The Writing Was On the Wall with Valeant Pharmaceuticals, and Bill Ackman Willfully Ignored It

by Crista Huff

 

 

Finally, famed hedge fund manager Bill Ackman, CEO of Pershing Square Capital Management, is selling his shares in Valeant Pharmaceuticals (VRX). I hear he lost over $2.8 billion. Ouch.

I’d say something like “a day late and a dollar short”, but the situation has morphed from absurd to pathetic. At this point, it would be like stomping on his grave. (Read more about the history of this train wreck in this March 13, 2017 Bloomberg article.)

I’ve written over 1,700 stock reviews for my stock market website, Goodfellow LLC, and in various public news media; and hundreds more stock reviews in my current role as Chief Analyst at Cabot Undervalued Stocks Advisor.

My website subscribers made big profits by investing in Valeant Pharmaceuticals’ stock. Investors could have doubled or tripled their money between my first buy recommendation in January 2013, and my final recommendation in March 2014 when I said:

“I was previously concerned about the long-term debt ratio. Now that projected 2016 earnings growth has slowed to 7%, I will no longer be giving Valeant Pharmaceuticals a buy rating. Current shareholders should hold their shares for further gains, and use stop-loss orders to protect profits.” — Crista Huff, March 3, 2014

Later, after serious corporate problems developed, I told investors why they needed to sell VRX in my October 22, 2015 article, “Valeant Shares Plummet on Revenue Scandal”.

 

The stock market gets a bad rap. But if it’s possible to outperform the stock market — and it IS possible, because I’ve outperformed the S&P 500 and/or the DJIA in each year since 2012 — then maybe the bad rap belongs to investors themselves, and not to the stock market.

You can’t just drive to Cape Canaveral, wearing a NASA patch on your ballcap, and expect to board a space shuttle, right? Well you can’t just randomly pick stocks and expect to do well in the stock market, either.

There’s a structure to stock investing, just as there is structure to a Broadway play. Fundamental analysis and technical analysis are the two major actors in the stock market, while economics and politics play supporting roles. What’s more, just as a theatre production has a plot, so does an investor need a strategy that defines their buy and sell decisions.

It takes many years to study to be an astronaut or an actor, and it takes many years to master the analysis and self-control required to invest well in capital markets. I’m truly sorry that modern culture has convinced investors that they can successfully invest their money without any personal expertise, professional guidance or transaction fees. The truth is, you were lied to. It’s a laughable idea that random people who haven’t studied capital markets should be able to make knowledgeable and profitable investment decisions. You can see that, right?

 

I’m truly sorry that modern culture has convinced investors

that they can successfully invest their money without any

personal expertise, professional guidance or transaction fees.

The truth is, you were lied to.

 

So what’s an investor to do?

Well, start by finding some reliable stock market experts. They’re out there. I’ve been teaching the basics and nuances of stock investing for 29 years. For example, in November 2015 I wrote “Sometimes Stocks Plummet”. That article provides great guidance for monitoring and preventing ugly stock situations that culminate in falling stock prices.

Nobody who followed my advice about Valeant Pharmaceuticals would have seen their share price fall much below $140. The stock closed today at $10.89. The drop in the share price was not only predictable, based on deteriorating fundamentals, but there was plenty of time for investors to sell.

Stock investing is a learned skill. It can be complicated and frustrating. It can also be lucrative, exciting, interesting and fun. Nobody’s going to be great at stock investing right out of the gate. It takes practice and discipline. Anyone can watch a stock go up 50% and pat himself on the back. But the amount of wisdom you exhibit on the darker days will determine your long-term success.

 

Chart courtesy of StockCharts.com.

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Crista Huff writes about stocks and politics on her website, Goodfellow LLC. You can reach her at research@goodfellowllc.com.

 

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