Thursday, June 25, 2009

The Outrage of Insmed (INSM) Investors

INSM: As has already been posted here, shares of Insmed (INSM) were cut in half on Thursday after the release of sub-par results in an exploratory Phase II trial.

The amount of negative investor response to the MMD press release and subsequent collapse of the stock intrigues me. Certainly, it was a bad day for shareholders of INSM, but Iplex is far from dead in the water. In fact, Iplex is not even dead in the water regarding MMD!

Had the press release indicated that Iplex was a complete failure, I could understand the outrage, but Thursday's news was far from that extreme. There is still potential for Iplex and there is still potential for the INSM stock.

A few things to keep in mind:

Investing in biotechs is a risky business. An investor has got to know his or her limitations and tolerance for risk.

If you don't have the stomach for risk, stay away from biotech.

If you think every clinical trial is going to go your way, stay away from biotech.

If you tend to make investing decisions based on emotion- buy a mutual fund and, stay away from biotech.

On the other hand, today's drop also highlights a couple of other points I like to emphasize:

Don't be greedy! Realize some profits and sell some shares on any significant spike. This will reduce your overall risk to bad news and eventually could have you 'playing on house money', meaning you've sold enough to cover your initial investment; if the stock price were to go to zero, you'd still break even.

Don't put your all your money into one or two investments. That will alleviate the panic if that stock does not perform up to expectations.

Don't buy 'one trick pony' stocks. Insmed has more to offer than just Iplex for MMD.

To the shorts- congrats, it was a good day for you.

Day/Swing/Momentum traders can be done with INSM and move on; the patient, long-term investors should stay put and ignore the apocalyptic nonsense.

For the longs, today is not the end of the world for this company or it's lead drug. In fact, it's far from it. For many investors that have accumulated over the past year, a $1 INSM stock is still a double from where they bought in.

As I stated early on Thursday, I'm using this stock decline to buy. I wasn't satisfied with the amount of shares that I owned before the latest runup, but now I have an opportunity to add.

Take a deep breath, everyone, and relax. Tomorrow will be a new trading day.

Disclosure: VFC is long INSM.

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