Biotech, Black Cats, Philosophy, and FMD
This blog is a paste of a post I made on the HG:FMD board. This was inspired by an absolutely brilliant philosophical commentary on biology research called "Can a Biologist Fix a Radio? - or, What I Learned while Studying Apoptosis". You don't need to be a scientist to appreciate the publication.
[found via 'Molecule of the Day' blog at: http://scienceblogs.com/moleculeoftheday/ - because I'm a science geek].
The publication can easily be read with the consideration of the industry paradigm of target based drug discovery, why it is so hard, flawed, and expectations so often struggle in the face of reality. And while I read it with that in mind, I also found that I couldn't shake drawing analogies from the early part of the paper to the current market conditions as well. The explosion in the relatively new markets of ABSs, CDOs, and the like eerily parallels the scientific gold rush followed by the innovation wall and consequent paradigm revisitation that the author describes so well.
Here is how I related it to First Marblehead.
In another context I came across a witticism that for some reason made me think of efforts to place a valuation on FMD (my mind makes odd connections, I know).
The saying (attributed to the Chinese?) is: "It is hard to find a black cat in a dark room, especially if there is no cat."
Any efforts to form a valuation on FMD are akin to finding a black cat in a dark room. All valuations are built around assumptions, but many of these are 'simple' (LOL) assumptions such as growth or discount rates to apply, with the overlying mental macro test of 'do these seem reasonable'. Unfortunately for FMD right now - there is no cat! The standard assumptions can only be based on further less knowable assumptions (bye bye to 'do these seem reasonable'). These include 'when will FMD do a securitization'?, 'How much of a profitability discount might such a securitization require'?, 'Will a fluid market for securitizations re-establish'?, and many more.
So the market, in the absence of anything to measure or estimate, is now valuing FMD philosophically - at ~ $11.30 last I checked. It has gone from a game of estimation to one of confidence (hmmm...confidence game? - yup, lets stay with that). There are too many of Donny Rumsfelds 'unknowable unknowns' and not enough 'knowable unknowns' to do a valuation. We can look for the black cat, but we don't really know if it is there at all.
Zz - long FMD, but at less than 2% of port (not by intention entirely), which seem entirely appropriate to me, since I feel I can't know the value of FMD, but speculate that operations may return to near to how they were in the past someday (but not likely soon).