Confirmation Bias – Ariad Pharma Edition

A favorite topic of mine on these pages is that of confirmation bias – specifically: avoiding it.   This is one of the hardest things for investors/traders to do: we are hard wired to surround ourselves with people who agree with us.  It feels good when someone says that they agree with us on a position, and it makes us nervous when someone tells us we’re wrong.

As I’ve written previously, more than once, if I could give new traders a single piece of advice, it would be: “try to figure out what the guy on the other side of the trade is thinking.”   If you’re bullish and you know the bear thesis, it should either help you change your mind because you realize that you’re wrong, or give you confidence that the other side is wrong.  Either way, hearing someone voice sentiments on the other side of a trade shouldn’t make you mad.   If you are the guy on the message boards typing “GO AWAY SHORTY” every time someone mentions that your thesis may not be based in reality, you need help, fast.

Which brings me to today’s irrational hatred of opposing views.   Adam Feuerstein writes a biotech column for TheStreet.Com. (Disclaimers:   I don’t know Adam.  We’re not friends, and we’re not enemies.   I think I met him briefly a few years ago at a Stocktwits event in Cambridge, and I’ve exchanged emails with him a few times.    I am quite positive that he’s more in touch with what’s going on in biotech stocks than I am. This post is NOT a defense of Adam Feuerstein – he doesn’t need defending – it’s an attack on stupidity.)

Anyway, Adam wrote a column detailing the short thesis of a specific anonymous short seller of Ariad Pharmaceuticals ($ARIA – no positions).   I have no idea what any of it means – I don’t know what “Iclusig” is or what “AP26113” does.   I’ve never held a position in ARIA.   But if I DID know anything about ARIA, I would be grateful to Adam for bringing me one more person’s view.

This is one view that one person has about a specific position – detailed and explained.   That doesn’t mean it’s correct, of course, but why would you be mad at someone for elucidating a conflicting view?  Is it factually inaccurate?  If so, explain why/how it’s inaccurate!

You now know exactly what the short-seller is thinking.  He explained to you WHY he’s short.  It doesn’t matter if his name is Johnny Biotech, Warren Buffet or Dick Nasty.  I don’t care that he’s anonymous – I care about what he’s saying.   You have his thesis.  That’s a bonanza for you!   Now, if you’re an idiot, you can accuse the author who relayed this information of being a paid shill, you can call him an “illiterate bald cunt,”  and you can spout nonsense about how basing one’s opinion on that of a short seller is biased.

Listen up: EVERY market participant is biased.  Longs think they’re right, shorts think they’re right.   Instead of shooting the messenger, what you *should* do when you’re presented with a (long or) short thesis you don’t agree with is to consider if the conflicting view strengthens your own thesis or weakens it.  Is the conflicting thesis sound?  Is it based in reality?  What is the conflicting thesis missing?  What are you missing?

Feuerstein’s post has, as of the time of this writing, more than 50 comments on it.   The vast majority are of the kind I’d liken to the stereotypical retail schmuck who is exhibiting exactly the kind of behavior I’m criticizing.  I think that there was exactly one intelligent comment, by user “chemist” who wrote:

“Several problems with this thesis:
1. If combination of ABL001 and Tasignia only prevents the emergence of resistance, then what about the patients who already ARE resistant to Tasigna/Gleevec/Sprycel? That is the main market for Pona and it seems untouched by the Novartis combo.
2. ABL001/Tasigna combo is just entering trials this year, i.e. it will take many years to get to the market. The pona market will only be diminished if the combo moves to first-in-line (replacing Gleevec will take years) and succeeds in preventing all resistance issues, which is very unlikely.
3. How much of the ARIA evaluation is based on 26113 at this point? Probably less than a dollar. Limited downside, but upside potential.”

Now, again – I have NO IDEA what ABL001 is, or what Tasignia does.  No friggin’ clue.  But I do know that this commenter is disputing the crux of the opposing thesis.    THAT is how you debate a position.  THAT is how you use a conflicting view to strengthen your own.     It doesn’t mean that this commenter is right either, but he made a concise, cogent argument to debate the post at hand.  Isn’t that a lot better than “You look like a paedophile I wouldn’t trust this article” ??? (yes, that’s an actual comment on his post).

When someone disagrees with your thesis, you will be much better served if you shoot the message, not the messenger.

Adam Feuerstein:  Ariad Pharma Short Seller Explains Why Takeover Rumor is Bunk

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-KD

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