My thoughts about a ridiculous take on biotech social media

Monday, 22-December-2014

On Friday, Forbes published online this article entitled “Biotech, Social Media And Profits: How the World’s Best Is Doing It.”  It was an interview with Evercore ISI analyst Mark Schoenebaum, who apparently has been crowned the top biotech social media influencer by a public relations firm.  I guess we will go with this distinction and put aside the fact that, like many analysts, he is currently not even allowed to offer opinions on social media.

 

As I am sure you already know, Dr. Schoenebaum is a beloved person in the industry, and for good reason.  He has won Institutional Investor’s #1 ranking more than ten times, putting him in the Hall of Fame, and his research notes are the most closely followed on Wall Street due to their high quality and unique perspective.  His experience, reputation, and overall stature are all without question.  I’m also told that he puts on great parties and social events.

 

It is for all of those reasons that I have the utmost respect for him.  They are also why I am willing to give Mark the benefit of the doubt and assume he was misunderstood by the author of this Forbes piece, whose biography says he is the CEO of an “Influencer Marketing Network.”  So please know that any criticism hereafter is pointed only at the public relations firm that unwittingly managed to make one of the world’s smartest analysts look like he has no idea what he is talking about.

 

In fact, normally I would not even comment on something like this where mistakes seem to have been made, since that’s life.  However, as someone who loves social media and is an active participant on it, I must push back on certain things said in the article because I think they belittle some very smart people here and highlight common myths about social media, investing, and the day and age we are now living in.  Perhaps I can provide a different a viewpoint that others might not know exists.  So I think this deserves to be discussed.

 

Here are four big myths that I think the article got completely wrong:

 

Myth #1: Scientific discussions on social media are of poor quality

 

Easily the most baffling statement made in the article is about how “…conversations on social media are being conducted by people that don’t understand the science well enough.  It’s a lot like hosting a scientific event without any scientists.” 

 

Now I won’t name anyone specifically, because I am not sure how they would feel about being mentioned this article, but there are literally hundreds of smart scientists, doctors, venture capitalists, investors, and journalists who actively participate in social media on a daily basis.  Ironically, some of them are also contributors to Forbes.  Name a scientific meeting, and you can bet there are thought leaders who will be in the middle of it offering highly informed opinions on social media.  To say that our community is like a scientific event without any scientists is, in my opinion, just plain wrong.  And it disparages those people.  While it would always be great to have more bright minds join the mix, I strongly disagree with the article’s assumption that there is currently a shortage here.

 

Furthermore, I think many of those on Wall Street who downplay social media would be shocked if they knew who some of the anonymous participants are here.  I have gotten to know many of them and can tell you that it includes the brightest minds at companies we all follow closely.  Some of the ones I tweet with on a daily basis include: a) people from a wide spectrum of roles at top pharmaceutical companies b) a department chair of a major academic institution c) business development people who are leading experts in their respective countries and d) experienced leaders who have retired from the industry and regulatory bodies.  And that is just the tip of the iceberg.  The fact that these people choose to remain anonymous does not diminish their contribution in any way, and it is foolish to overlook them.

 

Myth #2: People who do not work at institutions are not real investors

 

Another statement from the article that hits home to me personally as an individual investor is: “Today there are very few real investors (non-retail) on Twitter…”  There are two points that I would like to make about this one.

 

First, this statement is an antiquated view that ignores the realities of the day and age we are living in.  Just because someone does not represent a billion dollar fund does not mean he or she isn’t a real investor.  Technology has decentralized many industries, including investing, and reduced the role that institutions now play.  The days of having to be in New York to know what is going on are over, and therefore a lot of smart investors are now avoiding it by choice.  While some insiders scoff at the term “retail investor”, the reality is that there are a lot of smart (and wealthy) people out there, and they are forming networks together that collectively are just as important to this industry as any institution.  

 

Second, the statement also gives too much credit to institutional investors.  I participate in a lot of industry events, and count a lot of institutional investors and analysts as my friends.  While it is true that many are the sharpest minds around and I would place them on a different level, I can also tell you that there are many others in high positions on Wall Street who are “real investors” in title only.  Naiveté and herd following are not something that we on the retail side have a monopoly on. 

 

To get a good feel for this, I would invite anyone to read Turney Duff’s recent book “The Buy Side”.  He was a successful health care trader whose life of excess, most of which was facilitated by the sell-side, eventually crashed down on him.  The book illustrates how he was no health care expert, but still reached the top of this industry as an institutional trader.  More recently, we’ve also seen through the Sage Kelly scandal just how sophisticated some people really are at the top.  The reality of life is that there are successful people who are smart and have earned it, but also others who have made it to high places through who they know and/or chance.  So let’s not be overwhelmed by those on the inside and underwhelmed by those on the outside, okay?  There are a lot of smart people on both sides of the coin.

 

Myth #3: It is difficult to separate the signal from the noise on social media

 

Another key assumption of the article is that there is too much noise on social media that drowns out the good stuff.  It goes on to argue that someone is going to get very rich finding a solution to that problem.

 

First of all, Twitter has already come up with a revolutionary answer to this.  It’s called the follow/unfollow button.  One of the biggest tricks to social media is that it is what you make of it.  If you follow a bunch of crazy people, you will be inundated with stuff you do not need to know.  Likewise, if you follow smart people, you will be rewarded with a high quality experience.  Aside from the basic follow option, Twitter also allows you to create specific lists when you only want to hear from people who talk about a specific topic, and there is a mute button for times when an otherwise smart person gets too chatty.  The bottom line is that if there is too much noise in your stream, it is likely your own fault.

 

Another thing to consider is that on a more advanced level, there are companies who are already getting rich off of providing sophisticated products that do cut out the noise.  These are expensive, but institutions can afford them.  In fact, some are geared specifically to biotech.  Bloomberg did a nice job profiling companies like Treato in this story.   They have algorithms that scan the Internet just for patient interactions (something the Forbes piece suggested was one of the most valuable things about social media) and package it in a way that can be quickly reviewed by investors.  There are also other services for investors that are not biotech specific that people like too.  So again, these things already exist, you just have to know where to find them.

 

Myth #4: Legal statutes prevent institutions from tweeting

 

One assertion the article makes that I do agree with completely is how it would be great if more institutional people joined social media.  That is absolutely true because the more viewpoints you have in the mix, the better.  In fact, there are a handful of institutional people who already do tweet about biotech stocks every day under their real name, and many more who do it anonymously.  They are some of the best people on my stream, and I hope more will follow their lead.  This brings me to another myth that I think is important to dispel, which is that many people assume it is against the law for institutional investors and analysts to tweet.  It isn’t.  The reality is that it is primarily the legal departments of these companies that have a problem with it out of an abundance of caution.

 

Oddly, the same misconception exists about CEOs using social media, but in fact the SEC issued very clear guidance in April of 2013 saying that it is perfectly okay for them to be active as long as companies disclose where they will be doing it.  If the SEC is okay with CEOs participating without restriction, I have a hard time believing they would crack down on investors for doing the same thing.  As much fear as there is out there on this issue, I am aware of no example where a legitimate investor or analyst has been reprimanded by regulators for participating in social media in an appropriate manner.  If a large investor like Carl Icahn can tweet as much as he does, so can everyone else.  I hear from those in the industry that there are two self-inflicted things holding most institutions back.


First, the legal departments of these companies are too unimaginative.  Sadly, many of them view the opinions of their employees as liabilities rather than the assets that they are.  They also have a hard time understanding how to keep records of everything in order to comply with Dodd-Frank.  That’s a shame because not only do institutional investors have a lot to contribute, but this issue is also going to make the talent retention problem Wall Street currently faces much worse.  Social media is a way of life for the millennial generation, and so it is no surprise that Silicon Valley, where individualism is cherished, has now surpassed Wall Street as the place they want to go by a wide margin.  This is a problem our industry quickly needs to come to terms with.

 

Second, when it comes to analysts using social media, let’s not forget that there is a commercial aspect to this issue that the companies do not want to give up either.  These institutions currently make a lot of money off of the exclusivity of their information, and I hear that is another key factor of why they hold their employees back.  A concern is that if analysts provided unfettered opinions out in the open, there would be less incentive to pay so much money for the other financial services that subsidize them.  I would find a solution to this problem fast because it runs contrary to the basic economic principle of our time, which is that these days things typically increase in value the more they are shared.

 

The bottom line of this particular myth is that people would be much better off trying to improve the system by working to change those two issues above, rather than criticizing the rest of us who face no such restrictions, as happened on Friday.  We sympathize with how the world is passing you by, but it isn’t our problem.

 

Conclusion

 

What is really going on here, and the reason you see articles espouse myths like these, is very simple:  the way individual people are networking together is encroaching on the relevancy of institutions, and that is scaring the pants off of some people.  This is happening across all industries.  Whether it is YouTube stars who have higher viewership than established TV shows (as NY Times did an excellent job profiling on Sunday here) or the way the taxi and hotel industries are panicking over sharing technologies, a lot of old guard institutions do not know what to make of how technology is changing our world.  So the easy thing for them to do is to call these things amateur and criticize them.  What is being said within some circles of finance is no different.

 

That leads us back to biotech social media.  The truth is that, contrary to any criticisms you see like the ones in Forbes, biotech social media is in great shape right now, and will only get better over time.  Each day there are excellent conversations happening, and to be able to listen in on them provides an amazing education.  So I would highly recommend that institutional people do everything possible to get with the times and join the conversation.  Many smart ones already have.  Just keep in mind that there is one requirement to doing so that is unique to social media.  Which is that if you plan to participate, you must to come to terms with the fact that titles and institutions do not matter here.  If you can set that aside, you will probably realize that an incredibly smart community already thrives just fine, thank you.  So please join the fun and help us make it even better!

Who Am I?

I'm an individual investor from Kansas City.  My focus is on biotech stocks, but I enjoy investing in all industries. I'm an old-school, buy and hold investor who believes the best way to outperform and grow capital is to own innovative companies with good management teams over the long-term. more>>

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