I bought a stock at $1.08 and sold it at $24.50. Here’s what happened along the way.
On July 26, 2018 I bought some shares of a small Canadian biotech company at CAD $1.08 – of course, the price started to fall immediately after I bought it. Not a huge deal, I reassured myself as I watched the share price slide, and my money disappear right along with it. Ugh.
Why did I choose this stock? When I started investing in small-caps, I didn’t have a whole lot of money I could afford to lose, so I decided I would stick to a fairly “risk-averse” strategy and choose companies that were profitable, or had been profitable in the past, and had a tight share structure, a strong management team, and huge growth potential. That last part is just guesswork of course. Because as much as I would love to, I don’t have a crystal ball.
So I did a lot of research, and asked the investors I knew and respected what they were buying. One of the stocks a few of them mentioned intrigued me – it was a small biotech company, which had gone public on the TSX-V in 2016 – it made and sold monoclonal antibodies used in progressive new medical treatments including immunotherapies and vaccines.
For anyone who’s asking “if this company is so great, why would it go public?” there’s something you probably don’t understand if you’re not from Canada: risk capital doesn’t flow as freely here as it does in the US. Because of this, many early-stage companies in Canada that have huge potential opt to go public early, because it affords them greater access to capital. That’s why Canada is a gold mine for undervalued small-caps.
So I bought a little of this company, and despite the price declining immediately after I bought it, on March 26, 2019 I bought more of the same company around CAD $0.81 – my average was now $0.89.
Immediately after I bought more stock…. the price fell even further! All the way down to around CAD $0.50 at one point, where it hovered for what felt like forever – investors were irate! I watched as they filled up forums with disparaging comments about the company, its leadership team, its lack of IR efforts, the list went on.
By this point I figured the stock was pretty much dead in the water, my money was lost. But, I knew I had no one to blame but myself. I made the decision to buy the stock, no one else put the bid in for me. So although it stung, I chalked my loss up to experience.
Turns out I had bought more stock just before the company released its quarterly financials, and although revenues and gross margins had improved since the same quarter the year prior, the company had still reported a net loss for the quarter. This net loss probably accounted for some of the selling.
But I didn’t sell, probably mostly because I am stubborn. The Company hadn’t done anything horribly wrong – it hadn’t lost a huge contract or been sued, and it had been profitable in the past, so why couldn’t it get there again? I figured investors were also selling because they were bored – the company wasn’t making any earth-shattering announcements, so I reckoned many of the early investors had probably already taken their profits and moved on.
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HOPE: PART 2
Then, slowly, very slowly, the price started to climb. Over the course of a few months, it inched up until my average of $0.89 was in the green again by a small margin. I could have sold it then, but I had waited so long by this point, I wanted to see where this thing would go.
Then Covid-19 struck. The markets tanked. And just like that, the momentum the stock had been gaining came to a halt. But it didn’t nose-dive. So I held on.
In April 2020, the company announced a partnership with a well-known, established pharma company – the company I invested in would be providing its new partner with antibodies for the development of a vaccine – and it was a revenue share agreement, whereby the company would receive a cut of revenues should the vaccine make it to commercialization. So unlike most biotech companies, their downside was limited (they were still being paid to produce the antibodies even if the vaccine never made it to market), but the potential upside was massive. The stock shot up to around CAD $3.
Should I sell? I was up, and others were certainly selling – should I do so too, before the price started to decline? Many investors will tell you that the hardest part of investing is knowing when to sell – and I agree. It’s common for investors to lose the profits they had on paper by waiting too long to sell, thinking the stock would go higher. I’ve done this myself. I’ve also seen investors sell too early in a state of panic, taking a loss when the stock was down but missing out on gains later. If they’d just have held on during the dip, they would have seen huge returns. I decided not to sell.
After its recent run up to $3, with no exciting news to follow up its recent announcement, the price inevitably began to fall off again. Uh oh. Fear started to creep in. Should I sell on the way down before I lost all the gains I’d made?
HOPE: PART 3
Then, the company announced they were up-listing to the Nasdaq. Part of the requirement for up-listing meant that a 5-to-1 rollback was necessary – it didn’t impact my gains, I now owned a smaller position at a higher average price: CAD $4.46.
When trading of the stock resumed on its new exchange, it started to fly. $15…$17…$20… the institutional investors were piling in… every day was a new high. On December 29th I woke up and checked my trading app. The stock was on an absolute tear. You could almost feel the momentum. I watched as a flurry of buying pushed the stock higher by the minute. It touched CAD $25 (USD $19.70).
I considered my options. I could see the stock going even higher, but what was this sudden jump in the stock price based on? Nothing really, other than momentum. Traders were discovering a new biotech stock that had just listed on the Nasdaq – and it was linked to vaccine development. Although the company has excellent fundamentals, this massive buying was mostly based on FOMO, I reckoned. So I pulled the trigger and sold at $24.50.
I didn’t sell my whole position – I left a little on the table, because I still believe the company has much further to go. I ended up selling around 80% of my position that day.
I made quite tidy a profit that day. Not life-changing money – I can’t retire quite yet – but for me it was a huge win, and I am thankful for any and all wins in the market, no matter how big or small. No matter what, the lessons I learned from the rollercoaster ride of buying, holding, and eventually selling – were worth every penny.
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