I had planned to release Strategy Part II – Porters 5 Forces article today, but I need more time to work on it and in the meantime, we’ll discuss the pitfalls of blindly following the titan investors of Wall Street.
Today, I read the story of how Bill Ackman lost a multibillion-dollar investment in Valeant Pharmaceuticals, reported to be $5.34 billion.
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
But Ackman was not the only Wall St titan to fall victim to Valeant Pharmaceuticals, the legendary Bill Miller who beat the S&P 500 for 15 years straight, also predicted a stock doubling within 2 to 3 years. Watch below
Another legendary investment firm Sequoia Fund Inc. also is reported to have invested in Valeant Pharmaceuticals.
There are a couple of lessons to be learnt.
The main one is to always do your own research and thinking and never outsource your thinking.
In the article about Ackman, John Hempton, who I interviewed on the Masters in Investing podcast, was featured due to having done his own research and concluding that it was not a wise investment and chose to short the stock instead. Read John’s Analysis here Part I, II & XIII
Lesson 1: Never buy a stock because a Wall St titan brought it.
A second lesson.
If you learn that a Wall St titan also owns the same stock as you, don’t drop your guard. It does feel validating knowing that an investor you look up too also owns the same stock, but it can become an impediment to independent thinking, and you may become emotionally attached. You both could have missed an important point about the company that could trigger a sell signal like a hidden debt time bomb and if you negate the process you risk losing your investment.
Lesson 2: Focus on your own process.
And thirdly, Repeat steps one and two.
In other news, I have three interviews lined up with World Class Investors, Expected release for the first one in two weeks. Keep an eye on the Knowledge Centre, new information will be updated on a daily basis.