| "It's either water, or it's not water. And we know it's not water." That's what the CEO of a small cap biotech company said to me in a hotel suite during the J.P. Morgan Healthcare Conference. He was talking about his company's groundbreaking cancer drug that was in clinical trials. He was basically telling me that the drug worked. The CEO was a Harvard grad, and he was energetic and charismatic. I believed him. I was early in my career covering biotech stocks, and this drug tackled a difficult-to-treat cancer. I wanted the medicine to work for patients, and I wanted the recommendation to work for my readers, as we were getting in early. My readers made a tiny bit on the stock, but not a ton, as we got stopped out when the stock started to slip after an initial gain. I was disappointed to get stopped out, but I stuck to my discipline and recommended selling the stock when the stop was hit. Boy, am I glad I did. It turns out that the CEO was right. The drug wasn't water. It was poison. Not only did the Phase 2 data show that the drug did nothing to treat cancer, but patients on the therapy had a higher death rate than those not taking it. You can imagine what happened next. The stock fell faster than sales of Bud Light. It dropped from about $15 to below $1 and eventually became a zero. As I said, this was very early in my days covering biotech, about 15 years ago. I learned three valuable lessons... Lesson No. 1: Fine-tune your BS detector. CEOs of publicly traded companies are typically measured in what they say about their companies or, in the case of biotech and pharmaceutical companies, what they say about their drugs. They'll tell you what the data shows and will of course be bullish, but they won't say definitively that a drug is safe and effective until the Food and Drug Administration says it is. The guy I talked to was so cocky about his drug, alarm bells should have been ringing. If you ever hear a biotech CEO talking exuberantly and definitively about a drug that has not finished clinical trials yet, be wary. | 
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