Waiting for Irrational Exuberance

We have seen it many times in the stock market. An idea, a concept, a dream that takes a company's stock price to valuations that can never be justified.

It happened to Ballard Power Systems, when the promise of a fuel cell car that emits only water put its stock into the stratosphere. Early investors made windfalls until the stark realities of putting a hydrogen fuel cell car on the road brought BLDP's stock price back down to stark reality:



It also happened to Human Genome Sciences when it began work on mapping the human genome. The excitement generated pushed HGSI from the single digits to over $100 a share. Only problem? Nobody was thinking about where the profits would come from:



Ideas, concepts or dreams that can capture the imagination of investors and cause them, en masse, to behave irrationally and drive a stock price up to unsustainable heights don't come along every day. More practically, recognizing these gems before the masses isn't so obvious. If one is lucky enough to come across a BLDP or an HGSI before the exuberance kicks in then one is sitting on a potential gold mine. The biggest challenge will be determining when the exuberance is peaking and/or the underlying story is failing to keep up with the dream and gold mine threatens to transoform into into a deadly land mine.

In my view Sirtris Pharamcuticals fits the bill of a company with a story that can capture the imagination of the masses. The underlying concept is exciting and relatively simple to understand:

1) Those who partake in a calorie restriction diet live longer and stay healthier.
2) Recent research has shown this "cause and effect" is due to the activation of certain enzymes within the body's cells, called sirtuins, that seem to put the body into some kind of heightened defensive state.
3)When taken in high doses, resveratrol, a naturally occurring compound found in grape skin and other plants, seems to activate sirtuins without the need for calorie restriction.
4) SIRT is the leading company trying to take this concept to the next level by developing treatments for diseases of the aging such as type 2 diabetes and cancer.

Whether SIRT succeeds in its ultimate mission is still open to conjecture and may not even matter as long as it sees success in early clinical trials, SIRT is in the bottom of the first inning of this story and, in my view, a little more progress will allow SIRT to capture investors' imagination like HGSI and BLDP did in the recent past. HOW CAN ONE NOT GET EXCITED ABOUT THE FOUNTAIN OF YOUTH???

Hopefully, SIRT will differentiate itself from BLDP and HGSI by making its dream a reality. However, even if SIRT fails in its ultimate goals, this dream is one that can capture investors' imagination.