Black Wednesday – October 21st, 2015 – The Last Time a $50+ Billion Stock Declined 40% Intra-day
Today will be a day to remember for many market participants. It is a day I will never forget. Today bore a faint resemblance to the October 1987 crash, but for stockpickers.
Valeant Pharmaceutical’s stock fell intra-day (at its lowest point) -40% . -40%!!! That’s right, a $50+ billion market value company declined 40% in value within the day. That rarely happens.
I may write a more coherent post later, but here are a few things I’d like to write so that I can look back to this day in remembrance:
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
- Congratulations to the public shorts and skeptics — Roddy Boyd, John Hempton, that AZ_Value guy, Jim Grant/Chanos, Andrew Left, and others.
- Deep condolences to the longs. The magnitude of the market reaction made as much sense to you as it did to me (especially given that the “incremental” finding in today’s “report” was already in the public sphere).The so called “smoking gun” was available in plain sight. PLAIN SIGHT!! NOT HIDING, but widely available!
- I can relate to both sides – I’ve been on both sides of similar type situations, where the security price went against me 50-80% within a day, or went in my favor in similar magnitude. Having been both the beneficiary and unlucky loser, I truly can and do understand both sides here.
- The amount of schadenfreude amongst both the longs and (more recently) shorts has been quite high.
- Yesterday’s Village Idiot, and Today’s Evil Genius – Earlier this year and last year, short sellers were considered the village idiots. Today they are considered (evil) geniuses… neither are correct.
- DO YOUR OWN WORK – A certain trend-following guy wrote today: note to self: “Short future Citron picks” … except he and/or similar types traded against Citron picks (gainfully) from 2012-2014. Those chasing Citron here are wise as those chasing Ackman long Valeant in the 200s. DO YOUR OWN WORK.
- Intrinsic Value and Nonlinear Dynamics – What is Valeant’s intrinsic value? Now is the time to be kicking the tire regarding free cash flow generation. That being said, I find the business school approach to valuation insufficient for purpose of evaluating roll=ups/platform companies. How can one arrive at a stable intrinsic value estimate, when the value is non-linearly dependent on its stock price? (even though it may have not used its stock as currency, it creates chaotic/nonlinear outcomes for purpose of estimating intrinsic value)
- Too Difficult Bucket – Placed it in “too difficult” bucket in Q4 2014/Q1 2015 … no regrets. It remains in the “too difficult” bucket for me today. Arguably, it’s Hillary Clinton who created the recent short opportunity.
- Shorting is hard – you probably made more money long Valeant today vs most shorts did shorting it. ever.
- Valueact won the war – Coulda/woulda/shoulda sold more (granted, that’s without knowing the future trajectory fo the stock), but they already won the war, pretty much no matter what happens from hereonforth.
- Ackman-Freude <–> VIX – Fade it when it spikes up, and buy it when it comes crashing back down and stays down
- Fool Of Randomness? – Today was one of the rare “drop everything you’re doing and laser focus on one thing and one thing alone!” days. Simply by NOT being the fool of randomness today, I was in a position to take advantage of opportunity. I was fortunate (not smart) to have been able to navigate gainfully today. I coulda/woulda/shoulda handled today better, but no regrets. Being self-critical is highly important, but also have to note that today allowed my longer-term learning/growth to shine through… I have more room to grow.
- Statistical/historical significance – largest trading volume in history – by factor of 4x! Largest intraday percentage swing in history – yet it is not even in the top 5 among one-day percentage decline.. there have been 35 instances of over -10% one-day percentage declines. So yesterday was not so special in that regard… the -40% intra-day decline was VERY special.
“Strong minds discuss ideas, average minds discuss events, weak minds discuss people”