Moderna filed S-1 with SEC last Friday and will become the largest biotech IPO in history.
The record amount of raise ($500 million in current version of documents; I will expect more) just surpassed $421 million (HK$3.3bn) IPO by Innovent. In the past years, the typical size of the largest biotech IPO is around $200-300 million.
Since October, we have seen a series of large biotech IPOs that might also contribute to the money pulled from other biotech companies.
Here is the list of ever-increase IPOs in size since October:
Intense sub-planck undulations are seen as glimmers of distortions when zooming out, and are smoothed out on a higher level. Vice versa, seemingly flat world could be surprisingly dynamic if viewed in a sufficient close manner.
Figure 5.1 By sequentially magnifying a region of space, its ultramicroscopic properties can be probed | Source: The Elegant Universe by Brian Greene
In the investment world
Fluctuations in prices within a short time frame, however dramatic, could be (at least partially) smoothed out in a longer period of time. Vice versa, more details or clues of changes could possibly be found behind the scene even if prices stay the same in a week/month/year.
2.
What Physics says
While sub-planck variations are cancelling out with each other, some changes are constant and going in certain directions, although might be immaterial/unsensible on a daily basis – e.g. our universe is ever expanding.
In the investment world
Certain underlying trends (company, industry, economy, society, species, planet, etc.) are happening definitely in the long run. Trying to uncover those trends and making investments according to those should be an effective long term approach.
1. How big is today’s loss & Are we really panicking?
The market rout on 10/24 (NASDAQ Composite dropped 329.14 points to 7,108.40) made it the largest retreat so far this year, surpassing the previous 316-points loss merely 2 weeks ago (10/10).
US stock index 10/24 tumble | Source: WSJ, Dow Jones Market Data
While the 4.43% retreat is widely “touted” as the biggest one-day loss since August 2011, it’s also the 3rd largest daily point loss in NASDAQ history (the other two happened in 2000 during the dot-com bubble).
Top 10 NASDAQ Largest Point Decrease as of 10/24/2018
However, in percentage wise, we could see NASDAQ’s 10 biggest single day decrease ranging from -11.35% to -7.23% (3 of which related to the 2008 financial crisis, 3 related to the dot-com crash, another 3 related to the 1987 crash).
“-4.43%” is not a big deal & that’s not how investors react if they are really panicking.
2. All about inflation?
It’s crucial to incorporate inflation into analysis.
NASDAQ climbed above 5,000 in Mar. 2015, and it took another 7 weeks before it reached the dot-com bubble peak of 5048.61 (intra-day record was 5,132.52).
NASDAQ Composite climbed above 5,000 in Mar. 2015 | Source: Quartz, FactSet
However, when we adjust for inflation, things are different.
Doing a simple math – U.S. CPI (urban, all items ex. food & energy) is 181.3 in 2000 (annual average) and 256.5 in 2018 (H1 average); so a 8,109.69 peak in August should be around 5,732 in 2000-price-level.
So NASDAQ Composite spent more than 18 years to grow 13.5% (from peak to peak), while fundamentally technology has gone through tremendous evolutions.
CPI – urban consumers, ex. food & energy (Jan. 1999 – Sep. 2018) | Source: U.S. Bureau of Labor Statistics
Similarly, WSJ reported in January this year that “Nasdaq Tops Inflation-Adjusted High [7269.89] from Dot-Com Boom”; and the chart below shows the inflation-adjusted path.
Why did we wait for 18 years just for a come-back? So value creation has little to do with the price? Is this all about inflation in the end?
3. Sit back and relax – It’s NOT all in vain
It’s a sure thing that companies can be over- or undervalued over time. But the benefits and growths are also real.
We have (unprecedented) iPhone in 2007 and (finally) massively produced Tesla Model 3 in 2018; we have 1 TB cloud storage for $9.99/month on Dropbox/Google Drive and unlimited storage of business account for $15/month on Box or $10/month on OneDrive.
Development in biotech is equally impressive. Sequencing cost dropped from ~$100 million per genome in early 2000s to ~$1,000 in 2016; and we are curing/curbing more types of cancer with unprecedented success rate and less harmful methods. Other advancements, for example those in neuroscience or surgical robots, are no less exciting.
And we can see their reflections in stock price (e.g. AAPL TSLA ILMN ISRG).
While the NASDAQ Composite in 2000s may be overvalued, comparatively in 2018 it is more supported by concrete revenue and earnings. Promises and expectations are still built in the price, but things are a lot better.
From a similar discussion in Mar. 2015 when NASDAQ reached 5,000 again after 15 years – P/E is not even close to insane levels.
When we call it a bubble (e.g. dot-com bubble), it is usually characterized by an increasing [absurdly large] difference between price and actual value created.
Revenue or earnings can rarely be doubled consecutively between regular quarters but prices can. That’s what happened in 1999 when Nasdaq Composite rose 85.59% (vs. 28.24% in 2017) and 13 large-cap stocks rose over 1000% (vs. Amazon +56%, Netflix +55%, Facebook +53%, Apple +46%, Alphabet +33% in 2017).
While a 10-fold rise in stock price is tough to catch up by revenues and earnings, I see a 50% rise doable and reasonable (e.g. could be a combination of 80% EPS growth + 20% P/E decrease, 50% EPS growth + P/E unchanged, or 25% EPS growth + 20% P/E increase), as long as the new P/E is justified by the future prospect.
I am not saying we shouldn’t anticipate a correction; but NASDAQ Composite hasn’t been super crazy neither.
I would like to conclude this post here by saying that – I believe in the future and the real benefits of tech [if correctly used]. Some areas might seem to be more over-promised than others, and some risks are looming on the horizon [to negatively impact global economy in a nontrivial manner], but true value creation should and will always be valued.
Appendix – what does S&P look like
S&P forward P/E as of Sep. 2018 | Source: JP Morgan Asset Management
我开始觉得，是否会有一个完全不会受到大危机影响的金融系统。可能不是今天，但可能也不是那么遥远。虽然金融业有根本上的逐利和贪婪，但为了可持续性的逐利和贪婪，我可以想象到一个趋于稳定的系统的诞生，可以包容小危机，但不会让大危机威胁自己的生存（not to mention 科技企业对于金融行业的虎视眈眈）。
