Lots of discussion is waged over what constitutes a trade and what is a stock investment. Each has its disadvantages that one should be cognizant of.
A trade exposes a person to risk of a loss while an investment ties up person’s capital that otherwise could be making a gain.
To compensate the short-term risk traders often default to price patterns known as technical analysis, while investors compensate short term set-backs with fundamentals and contrarian moves on the prevailing market sentiment.
Human Genome Sciences, HGSI, is an example where these views merge and make the the two approaches blurry.
Long term technicals are awesome, while short term ones suck… Long term fundamentals look bleak because of no new drugs in the pipeline but short term HGSI can be a nice appendix in the overall drug portfolio of a conglomerate.
Fundamentally, HGSI recently got an approval for a Lupus drug, first one in over 5 decades, and traders got overly zealous after they read the fine print, including side effects on mortality, depression… started selling but investors failed to sell and the stock is back into the long consolidation pattern.
This super long consolidation pattern in HGSI, to a technical person, looks like a coiling of a spring so that the longer it goes the higher the object will fly… but how long is the wait?
Therefore, HGSI is not an immediate trade because short term price pattern is bad but the long-term technicals suggest capital should be parked there and the fundamental expectations support that.
HGSI has a huge potential upside and if a person is willing to park his capital into a stock that will do not much (or go down) daily but make huge money later… this is the stock!
Conversely, this stock could collapse to near zero because its current price of $26 handle comes off of $2.50 level… a huge price change that can revert back if things do not go as the long term investors believe it will.
If 10% of the portfolio is dedicated to speculative investments (not trades) then HGSI should have a place in it.