giofranchi

I have no position in Valeant, but I would just like to point out a possible cognitive bias here. You probably believe it is a good business because the concept makes sense to you. The company buys other companies/products that are not being utilized to their full potential and restructures them in a way that gushes cash flow. You verify that it is a good business because the numbers and/or the explanations from management confirm that it is. If management is lying about the numbers, then you have to consider that it is, in fact, not a good business at all -- so your underlying assumption might be wrong. Let's put it another way. You think that someone that has a good business on their hands has no real incentive (outside of personal derangement) to tinker with the numbers. And you're probably right. You should, however, consider the possibility that it looks like a good business because someone has tinkered with the numbers.i 1) I like the pharma and biotechnology industry in general: imo it is the best industry to be in. 2) I like those companies which grow both organically and through acquisitions. All investments of mine have this characteristic, not only VRX. 3) I like those businesses which have a "zero budget" approach and are very focused on ROIC. VRX in its R&D efforts seems to behave that way. 4) This being said, I have always said I want to see good business results... Recently I have also added I want to see both short term and long term very good business results... Therefore, at least in part I cannot but agree with you. Remember though that I was invested in FFH for a long time even if business results weren't all that satisfactory!? Cheers, Gio Why do you like the pharma business? To me I view pharma as a miner or oil major. They explorer (R&D) for new resources (drugs) and mine the resource until the area is depleted (patent expiration). I view VRX an oil major that acquires new fields through acquisition. For VRX to add value, they must enhance the productivity of the asset they purchase. I.e. they cut costs (which they do by suspending R&D) and expanding or enhancing the sales department. This sounds like a good game plan, but the problem is, without R&D their drug pipeline eventually dries up meaning they have to be a serial acquirer. There really is no organic growth. They maximize the asset they buy and desire a certain level of return over the purchase price. This is fine except to continue to roll up the industry you have to go after bigger and bigger fish to move the needle. At some point you run out of targets and you are left with a collection of gutted pharma companies that are worth what their terminal cash flow will return. I don't think VRX is a fraud, but it is a financial corporate raider company, not a pharma company. VRX is billed as a pharma rollup, but rollups only work if they add value to the companies they acquire. VRX maximizes value as they dispose of the company. They will eventually end up with nothing but a pile of cash and to be honest, I don't think dismantling pharma companies is making the world a better place. 1) Why do I like the pharma industry? I think this century will be remembered as the century of biotechnology, like last century is remembered as the century of oil. Endless opportunities in biotechnology imo for those who don't waste money and are focused on financial returns... 2) There is no organic growth? If so, VRX is a fraud. Management said that organic growth for the whole company has been over 15% for 4 quarters in a row, and last quarter organic growth for their top 20 products has been an unbelievable 37%!! The results VRX management talks about are almost too good to be true... That's why I started the poll!? Cheers, Gio

I have no position in Valeant, but I would just like to point out a possible cognitive bias here. You probably believe it is a good business because the concept makes sense to you. The company buys other companies/products that are not being utilized to their full potential and restructures them in a way that gushes cash flow. You verify that it is a good business because the numbers and/or the explanations from management confirm that it is. If management is lying about the numbers, then you have to consider that it is, in fact, not a good business at all -- so your underlying assumption might be wrong. Let's put it another way. You think that someone that has a good business on their hands has no real incentive (outside of personal derangement) to tinker with the numbers. And you're probably right. You should, however, consider the possibility that it looks like a good business because someone has tinkered with the numbers. 1) I like the pharma and biotechnology industry in general: imo it is the best industry to be in. 2) I like those companies which grow both organically and through acquisitions. All investments of mine have this characteristic, not only VRX. 3) I like those businesses which have a "zero budget" approach and are very focused on ROIC. VRX in its R&D efforts seems to behave that way. 4) This being said, I have always said I want to see good business results... Recently I have also added I want to see both short term and long term very good business results... Therefore, at least in part I cannot but agree with you. Remember though that I was invested in FFH for a long time even if business results weren't all that satisfactory!? Cheers, Gio

How would you argue with AZ_Value? He pointed out a couple of instances in which VRX seems to have reported infilated revenues that the evidence seems to suggest they were lower instead... There is nothing to argue with that imo... He took the AR of a company that was purchased by VRX 99%, and for two years it reported revenues that were slightly lower than what VRX reported instead... How would you argue with that? It is what he seems to infer from this single find that should be argue with: that that single find means lots of other bad things were done by management, and that therefore VRX is a fraud. To this AZ_Value has given no clear evidence either until now... Otherwise, we wouldn't be here discussing about it. Cheers, Gio

The pupil, If you listen to the Q2 2015 conference call, you'd hear management say that organic growth was due 50% to price increase and 50% to volume increase... Therefore, however you put it, if your bear thesis n.1 is true, management is telling lies... And that imo is the definition of a fraud. On the other hand, if management is telling the truth, your bear thesis n.1 has no real substance. Cheers, Gio

Thank you, Andy! But, as I have already said, I don't think it matters much... Imo either they are telling lies or they are not. Period. Presentations, SEC filings... As far as I am concerned as a shareholder, they make very little difference. Business is based on trust. In my experience the time you need to consul lawyer is the time business has already gone bad, and there is no money to be made anymore. As far as your suggestion of selling is concerned, I don't think it is that easy as well... What if tomorrow someone hints at the fact TDG might be a fraud... The day after tomorrow someone else might hint that CSU is a fraud... And AGN, and PRGO, etc. What would I do then? Sell everything and go living on a desert island? ? Cheers, Gio

Maybe... But that doesn't bother me as much as the risk I have invested in a fraud! If VRX is not making up its numbers, I see plenty of upside from here. Therefore, the risk I run, if current valuation is actually too high, might be VRX turns out to be dead money for a couple of years... That's exactly the sort of risk I am comfortable with, because that's exactly the downside scenario I have always considered, and sometimes experienced, with all investments of mine. Let's say that's my CoC! Instead, to deal with a fraud is definitely outside my CoC... And it is the reason why it worries me so much! Cheers, Gio

Just to be clear: it the very first time somenone hints at the fact an investment of mine might be a fraud... I have never lost meaningful money before, but now I risk losing it, if VRX actually turns out to be a fraud. Gio

Here we go... I have voted "No", simply because imo it is too good of a business to be a fraud. No need to lie, when you can make money, lots of money!, honestly instead! To lie would be like risking to lose what they need and already have for what they do not need at all (to borrow from Buffett). But of course I cannot be sure... Who can, right? Therefore, I am listening to whatever people have to say on the subject. Cheers, Gio

Original mungerville, I think the market is divided over a much more serious topic, the following: is VRX a fraud? Everything else pales in comparison. I don't know how to, but I would start a poll on the board titled "Is VRX a fraud?", and listen to what people have to say. Cheers, Gio

Imo this is another example of how consistent they are with their strategy of buying assets just before they get approved. If you can do that consistently, it is not that you don't pay for R&D... Of course you do! You pay for R&D previosly made by someone else. What's great, instead, is that you pay ONLY FOR SUCCESSFUL R&D! But of course you cannot find that on a 10-K... Therefore, it has no meaningful relevance! Just curious: for all who know everything about BRK, does it add non-GAAP measures in its 10-Ks? Thank you! Cheers, Gio

The trouble is finding enough targets to move the needle for the company and they need access to cheap capital. Debt levels are now near the maximum possible, so growth via aquisitions will surely slow down. When you just look at reported operating cashflow - deprecation as owner earnings, it trades only at a 2-3% FCF yield which is pretty low for a pharma company, so at the current price i don`t think VRX is a good investment. But maybe when the momentum investors have no interest in this stock anymore and it trades 50% lower. Looking at Salix, it looks a bit like they are reducing revenues in the year before the aquisition to post higher growth rates after the aquisition, but of course i have no evidence for that. I sold my position because of AZValue`s report after realizing that i know pretty much nothing about VRX and i was just chasing performance. Let's suppose for a second that Pearson is an honest operator... What are you worried about? That their multiple will contract, that their rate of growth will slow down drammaticaly, or both? Personally, I don't see why their multiple should come down, nor why their rate of growth should slow down drammaticaly... Imo lots of opportunities still out there, in a market that's getting bigger and bigger every day. It is like Vanderbilt, Carnegie, and Rockefeller: they positioned themselves in the best industry at the right time and their wealth followed! Of course they also were very shrewd operators! But listen to Carnegie when he says his fortune was made most of all by the dynamics he was able to recognize and take advantage of!? Cheers, Gio

Andy, It makes no difference at all. Enron?! Come on... You MUST think about business! First of all it is business! Than come SEC filings and all the rest! I have read a lot about Enron... And I have never understood how they made money!! This is the thing you should always think about: how does a business make money? In my experience, if you figure that out, everything else follows. Now I repeat: VRX imo has the best strategy in the best industry in the world. This century imo will be the century of biotech and its only weakness are R&D costs that too often are out of control. That's why VRX makes lots of money. As far as "character" is concerned, Pearson has always given me the impression of being very humble and dedicated to what he is doing. The exact opposite of the guys that ran Enron! Cheers, Gio

I have already commented on Twitter and I am commenting here as well. The basic and only idea on that post is: Pearson is a liar and Valeant is a fraud. I would like to know who among you has listened to the Q2 2015 conference call. In it Pearson reviews IRR and cash payback time for all 140 acquisitions so far, and he clearly divides them between large, medium, and small deals. Therefore, I think he adresses the previuos mistake quite satisfactorily. He also discloses organic growth both for the whole company and for its top 20 products. Therefore, I think I have all the information I require about how acquired businesses are doing. But AZ_Value shifted the discussion on another level: he has told us that what Pearson tells belongs to the garbage can... He cannot be trusted at all! Of course, if the information we receive from Pearson is fraudolent, I am lost... But... The fact Pearson is telling lies to everyone doesn't make business sense to me: In my experience you lie when you are in trouble and you don't know how to make a profit. VRX instead is in the best industry in the world and has the best strategy in the industry. When you are in their position, to do something dishonest is the last thing you want to do! Why to risk such a strong business over the long term? For what? AGN is a 9x since 2007... PRGO is a 10x since 2007... VRX is a 45x since 2008! Even their strongest competitors have grown much slower! If you were Pearson, would you risk losing everything for a rate of growth that's utterly unnecessary? I would not. And it doesn't make any sense to me. What's the point for Pearson to earn $billions... If he later ends up in jail? Especially given the fact his business is very sustainable and could build wealth for a very long time. Some of you have said VRX's business model is flawed... Of course we disagree, but if VRX's business model weren't as strong and unique as I think it is, I would understand why Pearson might be telling lies much more easily! This being said, the fact imo remains:VRX's management is giving us all the information I would like to know about their business... If they can be trusted, those results are great... If they are telling lies, VRX is a fraud. I will read AZ_Value's part two on VRX, but I seriously doubt we will get beyond this question: is Pearson reliable, or is he telling lies to everyone? Cheers, Gio

Pete, I know very well what you mean... I have made a large investment 5 years ago in Fairfax, because I wanted something that would do well in a difficult environment, while performing "not bad" in a muddle through scenario... To say I was not worried about macro would be a lie... Because I actually was! And because in general I don't like the insurance business much... Insurance of course could provide you with cheap and safe leverage... But then it clearly depends on how that leverage is going to be used! Imo Dazel is right: the only way I see Fairfax making lots of money is if treasuries yield goes down, if we have a severe market correction, and/or deflation... Otherwise, I don't see how they can make lots of money... Instead, I can see how other businesses might go on making lots of money much more clearly. That's it imo. The present picture, as I see it. But it will surely change in the future! ;) Cheers, Gio

No thread about Perrigo? Total Shareholder Return of 970% since 2007… Not bad at all! ;) Find in attachment a very good presentation. For those who know PRGO well: how does its strategy compare to VRX’s and AGN’s? Thank you! Cheers, Gio 150421_Presentation.pdf

In fact that's what I have done... Though I know the odds are I'll come to regret this choice of mine... Gio

Dazel, please hear me: I AM ALMOST SURE I WILL BE THE PERFECT CONTRARY INDICATOR HERE! Your reasoning makes perfect sense to me and you surely must know how much respect I have for Mr. Watsa & Co. But after 5 years I feel compelled to make a choice: should I go on worrying about the fact we are living in a “once in a lifetime” and “very dangerous” situation, or should I go back doing what Mr. Vanderbilt suggested commenting one of the most terrible financial panic in history (the panic of 1873): I think I am going back to the simpler activity of buying great businesses at attractive prices when I have some cash… Why now? Because after 5 years I wouldn’t know when else to stop worrying and go back to what I call “business as usual”. But, once again, I am full aware of the fact this might be exactly the worst time possible to make such a choice! Cheers, Gio

Dazel, I have no doubt you might be right… But when should I admit I were wrong and call it quit? I am absolutely no macro investor, yet in 2010 I got worried about what I thought back then was a very unique and dangerous situation: high asset prices and high levels of debt almost everywhere. Fairfax was the best way I could find to hedge against the potentially calamitous consequences of that situation. 5 years forward: some deleveraging has occurred and some asset prices have come down (mostly commodities)… but what has actually happened is a much more gradual process than the one I had anticipated. Now, of course you can always make the argument the worst is still in front of us… But, really, when enough is enough? When should I admit my fears were misplaced? 5 years… A meaningful period of anyone’s life… Whatever happens in the fall, I think I have waited enough. What I am sure about is that a bet on the USD, on treasuries, and on deflation is not the way I want to make money. Cheers, Gio

Allergan Reports Exceptional Second Quarter 2015 Performance with 116% Increase in Net Revenue to $5.76 Billion and 29% Growth in Non-GAAP EPS to $4.41 http://phx.corporate-ir.net/phoenix.zhtml?c=65778&p=irol-newsArticle&ID=2076508 Gio AGN_Q2_Earnings_Deck_8-6-15_FINAL.pdf

Pershing Square to File 13D Disclosing 7.5% Stake in Mondelez International, Inc. Gio Pershing-Square-to-File-13D-Disclosing-7.5%-Stake-in-Mondelez-Internatio....pdf

http://www.marketwatch.com/story/ackman-takes-55-billion-stake-in-oreo-maker-2015-08-06 Gio

Also: Ackman’s Investment Is Latest Jolt for Mondelez Maker of Oreos, Triscuit crackers stumbled amid a bumpy year of activism, restructuring http://www.wsj.com/articles/ackmans-investment-is-latest-jolt-for-mondelez-1438826576?mod=e2tw Gio

This is interesting imo! Who knows?... He might already be in talk with 3G Capital! Is he trying to replicate with 3G Capital what he did with Valeant?... We will see! ;) Cheers Gio

Activist Ackman Takes $5.5 Billion Stake in Snacks Giant Mondelez William Ackman thinks Oreo maker needs to cut costs, grow revenue, or sell to rival like Kraft Heinz http://www.wsj.com/articles/activist-takes-5-5-billion-stake-in-snacks-giant-mondelez-1438825313 Gio

July 2015 Performance Report Gio Performance-Report-July-2015-PSH.pdf