I know I’m in a privileged position to be able to afford to write a headline like that. My hope is that this story helps someone who may be in a similar boat or prevent them from ever getting in that boat in the first place.
The road to hell is paved with good intentions.
In March 2020, a friend told me about a clinical-stage pharmaceutical stock that they had found. The company had a novel way to administer drugs by using microneedles as opposed to syringes or pills. Without doing any research, I bought 500 shares at 0.44 cents per share. What did I have to lose?
As it turns out, a lot.
I know I’ve already spoiled the story with the title, but before I go any further, let me paint myself in a good light. I started investing in the middle of the GFC and have steadily dollar-cost averaged into mutual funds and target date funds with a few individual stock purchases here and there for 10 years now.
I also keep my 401(k) and IRA snug in their beds while I’m out getting into trouble. I diversify into just about every geographic region and asset class besides art. So I’m not a terrible investor.
Even my friend that told me about this company has an impressive investing history and has been long on Tesla since before the Model 3 was announced.
Now I’m not saying it took much skill to be a good investor over the last decade. It’s basically been up and to the right that entire time. But it does take some combination of delayed gratification, planning, and fortitude to keep saving and investing when your friends are buying boats and Range Rovers.
Back to today.
As I researched more about this company and their new technology, I became more bullish. I started buying shares every month or so. And the share price kept increasing too. It was blue skies as far as I could see.
I read their 10-Ks. I monitored their open job positions for insights on their growth. I asked friends in the medical field about their clinical data. I reviewed their patent filings. I studied their competitors. I did my due-diligence.
What I didn’t do was temper my expectations and execution.
500 shares here, 500 shares there. No single purchase was enough to break the bank. I even made a rule that I had to buy a stable blue chip or index fund every time I purchased shares of this penny stock to keep myself balanced. The 2020 stock market rally was helping all of my other investments to do well too so on some level I felt like I was using “house money”.
This company had a drug application awaiting FDA approval. (It’s telling that I kept thinking of it as an “approval” as opposed to a “decision”.)
I had tunnel vision and kept buying shares before that date because I was sure it was going to “pop” and I’d have a down payment on my next house.
The only way I was able to do this is I saved a lot of my money over the last 15 years. If you want to know more about how I’ve saved so much to be able to make stupid mistakes like this, check out the other articles I’ve written here such as these:
Here are ten easy tips to save you money. (4 min read)
When lifestyle creep becomes an issue and when it’s okay to spend more. (3 min read)
Spoiler alert: it’s not exciting. But it works. (10 min read)
To make a long story long, the FDA issued a discipline review letter (DRL) in response to the drug application. This means that at least one of the “disciplines” found an issue with the drug data, the manufacturer, or the label. Sometimes these letters are about something small and don’t mean much.
But sometimes they mean a lot.
In my case, it meant a lot. The stock dropped from $1.70 per share to $0.70 cents per share, literally overnight.
The press release was issued after hours and by the time the market opened the next day I was down $15,000.
“Serves him right.”
“What an idiot!”
“Been there, done that.”
I’m not sure what you’re thinking at this point. I know if I were reading this from a stranger’s point of view, I’d go with one of those first three.
Ominously, on October 20th, Morgan Housel published “Lots of Overnight Tragedies, No Overnight Miracles” on his famous blog, Collaborative Fund.
On October 21st, the FDA then issued a Complete Response Letter (CRL) which was the nail in the coffin as the stock dropped another 30%.
I had let greed and over-confidence cloud my ability to invest rationally in a very risky asset class that I had no business dabbling in (clinical-stage pharma stocks are incredibly notorious for this type of volatility).
The past few months have felt like grief. I kept trying to wake up from a bad dream.
I’ve wanted to quit writing about investing. I’ve felt like a fraud. I’ve thought about almost every single thing in the world I could have bought with that money instead.
I’ve thought about how I was such a methodical investor for years leading up to this point and how I broke my own rules.
It would have been a lot easier to move on if I had rich parents, an inheritance, or a six figure job to fall back on, but I don’t. That was my sweat and toil that I pissed away.
You really can’t visualize how it feels to lose that much money. It doesn’t work. I knew the risk that this drug could get rejected and I’d lose half my money or more and I still took the risk.
I took the risk because I also knew how shitty I’d feel if I sold most of my position and the stock skyrocketed like countless others have this past year and I missed the boat.
The icing on the cake is that when you lose money in the stock market, no one cares. You did it to yourself. There is no pity. I told hardly anyone because I didn’t want to see the smugness. I couldn’t even write this article for months because it stung so much.
In the months since, I’ve done a lot of meditating using stoic teachings about gratitude, impermanence, and the idea that a setback like this has more value than reading second-hand accounts of the same thing.
I still have my health, my loved ones, and my life is still in tact. My other investments are still on track.
I know there are a lot of people sitting on a lot of gains right now, especially in the tech and EV sector. I know there are a lot of people right now that are making easy money, especially on options trading and speculative assets. I know you might be reading this because you are invested in a risky SPAC or in Bitcoin at all-time highs.
My only advice to you would be this: take some gains if you have overextended yourself. And whatever you think “overextending yourself” is, reevaluate it. They say a loss feels 2.5 times as bad as the same gain. Whatever it is, it’s true.
The stock market isn’t a casino. Don’t gamble with your hard-earned money.
I know I haven’t lost anything until I sell; well it sure feels the same. Maybe there’s still hope for this company, their drug, and my remaining shares but I also don’t expect to see any return on them anytime soon.
The drug approval process is incredibly lengthy, riddled with risks and setbacks, and you have no true edge.
As Morgan Housel put it in The Psychology of Money:
Many bets fail not because they were wrong, but because they were mostly right in a situation that required things to be exactly right.-Morgan Housel
Investing is an amazing thrill and greases the wheels of progress like nothing has since the invention of trade and specialization. When done appropriately and on a long enough timeline, it can make you wealthy beyond your wildest dreams. But staying wealthy is a completely different ballgame.