Overvalued stocks

I invest 75% of my non-RE portifolio in ETFs, but also bought some individual stocks because it makes me happy and there’s some companies I blieve in. Also, I am a buy-and-hold investor, not selling stocks on a whim.

I am working at a local college as a geneticist, and probably not surprizing, it’s a field I have some insight in. Hence, I have been enthusiast about CRISPR based tehnologies, as well as its changes in pharmaceutical applications. A while ago, I bought stocks in one of the upcoming biotech start ups, which had a good technological team and, what seemed to me, good management and prospects.

Over the last couple of months, the stock did really well, and was at a place where I considered it should be considering the long term potential. Last week, the stock exploded, now trading at 10x what it went for last year (I bought a bit higher than that though).

So, I am looking for some input from the collective expertise here. Again, I believe in the long term potential of the company/technology, but feel the stock is rather overvallued at the moment. I am disinclined to go for some quick profit taking, but at the same time, a 10B+ market cap for what is basically a small start up that is especially good in burning through their (admittedly huge) cash reserve seems risky too.

Take out your initial investment (or the double/triple/… of it) and let the rest run.


Selling can be a tough decision, it’s all about your own risk tolerance… How much would you suffer from a sudden 20% pullback? You don’t name the stock you bought but I guess it skyrocketed because it reported strong numbers and surpassed expectations, this is usually a good thing. Now that all the biotech/vaccine hype has begun to settle down (I watch ARKG as a benchmark for this sector), it sounds rather encouraging.

I have a tendency to let the winner run for as long as the long term thesis remains intact. I would not sell a stock that seems a bit extended if I believe in the fundamentals (good guidance, upside potential). I may temporarily stop adding to that position.

In rare cases where I think trading prices are seriously on the high side and may face an imminent correction, I start by selling one third (1/3) of my holdings to secure some profits and leave some time to decide what to with the rest.

Some spoilers:

  • I am glad that I sold most of my LMND shares (Lemonade) when it reached stratospheric levels (180$), I was up 110%
  • I recently sold 1/3 of NVCR (Novocure) when the stock price soared +~50% in a single day thinking it would pull back, but unfortunately it did not… The rest is up ~65-70%
  • I did not take profit on JMIA when it was up 100% from my average buying price. now after the huge selloff in March, that same position is 35% down.
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Perhaps you can look at it from a viewpoint of:

  1. the stock is now x % of my Net Worth. If I was buying now would I put x% of my NW into this?
  2. If I take some money off the table and invest it in more predictable assets, how much would it accelerate my Financial Independence date? Am I happy gambling with this date ?

If it is the stock I am thinking about (begins with I?): It has years of research and hurdles to overcome before getting a profitable product to market. A lot of early stage pharma technologies never make it . Price can go to zero or to the moon…

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Intellia Therapeutics (NTLA), indeed. Quite far from market I’d think; probably ratehr a target for acquisition by one of the big players – though I might be wrong there.

Initially 5% of portifolio, currently a bit more than 15%. I guess I can shuffle until it again is 5%.

Mayby tomorrow it goes down hard and the problem solves itself :slight_smile:

Doing the maths can help dimensionalize it sometimes: Reinvesting the 10% you take off the table at 7% long term return, then it would be worth 20% of your current portfolio value in 10 years and 40% in 20 years.

A lot of uncertainty in the numbers, but less so than holding NTLA shares :slight_smile: