This comment was recently posted on this blog:
I am running out of patience on VRX (Valeant). I have not sold as I keep thinking
we must be close to the bottom and see some value fundamentally. Only
real accounting update is extremely insignifcant (10 cents less in 2014
vs 9 more in 2015) - but SEC investigation, terrible Management
communication, delayed reporting, huge $30B debt is hard to remain
It looks like I'm gonna do so, but I don't want to defend once again Valeant. Because talking about this stock is like a conversation between muslims and christians.
I've "lost" a lot of money with Valeant. I haven't sold a single share, so money is not actually lost. But virtually, it is. And when you lose lots of money on the stock market, how do you react? Do you want to beat your wife and children? Do you feel suicidal? Do you get depressive, seeing your retirement days vanish?
I keep calm. Well, for Valeant, I'm staying calm.
Here's a few things to think about when one of your investment is free falling:
1- Did the fundamentals change? Did your company started to lose sales or market share?
2- Is the money "lost" essential to your life?
3- What about other investors? What about superinvestors on Dataroma?
Here's what I think:
1- I don't think the fundamentals have changed with Valeant. This company is selling a lot of products and these sales are not that related to the name of the company (I doubt a lot of people will stop buying Bausch and Lomb products because of what's happening with Valeant). Maybe some sales were related to Philidor (the infamous pharma at the heart of the problem), but all indicates that the EPS of Valeant will be OK without Philidor. Frankly, I don't understand why that Philidor scandal went that far. For me, it's not worse than what happened with Whole Food Markets...;
2- Although I've "lost" a lot of money with my Valeant investment, I'm convinced that an overpessimism is above the stock. Maybe it was an overoptimism last summer when the share's price was someting like 4 times higher. But things went way too far on the other direction. Anyway, the money invested in Valeant is not essential to my life. I can still buy toilet paper (which is gonna be pretty useful in a couple of minutes).
3- Other investors are still buying Valeant. Lou Simpson added to his position recently (he added 38% to his Valeant position), just like Sequoia Fund (they added 13,50% to their very big position). I greatly admire Sequoia Fund. Anybody should read their annual letters which are to me more interesting than Berkshire's letter. Their team of investors is so great. And their comments on companies in which they invest are excellent. I have a great trust in Sequoia Fund and their holdings (Fastenal, TJX, O'Reilly, Mastercard, Google... and Valeant which is by far their biggest holding).You may hate Valeant, but I defy anybody to tell me that their others holdings aren't great.
Some people, including the guys at Sequoia, have said that Mike Pearson is an outsanding CEO. The guys at Sequoia said in 2014 that "you shouldn't bet against Mike Pearson". A lot of people would say the opposite these days, but I have more confidence in the guys at Sequoia than in the average guy on Seeking Alpha.
I believe that a guy like Pearson will know what to do when VRX shares are selling at 320$ or when they're selling at 80$. An astute guy could buyback large chunks of stocks or try to sell the company or find something that the average investor wouldn't. From what I've read, Pearson is constantly trying to improve shareholder's value.
Call it an act of faith. Maybe it is. Maybe I'm like those Russian soldiers in World War 2, going to a certain death with an empty rifle and thinking that my leader is an half-god. Maybe it's the case. But with the moral help of my hedge funds heros, I believe in my leader.
Which is the best cure for the mind when you're losing money.