The reality of investing is that you will lose from time to time. It happens to even the best of investors. However, it is never easy to admit defeat. When it comes to Valeant Pharmaceuticals Intl Inc (NYSE:VRX), the ugly truth is not that hard to find.
I added a few 100 shares of VRX stock to the BNL Portfolio at $36/share. After crashing from over $200/share, $36 seemed like a good speculative bet. I then upped the ante with 4,000 shares between $15.75 and $16.85. Finally, we called VRX stock a “Strong Buy” at $12/share.
The BNL Portfolio has outperformed the S&P 500 by triple digits pretty much each year since 2011. A big reason for that performance has been buying quality stocks when negative sentiment pushes them too low, and then riding the wave higher as sentiment rises. There are too many examples to name, but in the case of Valeant stock, it reminded me very much of a previous investment in Netflix (NASDAQ:NFLX).
In 2011, I bought Netflix stock at what would be $25 (adjusted post-split), watched it fall 50%, and held before selling at $61/share. It was a near 150% return despite a 50% collapse shortly after buying it. I have always thought that Valeant Pharmaceuticals (NYSE:VRX) would do the same. It’s debt pile is large, but with positive free cash flow and value in its sum of parts, Valeant could pay down that debt over time. That was the theory.
What’s Bill Ackman know?People can make a couple million dollars with some luck. Hell, I’d argue the BNL Portfolio is proof. However, billionaires are smart people. You must be skillful to reach that point.
Bill Ackman is a billionaire, and runs a very successful hedge fund where image, reputation, and performance are important. Valeant Pharmaceuticals (NYSE:VRX) has been an absolute embarrassment for Pershing Square and Bill Ackman. VRX stock has made him look like a clown.
Most in his situation who rode VRX stock from the triple digits to low double digits would simple hang tight and see where the road takes them. The fact that Ackman held through so much loss, and did the same with Herbalife, then decided to walk away and cash out of VRX stock at $11/share, is unbelievably gutsy.
Just think how Bill Ackman would be viewed if VRX stock were to reverse, double many times over, and $11/share proved to be the bottom. He would instantly go from the Ritz Carlton of the financial world to Travelodge.