Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

It all started earlier this year when Munger said the following in response to a question at an investor conference

Buffett’s part of shareholder’s letter was much more pessimistic. What did you think about it?

CEOs don’t criticize themselves or their accountants, so someone had to do it. They all were awful, and everyone, including investment managers, went along with that. Valeant Pharmaceutical Company is ITT of the modern day, except that the guy is much worse than Harold Geneen.

On Friday, Ackman said that (audio here) VRX was like American Express after the salad oil crisis - Buffett made a big investment in the company after that issue, and it turned out to be a big winner. Ackman was asked why Munger (Buffett's right hand man) seems to have such negative views about Valeant.

Specifically, Ackman said he spoke to Charlie Munger and Munger said "look Bill, call me old fashioned but I just do not like lots of acquisitions, low tax rates, and leverage" and that was his point of view. Ackman continued with the following quote from Munger "I heard good thinks about Mike Pearson from our friends at Ruane Cunniff,  and I probably should not have said it, but I am 90 years old and I say what comes to mind".

Now Noah Buhayar NBuhayar, and Charles Stein  of Bloomberg are reporting a slightly different version (or Munger changed his mind again).

In an interview Saturday, Munger tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, "I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong.”

 

...........

Munger elaborated on Saturday: Valeant relied on “gamesmanship” to run up its value. Its strategy, using acquisitions and price increases, is different from ITT, but it still created a “phony growth record,” he said. Unlike Enron, Valeant’s stock isn’t a house of cards because it has some some valuable properties, including its portfolio of treatments, he said.

..................

Munger said Saturday that he had lots of admiration for Goldfarb, adding that “he’s been very right” on Valeant because the Sequoia Fund invested so early in the drugmaker.

It’s easy to see why investors have been so taken with the stock, Munger said. "It looks kind of Buffett-like,” because Chief Executive Officer Mike Pearson “cut out all the glitz” of running a drug company, he said. However, Valeant’s tumbling share price shows why morals should still be a part of the calculation for making an investment, Munger said.

“They’re deeply intertwined,” he said. "I don’t think that investing should be divorced from reality."

So it seems that Munger has a slightly different version than Ackman regarding Munger's thoughts on VRX - what exactly is the truth? We may never know.

Meanwhile, Citron has backtracked on this tweet from Friday, which sent the stock tumbling.

Citron told WSJ tonight

that investors shouldn’t “expect anything earth-shattering” when he issues a new report on Canada’s Valeant on Monday. He said he plans to update his view of the company, including with comments about the company’s “corporate culture.” Short sellers wager against stocks.

Citron also made similar remarks on Friday morning to BNN

We are not legal experts but that seems like a pretty big backtrack which happened really quickly - Citron is a superb research firm, but the latest incidents should raise some eyebrows.

Tomorrow will be an interesting day for Valeant - stay tuned here for the latest.

Valeant
Via S&P CapIQ