Monday, April 4, 2016

Valeant Pharmacauticals and Ackman Story

Mr. Ackman has been one of the investment masters that I looked up to. I used to take his ideas and work on them independently to find out more about the company and his reason for investing. Usually I would come up emplty handed as I would not find compelling argument for or against the stock.

A little more than a year ago, I came across the article in Barrons, which had a glowing article on Valeant. But it was another famed fund Sequoia manager, who was braggin about the companys business model and its bright future. That time, I decided to give myself more time to study the company. I didn't find anything negative about the business model perse , but I was not sure about the platform company structure. Also, the stock price has shot up by more than $50 by the time I finished my research, so I moved on.

Trading and investing has one distinct difference, which is the account time horizon. I am a short term trader, and if the stocks has given me a gain, I would definitely place my stop loss on the breakeven. However, investors with longer term horizon, wait for some negative catalysts to load up on share at a better (lower if he is bullish) price. The reason for me, as a technician, I don't have price targets or fair value target or anything. I just care about the price action and the chart. Chart says to me where to enter and exit. However, big boys like Ackman has different agenda, they initially identify their edge and place bets. But part of their plan include that they might get shares at better prices for some reason. Sometimes, it happens because of the macro events that has no bearing on the stock itself.

The current story of VRX is not in line with the aforementioned logic. Because, the reason why share become less expensive HAS TO DO with the BUSINESS PROCESSES of the company, so Ackman had made a mistake in not taking a loss and move on (just like Buffett did some years ago with his bet in Tesco). Buffett said that he had an idea about the business processes of the store, but it has changed, so he is taking a loss and just moves on. Ackman, either has better information that we all don't know or has no idea what he is doing.
I think that we might give some time Ackman, and just see what he can do with this stock. If he manages to turn around and come out even, then he will prove that he is indeed a king of hedge fund world. If not, then..

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Why Companues Go Public: Rationality Comes First

This is a post that was written as a response to the post on FB. Here is the link: