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
Michael Gelband’s Exodus Point launched in 2018 with $8.5 billion in assets. Expectations were high that the former Millennium Management executive would be able to take the skills he had learned at Izzy Englander’s hedge fund and replicate its performance, after a decade of running its fixed income business. The fund looks to be proving Read More
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.
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.”