ERICOPOLY

The "problem" is that I don't have access to our RothIRA funds anymore. I can only invest what's in my taxable account. VRX anyhow is best suited to a taxable account. So no worries and isn't 25%+ enough if it triples in a couple of years? Okay, it's not enough but my hands are tied. Oh well! Eric---Did you build this entire position over the past week since the decline or have you been a long term holder? I didn't buy any before this week. What made you decide to buy this week? Do you now have a good grasp of Citron's claims vs VRX's explanation and felt like it is FFH 2006 all over again? Citron doesn't really have any claims. I decided to buy this week because I hadn't heard the Valeant story ever before. I had never read any of the thread until this past week. I had been ignoring the thread completely because it had "Pharmaceuticals" in the name and I thought I knew nothing about that industry and never would. But then once I started reading about the name, I realized it's actually really easy to understand the Valeant investment case. Then I got to somewhere around April 2014 in this thread and Original_Mungerville said exactly the same thing! He was ignoring Valeant until then because he thought pharma was worth ignoring. I think we both assumed pharma was about wildcatting and thus too hard.

You can take control of the company for a day and in a special press release, writed-down the goodwill to zero. Be my guest, just be sure to leave the company immediately and return control to Pearson so he can keep on reporting earnings as they are. And your reign of earnings will be remembered as THE ONE where it was necessary to ignore the one-time item in order to see what the real earnings are. And that would accomplish... absolutely fucking nothing. It would make absolutely no difference whatsoever to their earnings power.

Suppose they never buy another drug and never develop another one. They just run-off the existing portfolio. And they don't make efforts to grow the share or pricing of existing drugs. Each year you see general decline as those drugs hit new competition or become less relevant. Earnings go down, down, down... That's not transparent enough? We need a bunch of lump-sum guesses from management (aka: goodwill writedowns) and somehow those future forecasts will be more accurate that just watching it all unfold in real time?

It's pointless and unnecessary. The stock can be priced on earnings, if the earnings decline because a drug's lifetime passes, then they decline. Falling earnings is very transparent. You can't hide earnings that are declining or growth that isn't appearing. Why would writing down a goodwill asset do anything other than just impair the visibility of the earnings? Then you have to back out the "one time" items in order to see what's really going on with the quarterly earnings. It's LESS transparent to have goodwill write-downs.

Yes, because the VRX volatility isn't cheap. So I piled up a bunch of new debt in my portfolio margin account to buy VRX common, but I hedge out what other risk was there by purchasing more BAC puts. I only did that because the BAC puts are so much cheaper -- why pay for the more volatile one when I can pay for the less volatile one?

They have 2018 options listed here, which is my go-to site for finding options -- just so convenient: http://finance.yahoo.com/q/op?s=VRX&data-ipsquote-timestamp=1516320000

The "problem" is that I don't have access to our RothIRA funds anymore. I can only invest what's in my taxable account. VRX anyhow is best suited to a taxable account. So no worries and isn't 25%+ enough if it triples in a couple of years? Okay, it's not enough but my hands are tied. Oh well! Because it's not a cigar butt. It can keep growing at a high rate with management's capital allocation.

The "problem" is that I don't have access to our RothIRA funds anymore. I can only invest what's in my taxable account. VRX anyhow is best suited to a taxable account. So no worries and isn't 25%+ enough if it triples in a couple of years? Okay, it's not enough but my hands are tied. Oh well! Eric---Did you build this entire position over the past week since the decline or have you been a long term holder? I didn't buy any before this week.

The "problem" is that I don't have access to our RothIRA funds anymore. I can only invest what's in my taxable account. VRX anyhow is best suited to a taxable account. So no worries and isn't 25%+ enough if it triples in a couple of years? Okay, it's not enough but my hands are tied. Oh well!

So you could think of VRX as similar to the oil industry. They buy producing wells with good economics instead of drilling all over the places trying to find oil. They are criticized because people prefer wildcatters? Except better, because they are not in a price-taking industry where what they are drilling is suddenly cut in half but with high debt levels remaining (sound familiar?).

I was able to add even more VRX throughout the day because BAC rallied hard -- BAC's puts are cheap at $16 strike, so I bought those instead of buying any VRX puts. I know, it goes down too. Just exciting day regardless. It can be difficult to sex a chick when they hatch -- but once it's crowing it's gets a bit obvious.

Show me a company that doesn't have any economic goodwill, and we'll agree it's a turd. So let's own it! No risk of goodwill declining.

I am expecting a high growth rate in the earnings, but I'm not paying a premium for that. Normally, I stay away from high growth in earnings stocks because the growth is priced into the stock. Prior to the recent selloff, there was more of that growth priced into the stock and today there isn't.

Well, if you set about the approach of calling 100% of market cap an "asset", then the S&P500 trades at 1x book value. It also inflates the asset to equity ratio of the S&P500, and then you find yourself getting relatively closer to the entire market being compared to a "bank". So there might be something there to think about further before you apply it to VRX.

In other words, if Berkshire were to wholly acquire KO for the present market cap of $186B, the entire $186B would be an asset on Berkshire's books. Most of that asset would be intangible. You would be arguing that the return on assets is aweful because you are counting the intangibles in those assets.

ROA at KO is fucking terrible if you measure it the way you do.

You've hit the nail on the head. Has anyone spoken to current/former VRX staff about Pearson? Has anyone spoken to Pearson's ex co-workers at McKinsey? If not, then saying "Pearson's a man of integrity" is just a whole lot of uninformed hand-waving. Show me the data. McKinsey guy on Twitter just tweeted out a bunch of good things about him in the past few days. Don't know how anecdotes are data though. Yes it isn't a bet on Pearson's character alone. It's the whole network of people involved. A guy in the CEO's seat needs a lot of help from his lieutenants to orchestrate a fraud.

Position size is about 25%. I don't do really crazy sizing anymore. Does anyone agree that you can assess Munger's character without meeting him? How about Buffett? Most of us haven't met either one. You could meet a guy alone on the street, and you might walk away with a favorable view of him if he said the right things. But I think you'd learn more about him by looking at the company that he keeps.

I've never met Watsa in person, or Chou, or any major investor in Fairfax. I've never met Sanjeev, or Mohnish. So I guess I don't know anything about their character aside from the company they keep and their actions.

I didn't bother with waiting to get through the whole story. My cost basis is $110.80.

I had a theory last night that the same retards (as with FFH) are shorting this stock again because they just don't know how to assess good character from bad in people. There is evidence in this if you look at who they associate with (each other). The Fairfax investment was a no-brainer because of the exceptionally high character of Prem and the men he associates with. So these guys are not always wrong, but their weakness is that they can't tell the difference when they've come across men where massive fraud is not in their DNA. I'm trying to be charitable here -- there might be an explanation for why these shorts are so crazy other than conspiracy. They might just be exceptionally poor judges of character and operate mainly on patterns they see in a balance sheet and disclosures that fit patterns they've seen elsewhere in frauds. But without an ability to assess character, they lack the higher-level filter that's necessary to avoid getting burned by FFH. These guys surround themselves with other shorts and journalists of low character -- evidence they cannot really assess character.

Okay, here is my take on it based on what I saw in another company I commented on in the past -- SSW (Seaspan). People were putting a P/E on it without mention of leverage but I commented on that company to look at the value of the unlevered business as well. Of course, you can jack up the stock price value if you use a constant P/E while the company adds cheap leverage. So I'm a fan of taking the risk (from debt) into account by assigning a lower P/E to a highly levered company, and a higher P/E to the exact same company if it were not levered. So I'm on page 16 so far of this thread and original_mungerville has already covered this by saying he'd rather put a lower multiple on it due to the debt. I agree.

I know, it's massively stupid. Just for fun, try to compute the "look through" intangible goodwill assets of Fairfax. Then piss on their earnings every now and then by assessing charges to their "look through intangible goodwill" every time Mr. Market changes his mind and lowers the price of the shares in their portfolio. Mr Market changing his mind about the future of their owned shares is really not much different from management changing their minds and writing off goodwill. Makes no sense. Writing down goodwill is a bit like mark-to-market accounting flowing through to earnings, except it's only negative writedowns -- never positive increases. Would you add back interest costs to cash flows for valuation purposes? I don't understand. I do have a question for you... would you add back in management's compensation to cash flows? I've been puzzling on that one and I thought you might be able to help. I'm also wondering if the cost of the electricity should be considered an expense. And if severance should be included.

I know, it's massively stupid. Just for fun, try to compute the "look through" intangible goodwill assets of Fairfax. Then piss on their earnings every now and then by assessing charges to their "look through intangible goodwill" every time Mr. Market changes his mind and lowers the price of the shares in their portfolio. Mr Market changing his mind about the future of their owned shares is really not much different from management changing their minds and writing off goodwill. Makes no sense. Writing down goodwill is a bit like mark-to-market accounting flowing through to earnings, except it's only negative writedowns -- never positive increases.

I agree. It's enough to just look at the earnings and growth of the business and ignore goodwill completely and any associated discussion -- for if we do that, if we value the business based on it's earnings and prospects, our business valuation will capture the real value of the intangibles. There is basically nothing to be learned from seeing the goodwill on the books or discussing whether or not it will be written down.