The Rule Breaker portfolio slid again Tuesday, sticking up another big red number as we declined more than 2%. The market closed down as well, with The Motley Fool NOW 50 turning in a 0.78% loss. The S&P 500 fared a bit better, while the Nasdaq underperformed all of these today, down more than 3%.
The biggest mover of our portfolio was the year's most volatile mid-to-big-cap stock (depending on which day of the week!), Celera, which turned in another radical revaluation, this time another drop of some 9%.
All in a day's trading!
Why is Celera so volatile? It's at the forefront of a new technology (biotechnology) as an information technology company with no present earnings, and thus nothing "to fall back on." Perceptions of Celera are changing with a fury and a dynamism rarely witnessed due to:
- the revolutionary nature of genomics
- the certainty of biotechnology's importance in the next century
- the uncertainty of private sector opportunity versus public sector competition
- the real potential for government intervention and involvement hurting or helping for-profit genomics companies
- the possibility that Celera could either be the biggest "biotech" of all right down to the equal possibility the enterprise could fizzle out entirely
- and a dozen or so other factors as well.
Within the past four months, Celera has risen from a split-adjusted $39 (where we bought it) to $276, back down to $60 at one point, up to $140, and settling back at market close today in the low $90s. We will rarely witness more dynamic movements of something this large and important. Penny stocks can of course flit around from one price to the next due to their low liquidity and the shenanigans occasionally perpetrated by only a few individuals or a boiler-room firm. But for something to have a market cap of $14 billion one month and then $3 billion the next -- that is extremely unusual.
And yet there will the Rule Breaker often be, as we continue always to look forward across multiple industries for the most relevant companies of our time that offer the most dynamic possibilities for investors. As I have written at length, recently, some will win (America Online) and some will ultimately lose (Iomega), but a few Rule-Breaking winners held patiently will make footnotes out of one's losers, as we've demonstrated over the past five years and (I think) will continue to demonstrate over the next five decades.
As I sat over a Starbucks coffee today here in Old Town Alexandria, I mused with an associate that we remain able to lose 100% on any given investment we make because we stay invested in a portfolio of 7-15 stocks. It will not happen often, but we will sometimes have investments that go totally bust in the future, just as in the past. But we consciously take on such risk knowing that our few bases-loaded home runs will sail so far out of the park that the preceding strikeouts in the game's earlier at-bats will be almost completely irrelevant.
You have to be willing to allow you'll be wrong, sometimes grandly wrong. Any investment dollar you have invested in a Rule Breaker you must be able to lose entirely. If my investment portfolio vanished tomorrow in a 100% market crash, my day after honestly isn't so very different from that day before, except I'll be suddenly focused on rebuilding! That's another way of saying that the money I'm investing I won't need for at least five years. This is the Foolish way.
The amazing PR battle between Celera and the Human Genome Project continues this week, after the Human Genome Project's director Francis Collins was quoted widely by AP and Reuters as saying that Celera wasn't truly "finished" mapping the human genome in any meaningful sense. Celera shot back that it stood by its statement.
Participants on our informative and entertaining Celera discussion board are in the midst of a vigorous discussion of this and other issues, that numbers hundreds of postings each day. The best way to keep up for those without much time? Click on (and bookmark) our Top 25 Recommended Posts link, always relevant up-to-the-second, and scan it for Celera postings. (You'll find some other great stuff there, of course.) Follow relevant threads and dive in where you have a question or opinion to offer.
Running right alongside the scientific race to map the genome, what do I mean by PR war? Well, quickfix points out in this level-headed view of Celera that Chief Science Officer Craig Venter had originally pointed to plans for a 10x coverage of the human genome for Celera's data. That means that rather than mapping a single human being's DNA and calling that the finished project, Venter was speaking of doing so 10 times, with each additional "x" adding to accuracy. Now, Celera has settled for 3x coverage to publish its mapping claims. This prompted Collins to suggest that Celera was "less than half-finished."
Do you see how it's a battle of words as much as science?
3x coverage of the whole genome is impressive, and allowing that Celera only began its effort in 1998 and has achieved that much so quickly is extremely impressive. Then again, the company may have stretched itself a bit thin (3x rather than 10x) to grab headlines and drive public perception. It's quite intent on beating the decade-old Human Genome Project at its own game. Which is why saying Celera's "not half-finished" is compromised and misleading on its own.
You know what's ultimately the most misleading thing for Celera shareholders and biotech observers? Any emphatic claim of completion -- or denial of it. You see, it's all how you wish to define your terms.
The effort to decode the simplest 80% of the human genome is enormous, and very valuable -- it will in time give rise to amazing medical solutions that have never existed before. The effort to then complete the next 19 percentage points (from 81% up to 99%) takes a similar amount of time as that first 80%, and will also yield extremely important information, though not quite as broad-reaching. (This is according to a biotechnologist commenting on the Celera discussion board.) Then, the effort to do that last percentage point (from 99% to 100%) will take about as much time as each of those other two increments (0-80, and 81-99)! While it won't yield quite as much info, the results will still be very valuable and give the entire effort more of a sense of "completion." And yet even when we're "done" we can't conclude that we're emphatically at 100% because of the mystery of the genome and all we're still learning.
So when are you done?
When do you announce it? What are you announcing?
Or, as our radio show producer Mac Greer suggested to me today in Fool HQ, at what point should the TV networks "project" a political candidate winning a vote? When 15% of the precincts have reported, or 16%? Or 46%? What about 51%? But that's not complete!
You get the idea.
Perhaps we'll ask that very question of Venter later this week, when we'll interview him for this weekend's Motley Fool Radio Show. Stay tuned!
There's a lot of spinning going on all over the place, from Celera as a major player in the field, from the Human Genome Project (so often characterized as "disinterested" when in fact Collins and his ilk have their reputations and careers on the line every bit as much as any private sector entity), and from the various media, many of whom write eye-catching but misleading headlines and ultimately offer up uninformed or fuzzy reporting. (I read an ABC News headline today calling a new genetically modified salmon, which grows faster and is thus a cheaper food staple, "Frankenfish." Silliness.)
What to do? Here's what I do. I maintain the firm attitude that I don't know it all -- not even the half of it, probably. I ask lots of questions, I listen, I compare notes, and (most of all) I use our Celera discussion board as my textbook and my sounding board. I believe that The Motley Fool Celera discussion board is one of the most relevant, dynamic, and important discussions happening anywhere on the Internet right now, if not the most important. The situation is riveting, and the implications profound.
I can't stop writing about it because for that reason I shouldn't, and all of us (particularly those invested) should be extremely engaged by what's happening here. Between Venter and Celera, and Collins and The Project, you have an amazing clash of (1) egos and scientific reputations, (2) private sector versus public sector, (3) dizzying speed versus methodical accuracy... and several more themes thrown in.
We'll continue to watch with a high degree of interest and report things as we see them, with the help of you our community -- for better or for worse, whether you're a shareholder or just a lurker.
And tomorrow, I'll try not to mention Celera much at all, because it's really time we talked Starbucks.
Fool on,
David Gardner
