The fall of Valeant Pharma matches that of the Roman Empire, dropping from $270 to $10.50
Ackman acquired a position after trying to buy Allergan for Valeant before it was acquired by Actavis (now Allergan Inc).
Valeant’s business model was fairly simple: buy a pharma company, over pay, leverage but hike prices which makes the overall investment pay off over 4-5 year period.
Ackman, Paulson and ValueAct loved this ruthless model – and called it’s CEO Pearson a Star – I say ruthless as it is the end patient who suffers as it makes an essential drug un-affordable for many people.
Then came a tweet from Hilary Clinton slamming drug companies who raise prices – Ackmans investment – was at one point up over $2bn – gradually started to fall – Trump also tweeted and the stock continued to fall – now Ackman started to lose money…..then news of distributor called Phillidor was being used by VRX as way of feeding these higher prices into the market – Ackman seemed not aware of this relationship – in fact he was not aware of many things about VRX – with all his so called ‘smartness’ and backup of smart Analysts – he is no smarter than me or you!…. His final loss was a whopping $4 billion dollars, bailing out at $11.
So why did he not sell earlier – why did he not set a stop? Because Ackman and many so called ‘smart’ investors, think they can never be wrong – they do not doubt themselves or their judgment ….which is a trait you may need to persuade investors to part with billions of dollars to invest with you – but humility goes a long way – no-one is smarter than the market. I actually met Ackman at the Bvalgari hotel in London – and said he could ‘fix’ $VRX – but the fact the company could not raise prices, meant that the business model was broken and could not be fixed – too many companies were acquired at too high a price, with too much debt.
The 2Centview method always sets a stop – you should exit if stock reaches between 30-50% of it’s high – do not fight the market – look to re-enter when the stock stops falling and has turned itself around – do not double down on a bad position!
2CentView had a trading position in $VRX opened at $35, closed at $25 for a loss.