The Lessons Learned From Valeant Valeant Pharmaceuticals Intl (VRX)

The Lessons Learned From Valeant Pharmaceuticals Intl (VRX)

Recently, Valeant Pharmaceuticals (VRX) plunged more than 51%.

The news out of the company was worse than many feared…and investors headed for the exits

The company said they won’t hit their previous earnings numbers and may default on their debt. Ouch.

Over the past few months there has been a mountain of uncertainty about the company, its practices, and leadership.

Why do I think this is such a big deal?

It’s not every day that a company with a market cap of more than $70 billion, losses 80% of its value in 9 months.

The Lessons Learned From Valeant  Valeant Pharmaceuticals Intl (VRX)

But more importantly, it not about how much value they lost, but who the investors are that suffered these losses.

And that’s what I find so shocking.

Some of the largest hedge and mutual funds, that employ some of the smartest people on Wall Street– had concentrated their holdings in VRX.

Now, these investors many that would be considered the cream of the crop in the value investing approach, got caught with their pants down.

Keep in mind–they have teams of very smart people, reading every SEC filing, speaking with management, and knowing a heck of alot about the business…yet took heavy losses, and some even invested even more as the stock fell.

The lesson I learned from VRX and their smartest guys in the room investors is this: diversification among holdings and a limit on concentration is key. A blow up in one stock shouldn’t sink your business or wipe out a large amount of your net worth.

Valeant Pharmaceuticals Intl

I think the best advice was given by Mark Twain more than a century ago…and is very applicable to the rise and fall of VRX:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

 




About the Author

Charles Mizrahi
In his more than 30 years of recommending stocks, Charles has knocked the cover off the ball, and has compiled an amazing record of success. He is the editor of Hidden Values Alert and the Inevitable Wealth Portfolio newsletters. Hidden Values Alert has been named one of Marketwatch.com’s 10 Best Advisors from October 2007 to January 2015…a period that included the Financial Crisis of 2008 and the subsequent bull market that began March 2009.   While many gurus boast of astronomical rates of returns over very short time spans, their claims don’t stand up to scrutiny. Instead, their “returns,” when reviewed by an independent third party, melt away faster than ice cream on a hot summer day. The returns that Charles has racked up are certified by Hulbert Financial Digest – the fiercely independent rating service that tracks the performance of financial newsletters. Charles is also the author of the highly acclaimed book, Getting Started in Value Investing (Wiley). He also writes a blog on investing Insider Wealth Alert.