The Rapid Rise of Gene Editing Stocks
When you try not to check in on your stocks very often, life comes at you fast. Sometimes, that’s a good thing. Gene editing stocks have been on an absolute tear, at least the three we’re holding in our portfolio. Just look at the 30-day returns for the three OGs of gene editing stocks.
The fact that all three stocks are rising in unison is very telling. This is not due to some company-specific event, but rather something happening across all gene-editing stocks. When a group of stocks that’s not in the same industry classification moves in unison, that’s usually a sign of hype (3D printing investors will remember this all too well.) Turns out there are other gene-editing stocks out there we’re not holding which can be found in our Guide to Investing in Gene Editing Stocks. Let’s see how they’ve fared over the past 30 days:
- Cellectis (CLLS) +42%
- Calyxt (CLXT) +20%
- Sangamo Therapeutics (SGMO) +75%
- Homology Medicines (FIXX) +35%
- Precision BioSciences (DTIL) -7%
- Beam Therapeutics (BEAM) +112%
Price performance is no indicator of a company’s future potential, but all gene-editing stocks we’re tracking appear to be showing superior returns when compared to an appropriate benchmark. The iShares Nasdaq Biotechnology ETF (IBB), which contains the top gene-editing high flyers, is only up +13% this month. Eight of our nine gene-editing stocks beat that benchmark, some by a country mile.
So, gene-editing stocks are rising across the board. Here are some possible reasons for that:
- The market has suddenly realized the tremendous potential of gene editing and they’re piling in. This sudden realization could be attributed to comments made by ARK Invest recently.
- The Robinhood wankers have caught wind of gene editing and the money train is leaving the station. CHOO CHOO!
- The market is indiscriminately driving the price of all exciting assets through the roof for reasons we elaborated on a recent piece titled “Investing in Disruptive Tech IPOs in 2021“
The truth is probably a mixture of all three. Stocks that grow to become some of the biggest companies in the world – the biggest renewable company in the world, the biggest chipmaker in the world – don’t become success stories after some favorable press coverage. It takes time for those exponential returns to mature. Everything reverts to the mean if you give it enough time.
And now we arrive at the difficult part – deciding what to do. Everyone is in a different situation right now when it comes to holding gene-editing stocks. There may be some buying at these prices, there may be some sitting on large gains and wondering what to do, and there are probably lots on the sidelines that are now aware of gene editing’s potential and are waiting for the dust to settle. Let’s talk about each scenario.
Should I Buy Gene-Editing Stocks?
Fear of missing out. It’s something that’s really making you want to climb aboard the money train. Some people are asking themselves, “why did I put such a small amount of money in probably one of the most exciting technologies of the decade?” That’s not the way a risk-averse investor should be thinking about this. As a wise man once said, “if this turns out to be the next big thing, a little is all I’ll need in my portfolio. If it’s not, I’ll be happy I only owned a little.” So true. Look no further than what happened to synthetic biology stocks.
If you find the gene-editing thesis to be a compelling story, start accumulating slowly over time. Just pick a day next week and a time. Then, log into your brokerage account and buy 1/6 of your target position size in each OG gene-editing stock (we’re not able to discern a winner so we bet on all three leaders). The first time you pick up some shares, you’ve drawn a line in the sand. If gene-editing stocks go to the moon, you’ll be enjoying some gains. If they plummet, just keep adding as they drop.
Take your time accumulating your target position. Remember that there is likely to be no single winner in gene editing. Each technique has its own potential applications. The best technique may have not even been developed yet. It’s early days for gene-editing technology, so sit back and wait for some mean reversion.
Should I Sell Gene-Editing Stocks?
Newbie investors often think of a stock position as binary. They buy their entire position in one trade, and they sell their entire position in one trade. Consequently, you’ll hear pundits talk about “buying a stock” or “selling a stock” with no notion of doing this over multiple transactions. Instead of selling your stocks all at once, just slowly trim a bit off the top over time. What you’ll find is that trimming a little on triple-digit returns adds up very quickly.
As of today, here are the gains we’re sitting on with our three gene-editing stocks:
- Editas – +224%
- Crispr Therapeutics – +162%
- Intellia – +389%
Because we believe that gene-editing stocks are being hyped, we decided to trim 10% off all three positions – roughly. The end result was enough to cover around 30% of our cost basis for all three stocks combined. If the stocks keep moving up, we’ll slowly trim more.
All the while, we know how quickly we can become victims to the single most dangerous thing any investor will encounter – human emotion. What we need is a more objective way to go about trimming stocks that suddenly pull a Tesla on us.
Adjusting Our Methodology
Very few retail investors are maximizing the benefits of being able to trade stocks pretty much for free. One perk of no brokerage fees is that you can very slowly trim or add to positions and really smooth out market timing risk. While there’s some truth to Jesse Livermore’s adage “buy rising stocks and sell falling stocks,” we also need to differentiate between stocks that are running a marathon with triple-digit gains spread out over decades, and stocks that are sprinting into the stratosphere for no apparent reason.
Trimming Your Winnings
In times like these, we want to capitalize on the hype. We’ve been doing so without being very vocal about it. We cleaned house on our IPOC/IPOB trades, but won’t be doing any more of that because it’s too speculative. When Desktop Metal jumped sharply in a matter of days leading up to their IPO, we told our readers we were long and strong. Strong hands baby. Then it breached a +120% gain and we capitulated, trimming 10% off our position. We deemed the likelihood of the stock falling to be greater than the potential loss of upside should the stock have continued into the stratosphere. We anticipate that with today’s excess volatility, it won’t be the last time this happens.
Thanks to our paying subscribers, we’re able to start covering our bills which means we can start to build bigger and better things. For example, we’re building a premium newsletter that we might use to send alerts when we make some of our “trim trades.” We’re learning that it’s much better to spread your trades out rather than try to call the top.
A Rules-Based Method
Calling a top has proven to be remarkably different as Tesla shorts have found out the hard way. We made our own mistake this year by trimming our solar holding by about 10% when it traded at $63 per share based on two constituents clearly being hyped. It just broke 100 yesterday, and we’re now continuing to trim, but very, very slowly this time. In fact, we’re wondering if this notion of trimming slowly can be implemented using a rules-based system. It’s something our research team is looking at as we type this. For example:
- If <ANY STOCK I HOLD> increases by +75% in less than 30 days, begin trimming 1% of the position every week. If return exceeds +100%, trim 1.5%. If return exceeds +150%, trim 2%. Etc, etc.
Obviously, we need more intellectual rigor behind this than just picking nice round numbers out of the sky.
We abhor this type of hype-driven volatility because it starts to drag in our emotions. Watching NVIDIA or Illumina or NextEra Energy rise slowly over the years resulting in triple-digit returns is far less nerve-wracking than the shite we’re seeing these days. Now that we’ve trimmed our gene-editing stocks by around 10% each, we’ve been able to cover our cost basis on two of them. We’re now playing with the house’s money as they say, and we’re learning some valuable lessons along the way.
We’re holding three gene-editing stocks and around 24 other stocks in our Nanalyze Disruptive Tech Portfolio. Want to know which ones? Become a Nanalyze Premium annual subscriber and find out.
Appreciate your informative n
On a quick look: Cellectis valuation looks attractive. Market cap to revenue ratio is only 8. Market cap: 818M.
Cellectis is developing a unique allogeneic approach for CAR-T immunotherapies in oncology.
Recent earnings in March: they beat on revenue and EPS.
The stock fell from $34 in January to $19 now. ARK has it in its genomic fund – 1%.
Analysts see +88% upside.
Our perspective is that this is a seriously difficult stock to understand with irregular revenue streams. If they’re doing drug development, they’re highly exposed to regulatory risk.
Do these analysts seeing an 88% upside think we should see when it hits that price target? If not, what’s the point? We’ll only buy something with a 5-year horizon or longer.