From time to time, Magnifina staff makes quotes to the media. Below is a list of known usages and the original context with which the quote was given. Some quotes are altered with permission, some are cropped with permission, and some are altered without permission or used out of context.



“Before the Covid-19 pandemic, Moderna’s market cap was about $6 billion, and as of writing it’s around $46 billion. In the biotech industry, $6 billion is a pretty high valuation for a company which hasn’t brought any drug to market. So pre-pandemic there was already a lot of optimism about Moderna’s technology. In the pipeline, Moderna has several other vaccine candidates in addition to more ambitious therapeutics, such as cancer treatments. Biotechs generally don’t earn much revenue from vaccines. Perhaps the market is optimistic about using the mRNA platform for treatments with higher margins (i.e. cancer therapies).

Moderna’s role in fighting the pandemic provided some significant benefits. Operation Warp Speed provided Moderna with $1.53 billion to help its R&D and production capacity. The new supply chain will be reusable after the pandemic and Moderna should be able to produce new therapies at scale much quicker. Additionally, now that an mRNA therapy has been approved, it should ease the testing and approval process for future products.

A $46 billion market cap only makes sense if Moderna continues to develop products with the same demand as the Covid-19 vaccine. With biotech, there’s always plenty of uncertainty around future scientific developments. Due to Moderna’s first success and supply chain, they’re well-positioned. Nevertheless, there is likely much speculative premium baked into this “story stock” already.”



Quote altered with permission

“Small cap stocks often have significant growth potential, yet remain undervalued by the market. It’s more likely that a small cap stock will double or triple than a large cap. Some scholars would say that this phenomenon can be explained simply because small cap stocks tend to be riskier. However, I view it as a disproof of the efficient markets hypothesis.

One reason for this is liquidity. Huge asset managers that handle enormous pension funds simply can’t allocate small cap stocks to their model portfolios. To do so could distort the price of a small stock as demand would significantly outweigh supply. Even if they recognize the investment value of a small cap stock, these managers must avoid it. They also are somewhat risk averse, and tend to look for safer, large cap stocks while sacrificing performance.

Another reason that small cap stocks are undervalued is the availability of news and research. Because small caps are ineligible for some portfolios, they are covered by fewer analysts and reporters. Less reporting means less demand from investors, which means a lower price. As the company grows into a larger class, more investors will find it thus increasing its valuation.”



Quote altered with permission

“Indeed, Market Capitalization is standardized and easy to calculate using any public company’s quarterly reports and market price. It represents a kind of “aggregate valuation” by market participants. In other words, market cap is the “market’s” best guess for market value. Market Value, on the other hand, is the “true” value which is unobservable. There may be some estimators of market value (e.g. P/E ratio), but the theoretical “true” value is more likely based on something like DCF. In practice, DCF analysis is far from perfect — who could possibly know cash flows and interest rates 10-50 years into the future?

The Efficient Markets Hypothesis would imply that Market Cap should equal Market Value. However, this breaks down frequently. “Story stocks” which are popular may experience prolonged distortions in how the market values them. Also, short term news can cause distortions. Even volatility in unrelated markets can cause distortion — one theory is that the Covid-19 bear market was exaggerated by portfolio rebalancing. During this period, market caps deviated from many analysts’ best measures of long-term valuation.

Finally, there is no market cap without a public market. So we must use estimates of market value when referring to private companies. To illustrate with an example: the global market for cannabis is estimated at $200B per year. This means that if legal cannabis companies captured 50% of sales, the legal industry would take $100B. Assuming there would eventually be only 5 surviving global cannabis enterprises (and using a 1:1 Price-to-Sales ratio) each would safely be worth $20B in market cap. Of course, now that there are many listed companies, this analysis is less useful. But it’s one way that early investors might have approached long-term valuation.”



“It’s never too soon or too late to invest in the stock market. Young investors may feel apprehensive because they are waiting for a good deal when markets fall. The truth is, it’s impossible to time the market perfectly. A strategy to avoid missing out, is to invest a set amount every month whether markets are up or down and to be disciplined about it. Young investors have the benefit of time, and the stock market usually makes new highs within years of a previous top”



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“There aren’t many success stories about investing in penny stocks. Their appeal is understandable: perhaps there is some company trading at pennies which may increase in value by 10x or more. However, this is exceedingly rare and the old wisdom about “too good to be true” often applies. Investors are also drawn to penny stocks because they appear more affordable. Now that several brokers offer fractional share trading, there’s no good reason to pick stocks simply because of the single share price.

Looking at a stock’s market cap (i.e. the total price of all the shares) is more helpful. It might be better to think of “penny stocks” as “microcap” stocks instead. When analysing these companies, it’s important to figure out the reasons behind a company’s value. For most microcap stocks I’ve looked at, the company went public but its business eroded until just the corporate entity remains. These “zombie companies” have some value in that they are already listed on exchanges. Private companies looking to go public may avoid the costs of an IPO through something called a “reverse takeover”. This is especially popular with foreign companies looking to list themselves on US exchanges.

Nevertheless, there is still significant value in analyzing microcap stocks to search for genuinely distressed equities. These would be viable businesses which have fallen on hard times, but retain a path to recovery. Indeed, some investors specialize in identifying these rare companies and the profits can be extraordinary. A great example is Mortgage Guaranty Insurance Corporation (MTG) in 2012. Their mortgage insurance business had been decimated by the subprime mortgage crisis, and almost went bankrupt. However, the company recovered, and the stock rallied over 1000% in 5 years. MTG was only technically a penny stock for one month 2012, but it remained a microcap stock for several years. Even when the price was $2.00, it vastly outperformed countless other stocks during the same period. That’s why limiting analysis to prices below $1.00 may miss some great opportunities.”



“SRI is all the rage and we’re seeing robust demand from our clients. But because it’s such a new trend, SRI remains very abstract and poorly defined. Everyone has different values, and it is difficult to measure exactly how an investment would satisfy them. One value that everyone tends to agree about is environmentalism. Renewable energy stocks have been performing well recently and more and more companies are pledging to lower the carbon emissions that result from their business.
A common framework for evaluating potential investments is ESG. (Environmental, Social, and corporate Governance). Several stock research firms provide numerical ratings for ESG. The methods for rating companies are abstract and inconsistent between analysts. They tend to focus on measuring PR risks related to ESG controversies, rather than the actual impacts of each company’s business.
Indeed, SRI is not a science; it is definitely more of an art. Our approach to SRI is to frame it as “Ethical Investing,” and select investments that don’t violate the client’s ethical guidelines. This means that our clients can let us know about activities and affiliations that they disagree with, and we will avoid investing in related companies for them. We rely on 3rd party research to supplement our own research for identifying controversial activities.
In terms of performance, we caution our clients that restricting the list of potential investments may result in lower portfolio returns. However, we appreciate that not all profit is financial, and we support considering the environmental and social impacts of investments. Nevertheless, renewable energy stocks have performed very well in 2020. ICLN is an ETF of clean energy stocks, and is up nearly 70% year-to-date. It hasn’t been this high since 2011, when oil prices were nearly $100 per barrel.”




“The pandemic is certainly the biggest economic event which has occurred for many years. There was a violent market reaction in March and April. But many analysts predict that by this time next year, it will no longer be affecting the stock market. This is Buffett’s wisdom: to invest with a very very long-term horizon. He is the master at putting aside emotions, and focusing strictly on the numbers. According to our research, only 30% of bear markets since 1950 have lasted more than three and a half years. The most recent one didn’t even last three quarters.”




“Novavax‘s vaccine candidate will not likely be the first to market, but will stand in contrast to the mRNA vaccines by Moderna and Pfeizer. As I understand it, mRNA biotechnology allows for faster scaled production. However, it is brand-new technology which has never been used commercially in humans. The way mRNA vaccines work is scary and sounds very close to genetic engineering or editing. In contrast, Novavax uses a tried-and-true method to produce immunity. News media and social media are almost certain to hype up reports of side effects during the first round of vaccination. Vaccine hesitancy is growing, and in 2018 almost half of US citizens refused a flu vaccine. Waiting a few more months for Novavax‘s vaccine candidate would appeal to vaccine hesitant individuals who are not fully anti-vax.”

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