stock, the better. Intraday better than overnight, although I won't exclusively buy intraday if the conditions are right at the end of the previous day that I want to get in.

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[gambler2075]

Looks like I might have to wait to really get in. Hopefully tomorrow, for the bounce, maybe 8.70 around noon... typically if these bounce it is within 1 trading day that it bounces around 10%. For historical examples, look at AVNR, look at what % it fell from the high, and then you can see...

same percentage for XNPT is actually 8.50 but it just doesn't feel like it is getting there. IMO 8.60-70 is more like it, imo.

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Big oops on the XNPT bounce calls. I was way off... I paid for it, losing ~5000$ over the past 2 days trying to catch a bounce with 30K share blocks... Typically I don't like to 'go back to the well' as traders call it, because the water has often turned bitter. Better to try to get the next XNPT than to try to fight with a million other scalper/daytraders for nickels.

Of course, I am a human being and suffer from the emotional weaknesses that all people do, so I still ignored the lessons I have paid dearly to learn (many thousands of dollars over the years), and it cost me ~5K out of the 314K I made. The damage was limited because I got out early when the position went against me. They say to 'let your winners run, but cut your losers early'. That's all a trader can ask for, which is to say that when he is wrong, hopefully it doesn't hurt his portfolio too much, but when he is right, he profits enough to make up from it. However, this still doesn't change the fact that I went into these attempted bounce plays when I really shouldn't have. Lesson learned (I hope).



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[OSODOU]

I call XNPT bottom here at 9.06, for a 10% bounce to 9.90 or so.

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What was the final tipping point for you to xnpt through the fda date? was it that they approved DEPO's drug?

[gambler2075]

What was the final tipping point for you to xnpt through the fda date? was it that they approved DEPO's drug?

So, naturally I started with doing the fundamental analysis to try to find out as much as I could about gabapentin enacarbil (GE). This article was a good start:

http://www.dovepress.com/getfile.php?fileID=6162

which basically talked about the basic pharmacodynamics of GE, and talked about the fact that GE is metabolized to G + 3 other GRAS (generally recognized as safe) compounds. Good background information. But the more important issue as the the pancreatic cancer issue, and to see what I thought were the risks in rats vs humans. So this was the original paper

Pancreatic acinar cell neoplasia in male Wistar ra... [Toxicology. 1995] - PubMed result

And this was the followup:

Gabapentin-Induced Mitogenic Activity in Rat Pancreatic Acinar Cells

which does talk also about the CCK issue (XNPT and GSK said they did not do that study because of the signal/noise ratio was not high enough... that worried me because I felt the FDA could get hung up on that and order them to do it), but the most important factor here was that rats get different tumors than humans (in the discussion section, first paragraph, humans get ductal cancers, rats get acinar)

So that was part of the difference. Here was another article that helped:

Neurontin Capsule - Psychiatric Times

Carcinogenesis, Mutagenesis, Impairment of Fertility
Gabapentin was given in the diet to mice at 200, 600, and 2000 mg/kg/day and to rats at 250, 1000, and 2000 mg/kg/day for 2 years. A statistically significant increase in the incidence of pancreatic acinar cell adenomas and carcinomas was found in male rats receiving the high dose; the no-effect dose for the occurrence of carcinomas was 1000 mg/kg/day. Peak plasma concentrations of gabapentin in rats receiving the high dose of 2000 mg/kg were 10 times higher than plasma concentrations in humans receiving 3600 mg per day, and in rats receiving 1000 mg/kg/day peak plasma concentrations were 6.5 times higher than in humans receiving 3600 mg/day. The pancreatic acinar cell carcinomas did not affect survival, did not metastasize and were not locally invasive. The relevance of this finding to carcinogenic risk in humans is unclear.
Studies designed to investigate the mechanism of gabapentin-induced pancreatic carcinogenesis in rats indicate that gabapentin stimulates DNA synthesis in rat pancreatic acinar cells in vitro and, thus, may be acting as a tumor promoter by enhancing mitogenic activity. It is not known whether gabapentin has the ability to increase cell proliferation in other cell types or in other species, including humans.
Gabapentin did not demonstrate mutagenic or genotoxic potential in three in vitro and four in vivo assays. It was negative in the Ames test and the in vitro HGPRT forward mutation assay in Chinese hamster lung cells; it did not produce significant increases in chromosomal aberrations in the in vitro Chinese hamster lung cell assay; it was negative in the in vivo chromosomal aberration assay and in the in vivo micronucleus test in Chinese hamster bone marrow; it was negative in the in vivo mouse micronucleus assay; and it did not induce unscheduled DNA synthesis in hepatocytes from rats given gabapentin.

I looked at the format of the GSK study and the data, which was somewhat helpful, but I was a bit questioning their use of the 2 year delay (saying that some people with pain could have cancer as causing the pain, but there was not an increased risk of pancreatic cancer in those people)

Renal Pelvis Cancer Clinical Trial: Gabapentin and Risk of Pancreatic Cancer and Renal Cancer (GPRD) [Conditions: Renal Pelvis Cancer, Restless Legs Syndrome, Epilepsy, Neuropathic Pain, Chronic Pancreatitis, Hypertension, Pancreatic Cancer, Diabetes

Then, of course I listened to all of the conference calls and presentations that XNPT had.

XenoPort, Inc. > Investors > Past Event Calendar

The March 8th CC isn't that helpful, but the 3/2 one was, about halfway through. The things I liked about that one was

1) They said that the FDA specifically asked for epi data (meaning that in my mind, the FDA may have considered GE equivalent to G)
2) They said they have a bunch of expert opinions saying that gabapentin doesn't pose a cancer risk in humans (I think they said gaba, not horizant, unfortunately, though)
3) They said the molar dose for gaba in gralise is 6X that of horizant, which they also said may put the FDA in a paradox if they would approve gralise but not horizant.

Now I looked at that G vs GE 6X molar difference and here were my thoughts I sent one of my trading buddies...

I was doing some thinking about the "1/6th" molar concentration thing they said (Horizant vs Gralise) and I couldn't figure out how they got that number. then I realized that gaba enacarbil (GE) has a higher molecular weight than G, which means that 600mg of GE has less moles than 600mg of G. But then I also realized that it is a bit tricky to say that 1/6th molar dosage, because the reason why the oral dosage of G is higher than GE is because of the pharmacodynamics... more GE is actually absorbed into the bloodstream than G (if you were to consume 1 mole of each). Therefore, the blood concentration for GE is going to be higher than for G. So I am sure there are smart people on the FDA panel that will figure out that the 6X figure cited in the March 2 CC is a bit deceptive. Maybe it is somewhere around 3X in the bloodstream, based on my estimates that GE is absorbed almost 100%, but G between 20 and 70% (maybe 50% average, let's say).

One thing that did worry me was that there is typically a standard that the FDA has, in that they want you to show that the drug does not show cancer at the 25X level in rats, and XNPT did not do that study. They had data that showed no cancer risk at 13X and that there was some cancer risk at 36X, but not at 25X... so I was worried the FDA would ask them to do that study. The other huge factor was that there was a cancer signal seen in both male AND female rats, which was not originally seen in the 1995 Sigler paper (link above). This was problematic as could the FDA say that there was something inherently carcinogenic about Horizant vs Gabapentin?

Still, I thought the odds were fairly high of approval, and there were about 10 other factors pointing in that direction which I don't care to publicly reveal, so I held through the decision.

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[OSODOU]

Gambler you are the best! This really helps!

[gambler2075]

Gambler you are the best! This really helps!

No prob... I think fundamental analysis does have a very important role in stock trading, but it is not the end-all, be-all of the trading game.

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