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Biotech Pump and Dump

By Rick Walter

Building a good Biotechnology portfolio has turned out to be a bit of a task. I have one on the table, but feel that it's a little too aggressive and risky, especially for today's market. Funding for most Biotech ventures- old or new, have either dried up or have been put on hold. This portfolio that I am building is too much of a pure Biotech play. It would be feast or famine on the returns. Let me explain.

I remember when I was a young broker, I worked for this small outfit in Florida where the office manager and a few other brokers, including myself, would get all pumped up over a stock called Celi. I believe that the stock is now trading on the Amex as (Cel-Sci: CVM). Well the stock was always on the verge of getting approval for some phase of cancer treatment therapy. Whenever the company released news, we would run the stock up as high as the market makers would let us run it- ($1.30 to $2.30 per share) before we banged it back down to previous lows of .30 cents to .50 cent per share, because the stock price never moved on its own and it was a great play for generating some quick commissions before end of the month; Celi never let us down. Lol. I know it sounds unethical but we figured out that the stock would never really move in price due to the complexity of FDA Approval phases, but had enough cash to justify it's stock price, so until that time we had to do something. Ha!

It's the same with most of the Biotech industry, most companies are always on the verge of a break-through which will propel them to the next FDA approval phase. Of course, only a few drug projects ever make it to full approval. So its feast or famine for most players in the industry.

Therefore the problem has been designing a portfolio that is not overly volatile, and one that reduces the feast or famine cycle. So, I added a pharmaceuticals exchange-traded fund to the mix, increased the fixed-income positions, reduced some of the biotech positions that were overlapping each other and increased the cash position of the portfolio so that I can have enough cash to purchase more positions, if the portfolio value declines below 10%. I will track it for a while longer before I post the portfolio as an available investment option.

Disclaimer: Please don't go out and buy (Cel-Sci: CVM). I do not follow or recommend purchasing this stock and have no idea how this stock is performing now.

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