Liberty

Who was making decisions in 1965 based on how things would be in 2015, and how many of these people got it anywhere near right? Even if a longt ime in the future events prove you right, you can get killed in the meantime if commodity prices stay low for years or decades... Opportunity cost is a real thing. in 1965.... probably phil fischer... and we know from Berkshire KO story that Warren and Charlie were thinking that way by the mid 80s... and we know that Pabrai is a Buffett follower. I completely agree that opportunity cost is a real thing - that is why it is so difficult to invest this way... but if you read Buffett and Pabrai they talk about investing in things that are "inevitable." If you really believe that things are inevitable, and if you have sticky or permanent capital, you can handle a lot of short term opportunity cost if you think the ultimate outcome is a multi bagger. I meant about things like commodities and macro. I heard the same thing a lot when I was looking at Altius/Alderon. "China is going to build X number of airports and cities in the next decades, think of all the iron ore that will be required!". Even if you're right that China will eventually do all those things, it doesn't mean that it can't take years or decades for commodity prices to go up, or that a slight overshoot by producers combined with a slight slowdown by the demand side can't crash prices for a long time yet the thesis is still broadly right. Holding a good company like KO for the long term makes sense because you know that they'll probably make money 99% of the time unless they destroy what makes them good. You might not make a lot of money if you pay too much, but at least they should grow IV over time and put a floor under your mistake. Planning to hold a money-losing company in a commodity business for the very long term based on macro theories is something else, IMO. Cycles can be very long and are out of control of management. Just over the next 10 years they have time to change CEOs a few times, and who knows how good these new guys will be?

Those founder's shares are a killer, eh?

The market will do whatever causes the most confusion to the most people.

http://scottgrannis.blogspot.com/2015/08/cheaper-oil-does-not-spell-doom.html "oil prices in real terms are only slightly below their long-term average"

Just guessing, but could this be an effect of the biovail reverse merger? Maybe this is based on the original Valeant stock?

That's a good one. Very smart author. This recent post is fun (not claiming any predictive power, just putting things in perspective): http://www.philosophicaleconomics.com/2015/08/the-trajectory-of-a-crash/ I like that one too.

Ackman is late to the party compared to Sequoia. Not sure when they first bought, but it was years ago.

Who was making decisions in 1965 based on how things would be in 2015, and how many of these people got it anywhere near right? Even if a longt ime in the future events prove you right, you can get killed in the meantime if commodity prices stay low for years or decades... Opportunity cost is a real thing.

There was a question about VRX R&D at the Sequoia Fund investor day. The answer is pretty much the same one I gave earlier, but people probably listen more to the Sequoia guys than they do to me :) Here it is: http://www.sequoiafund.com/Reports/Transcript15.pdf

http://www.sequoiafund.com/Reports/Transcript15.pdf

http://www.sequoiafund.com/Reports/Transcript15.pdf

2 more billions in the repurchase authorization: http://investor.siriusxm.com/releasedetail.cfm?ReleaseID=928991

Viking, you are probably right that it would be closer to optimal even with the tax hit, as long as the stock is undevalued enough to compensate and you see strong operating performance on the horizon, so you know low prices probably won't last too long.

Since there's renewed interest, I thought I'd share some notes I took in my investing journal from a talk that Pearson recently gave (I think it was at a RBC event). As far as I know this wasn't linked from the site, but a kind soul sent me the recording. Hope you enjoyed, took me a while to type it all.

Depends if you think there's going to be a different tax treatment of the foreign cash at some point (either a temporary tax holiday or a change to the tax code). If that's the case, best to keep borrowing at basically 0% interest and buy back with that.

Something being an important commodity doesn't mean that the companies operating in that industry will make any money. Oil was more important per unit of GDP in the 80s and 90s yet prices were low for years and years...

If the discussion is shifting to "are there risks", then yes, of course. Find me a business where there aren't. But the fact is, they are growing well, their new products are getting traction, they are over-delivering on promised synergies, and they are deploying a lot of capital. So in a scenario where you reverse all these things, then of course things would go badly. But that's not where we are. I value things based on what I think the business is worth, not on whether they are well known or not. Otherwise nobody here would've made money on Bank of America, AIG, WFC, Apple (some of the biggest businesses in the world), or any of the Malone companies, which also are hedge fund hotels. What keeps VRX valuation low is not that it's obscure, it's that most people don't understand the model, they think it's just over-levered slash & burn, and because there is reputational risk for big money in investing in it (if you fail unconventionally, that's bad).

Organic growth can be misleading anyway. A few years ago, organic growth was much lower. Why? Part of the reason is they had big tail products rapidly losing revenue, so it masked the growth in other parts of the business. But like all shrinking problems, these tails products are now much smaller, so the organic growth of the rest is showing through. As long as they paid low-enough prices for these tail products, they are creating value even while shrinking. That's all that matters. Pearson has been clear on this: The reason why they can buy these tail products cheaply and make money on them is because most other pharmas don't want them anymore because they make the numbers look bad for Wall Street.

This is just my guess, and I could be totally wrong, but I think Tim Cook sees Apple as a company and institution first, and as a financial stock way in second position. I think that for a while he probably had a thousand big investors pester the company with questions about China and about sales, and that made its way to the media... And he had the numbers in hand, he knew this wasn't a problem, but the perception could tarnish the brand and low stock price could affect employee morale, hiring, retention, etc. Didn't want to get into a narrative like a couple years ago of "Apple has lost it" (even if not true). A perfectly ruthless financial operator like Malone would probably have just shut up and watched the stock drop to do bigger buybacks, but Cook has different parameters to play with, and I don't think he wanted to see the brand attacked just so he could boost future CAGR by a couple points a few years down the road. These memes can be hard to shake once they take, even if they aren't based on much. But I don't think he's sitting idle either. Last time the stock fell sharply we learned that they had bought back 14bn in two weeks. I wouldn't be surprised if we find out that during the recent period Apple has been doing accelerate share repurchases to the tune of a few tens of billions. But still, Cook doesn't want a false narrative to take over because the media loves the attention from negative Apple stories (nothing brings in the pageviews so reliably!) and they're always looking for anything to jump on, factual or not.

Have you looked into how they achieve a low cash tax rate? Most of their debt is in the US, so that's where they pay interest. That shields taxes there because when you don't have profits, you don't pay taxes. And since Canada has a territorial tax system, unlike the US, money made around the world doesn't face double taxation. Unless the U.S. starts not considering interest expenses an expense that reduces your profits, and unless Canada decides to switch to a worldwide taxation system like the U.S., I think their cash tax rate is pretty safe. As Malone said, it's better to pay interest than pay taxes... Btw Liberty I am sure you know this... Malone could do what he did mainly because his underlying cable business is as stable as it gets with slow organic growth. You can leverage such businesses and pay interest because refinancing stable cash flows is not a risk. VRX tries to do it by saying they are investing in a diversified portfolio of durable products. They mostly have durable products but it is not all of it unlike Cable business, so they shouldn't be leveraging as much as Malone does, especially if their organic growth is suspect. Absolutely. But I don't think the organic growth is suspect, and I think they aren't as levered as the optics make it seem. If you normalize Salix for the inventory issues, they're lower than they seem. They also proved during the AGN pursuit that they can delever pretty quickly (even while doing a bunch of tuck-ins). I think they're being shrewd. They are taking advantage of historically very low interest rates to pick up valuable assets in geographies and therapeutic areas that should grow faster than average for the foreseeable future. The previous CFO has said that he thought it was "inevitable" that at some point they would be investment grade. Not just yet, I guess. That remains to be seen, but I think it's their goal over time. I think what's most likely to happen is that at some point they find someone of similar size to merge with - on a friendly basis this time - and that the transaction delevers them all in one fell swoop. The AGN transaction would have done that if it had happened...

As I said earlier in this thread, finding new targets isn't what worries me. The company seems very confident that this is not a problem, and when they went after AGN it was apparently just one name out of a list of ten big potential targets, and there are trillions of public pharmas and trillions more of private ones around the world. There are always pockets of values to be found, companies with the right kind of assets that are going at decent prices. Because they are very decentralized and integrate acquisitions at the local level, they can do many smaller deals that, together, add up to real money. Most other big pharmas are quite a bit more centralized and try to integrate things from central HQ, which is a bottleneck and a real source of inefficiency and reduced entrepreneurialism at the local level. If they ever become too big for their own good, I wouldn't be surprised to see them do exactly what the new AGN did with its generics business; divest assets at top multiples, or maybe do spin-offs like DHR is doing now. Pearson has clearly said that he's always open to offers for any part of the company, and that at the right price he'll do what's right for shareholders. People misinterpret the goal of being a "150bn" company from a few years ago as empire building. But if you listen to the actual commentary at the time and since, this was more about "we have a model that creates a lot of value, the more capital we can deploy the more value we'll create, so we're trying to deploy a lot and maybe do a big merger of equals". But absolute size doesn't interest him, and if someone offers him a crazy multiple for part of the business, he'll probably sell. If all big pharmas become super expensive, making it hard for VRX to buy at a good price for cash, maybe VRX stock will also be more expensive and can be used as a currency. Or if it's all super-expensive, maybe it's time for a divestiture. There's always a way to create value. Singleton showed that. So finding new targets isn't what worries me, my #1 concern is that they stay disciplined and keep executing their strategy well.

Have you looked into how they achieve a low cash tax rate? Most of their debt is in the US, so that's where they pay interest. That shields taxes there because when you don't have profits, you don't pay taxes. And since Canada has a territorial tax system, unlike the US, money made around the world doesn't face double taxation. Unless the U.S. starts not considering interest expenses an expense that reduces your profits, and unless Canada decides to switch to a worldwide taxation system like the U.S., I think their cash tax rate is pretty safe. As Malone said, it's better to pay interest than pay taxes...

Wasn't this business model tried throughout the 1980's and we called it corporate raiders? No, because it's not the same model. Valeant is a lot closer to the 3G model, which also includes superficial similarities with the raiders, but which is fundamentally different (long-term orientation, rather than short term bump then looking for an exit and doesn't care how damaged the business is after that).

Fairfax, Greenlight re, Third Point re, Pershing Square Holdings, Arlington Value & Allan Meecham, Biglari Holdings ('BH') & Sardar Biglari etc. I don't understand: you have made a list of billionaires or very successful entrepreneurs... To prove what exactly?... Of course there is one Buffett, and that's what also Liberty says: there is one Pearson, those other managers who try to do like he is doing don't achieve the same results of course... See for instance AGN and PRGO. But they are nonetheless very successful, because the industry and the strategy are both great!... Just like the managers on your list are successful, though maybe not as much as Buffett! Cheers, Gio That's not quite what I meant with my comment. I meant that if succesful ideas were this easy to execute, there wouldn't be just a handful of Berkshire clones (of varying degrees of success, the best probably being Markel) out of tens of thousands of publicly traded companies around the world, just like it's possible for Valeant's model to be a good one and for it to not be widespread yet (it could either mean that it's hard to execute and there's inertia in the inudstry, or that they are among the firsts to do it and it'll be more common at some point in the future). I don't think an idea has to be a well kept secret to be good. Otherwise, all phone makers would just do what Apple does and make hundreds of billions, right?

I've started reading this book recently: http://ecx.images-amazon.com/images/I/51DozrQ0NdL._SX332_BO1,204,203,200_.jpg http://www.amazon.ca/Man-Moon-Voyages-Apollo-Astronauts/dp/014311235X It's crazy how little I knew about what we've already done... I'm super impressed by the whole Mercury, Gemini, and Apollo projects and how they could do all that with 1950s-1960s technology. I've also re-watched the film Apollo 13 this weekend for the first time since the 1990s, and it's quite excellent. Very inspiring, and they apparently went to great lenghts to make it realistic (even filmed the weightless scenes inside an airplane doing parabolas - over 600 of them - to have the real thing), having NASA as consultants and basing a lot of it on the real radio transcripts, etc.