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  • accute accute Nov 3, 2009 7:37 PM Flag

    shorts become longs

    xj

    I am somewhat into probabilities, or at least trying to be. I have noted in earlier posts that you like to keep things on the board. Would you be willing to discuss the approach you are taking?

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    • Sure......you start with some of CVM's core "assets.......people, processes, technology and working capital" and evaluate the likelihood that they can pull off what they say they want to pull off, analyzing the mix of assets they have to work with. (One year ago, they would have fallen short in most categories...today, they have made great strides in these categories...therefore, probability begins to increase.) These "outcomes" are measurable, as they release S3 and submit to regulatory authorities outcomes of their work. You measure timing.....rate at which they've come to this point, with the assets they had to work with historically, and then take these same assets and outcomes and overlay the usage of those assets to the future timelines/miletones/demands. The consulting firm MacKenzie (sp?) refers to this approach as "Operational Analysis".

      You measure what is in their direct control (the main variables) and assign them probabilities of working right or achieving their desired outcomes, and measure, where you can, uncontrollable variables, and make an educated guess as to the impact of those variables on the controllable variables (i.e., this sometimes results in lowering probabilities).....one uncontrollable variable in this regard might be what the competition is doing, and where they are with bringing their product to market (that would compete with CVM's.) For example, if CVM had direct competition, with the same technology, using it for the same purposes, and were near P3 exit (with great P3 testing results), you'd significantly lower the probability of CVM beating their competition to market, and lower overall expectations across the board for stock price, potential sales revenues, etc. All of this stuff is somewhat dependant on each other.

    • In theory, the more you can measure (in terms of bringing these variables to the table and assigning probabilities to them) the more likely you can predict the outcomes....both in terms of stock price (measuring yearly variables, milestones, outcomes) as well as likelihood that their basic business plan and model is going to succeed.

      Months ago, when working capital was scarce (and assigning a high probability to this variable that if is wasn't there, the likelihood of failure was high), in real life, the company was in trouble. Had things not changed, CVM could be really on the skids right now. Thank heaven, Geert raised the interest and raised the working capital to go on, and now CVM is in a very different "probability" of success on that variable.

      Once you've assigned these variables appropriately, you look at the overall big picture, and determine if the company has the "probabilities of success" in core areas working in their favor or not. This is a complicated, educated, but realistic way of dealing with uncertainty as an investor. But it requires a lot of work, as you can see.

      But when you're dealing with 10's of thousands of dollars of investment in one of more companies, NOT doing it to a degree of rigor leaves you totally guessing, and subject to the whims of other naysayers and pumpers.....all of which are typically dumber than stumps when it comes to real investment analysis.

      Buffets investment today in buying the railroad is a good case in point.....simply put, he looks at the main variables that make an industry like rail tick.....he looks at the general economy and the other businesses and sectors of our economy that rely on the rail industry to be successful.....and when he indicated WHY he made this move, did he talk about betting on the COMPANY itself? No, he commented on the VARIABLES that impact the success of the rail company....the general economy. He said he's basically betting on the U.S. economy in making this major $32B investment.....he analyzed the variables of success for his company, and analyzed the interdependencies.

      That's how pro's do it.....it's not rocket science, but it does require thought and work.

      • 1 Reply to xji590
      • I'll leave the board with this simple matrix of probabilities to think about for tonight:

        1) What is the probability that LEAPS will show strong results in white blood cell testing.......assign it a probability.....Mine: 80% (based on what's been shared to date via Dr. Z and other blogs, comments, work with RA, etc.....)
        2) What is the probability that IF #1 comes to fruition, and that 80% probability is becomes reality, that the general market will see that as a very important step for CVM's position in the marketplace, position with the FDA, and positioning within the industry? Mine: 70%

        3) What is the probability that the facility will be fully operational within the next 3 months? Mine: 50%

        4) What is the probability that if #3 comes to fruition, the market will respond favorably to the news and the stock will see position buying action? 70%

        5) What is the probability that the company can get through a major portion of P3 trial of Multikine with cash ON HAND? Mine: 80%

        Now, just taking those "variables" into account for example....(you would want to apply a weighting factor on each one based on importance, but let's keep that step out of it for now for simplicity)....

        The average of those important variables is 70%......this average would tell you (based on how the questions were asked), that the company has a 7 out of 10 probability of having favorable outcomes in terms of achieving their objectives (for stock price enhancement and overall business plan milestone achievement).

        Of course, there are many, many, many variables to consider when doing this sort of analysis......but in the end, it gives you an objective means for determining whether or not to bet on the company, or stay away.....

        I'm very long and strong CVM......now some of you know why.....have a good night everyone.

 
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