VRX - Valeant Pharmaceuticals International Inc.

[giofranchi]

by the Gio method, my 401K/IRA has compounded at 49% for 4 years (using the initial $18K as the starting amount). Anyone want to give me money to manage?

 

What do you mean? I take and reinvest the fcf of my company… what does that have to do with a 401K/IRA plan? My savings are somewhere else…

 

Cheers,

 

Gio

[rpadebet]

Gio,

Common dude, just when it was getting interesting you bail...I am holding on strongly to my 5 shares. It is tough to stomach the volatility but I am trying  ;). I cannot believe I am more bullish than you now!!

 

Anyway, I am going to wait for the hearing. If fraud is not a concern, I am looking at getting back in around 120 again. So lets wait for that....

[Ross812]

 

Ahah!! But I am barely underwater for the year… After compounding at 22% during the last five years… Are you really worried about my financial well-being?!

writser, you are funny!

 

Cheers,

 

Gio

 

 

 

No this is not so: I don’t believe in predicting nor anticipating the market. I believe in finding great businesses and in having a long-term horizon. When something happens for the worst, I want to recognize it and act accordingly. During the past 5 years this strategy yielded a 10% yearly compounded return notwithstanding a large part of my portfolio in FFH which yielded less. Put on top of that a 5% from the fcf of my companies, and I think I can grow 15% for quite a long time still. During the last 5 years the fcf of my companies has been on average 10% of equity.

Are there other strategies that might lead to better investment returns? I don’t doubt it! But until I get that 15%... why should I change something that works so well?!

 

 

 

Now I'm confused....

 

 

Yea me too...

[Hielko]

You write that you compounded at 22% without explaining what that number includes. I think that's very deceptive since this is an investment board and the logical assumption would be that you are talking about investment results. So while you are boosting with your 22% "return" you are actually underperforming almost all major equity indices for the past 5 year...

 

Ah! But that was just to assure writser that he doesn't need to worry about my financial well-being... He seemed so sorry! ;)

 

Cheers,

 

Gio

He seemed to worry about your investment process. Given your track record that seems like a valid concern since buying a random broadly diversified ETF would probably have delivered better returns.

by the Gio method, my 401K/IRA has compounded at 49% for 4 years (using the initial $18K as the starting amount). Anyone want to give me money to manage?

 

What do you mean? I take and reinvest the fcf of my company… what does that have to do with a 401K/IRA plan? My savings are somewhere else…

 

Cheers,

 

Gio

It a similar statistic that is totally irrelevant wrt evaluating investment performance, just like the number you throw around. Excess cash flow from a business is not that different that excess cash flow from a person (called savings)

[thepupil]

Hielko already said it better.

 

It appeared you were using the 22% to defend your investment approach, when in fact you've performed in line with MSCI All country world, with far greater concentration, volatility, and effort (and well below the U.S. indices when you appear to be a mostly U.S. investor).

 

BTW, I've also underperformed massively in my taxable account over the time period I've been keeping track (I'm not a good short seller).

 

I'm trying not to be all holier than thou with this. But the all out hero worship and never ending article updates and staunch defense of companies when you are long seems to be out of line with the abrupt sale at the first sign of uncertainty (and all those risks were discussed ad nauseum beforehand).

 

I can't quite figure out how to express this in a productive manner. And now you say you were just demonstrating that you are doing just fine financially. That is very good. But it is because you own a nice business, not your stock picking (which judging by the information you gave has not added value). Just like my 403B is doing great (it's tripled in two years!!!) but that's just because of contributions. The investment return is literally 0%. It's in treasuries.

[gurpaul88]

http://www.foxnews.com/health/2015/09/28/canada-tries-to-cut-cost-us-drug-gets-sued/

[rpadebet]

http://www.foxnews.com/health/2015/09/28/canada-tries-to-cut-cost-us-drug-gets-sued/

 

This is exactly the kind of risk pharma companies face going forward.

 

They have been allowed patents, which is a legal monopoly. I don't think it is far fetched to argue that legal monopolies should come with regulated pricing.

 

I don't think this needs a legislation to happen. It can be done through executive orders or just asking FDA to include pricing as a factor in the drug approval process. It would be game set match for most small biotechs. R&D would be forced to move back inside  big pharmas where the cost can be spread out over many more projects.

 

I personally think it would kill innovation, but democracy sometimes has that affect on capitalism.

 

[Green King]

Leave giofranchi alone. he does what he says, and that is more than you can ask of anyone. He has a thesis and when it changes he sales which is a feat in itself. I think people are getting irrational about beating the index. Since when you are rich why does it matter if someone is getting rich faster than you. You buy what you understand and try to do your best. Some of the stocks in the index are over value from time to time and in the long run those over valuation disappear. Why would you want to buy them when your up.

 

I also understand some of the reactions comes from his actions before the drop. But that is more reflection on his ability to interact with others on the forum and dealing with dissident personally.  nothing investment related. 

[ccplz]

If you are old enough, you will recall the 60s and early 70s when the corporate Earth was ruled by great beasts named Bluhdorn (Gulf+Western), Ling (LTV), Riklis (Rapid American) and others who acquired everything in sight and used accounting nonsense to paint up earnings until the game ended and they collapsed. Those beasts died an ugly death, their companies passed away and the Earth was saved. That is, until Enron and Tyco and some others emerged earlier this century. And now we have the most modern of modern day beasts, Valeant, run no less than by a "McKinsey Master of the Universe." Same old stuff, different day. The only disappointment that I have about Valeant is that money managers who I respect could not help themselves and bought millions of shares of this trash. Shame on them. And shame on people like gio who keep trying to pump up this stock.

[JoeDawg]

I have owned Valeant since 2010.  I bought more at 165 yesterday.  They have a great portfolio of products and a first rate capital allocator at the helm.  Volatility and a long term horizon are a value investor's friend.  The issues over the last week are just noise.

[Ham Hockers]

If you are old enough, you will recall the 60s and early 70s when the corporate Earth was ruled by great beasts named Bluhdorn (Gulf+Western), Ling (LTV), Riklis (Rapid American) and others who acquired everything in sight and used accounting nonsense to paint up earnings until the game ended and they collapsed. Those beasts died an ugly death, their companies passed away and the Earth was saved. That is, until Enron and Tyco and some others emerged earlier this century. And now we have the most modern of modern day beasts, Valeant, run no less than by a "McKinsey Master of the Universe." Same old stuff, different day. The only disappointment that I have about Valeant is that money managers who I respect could not help themselves and bought millions of shares of this trash. Shame on them. And shame on people like gio who keep trying to pump up this stock.

 

"Shame! Shame! Shame!"

 

says the scary nun from GoT.

[ScottHall]

I have a love-hate relationship with this forum. Anytime something happens everyone runs around like a chicken with their head cut off. I love it because it is amusing. I hate it because I have to wade through a bunch of nonsense to find the good content.

 

You need to relax, all the stress isn't good for your lifespan. Valeant may get in trouble or it may not. Is anyone holding this thing as 20% of their port on here? If not, it doesn't really matter that much.

[ccplz]

I've been short for the last month, so I'm happy  ;)

[giofranchi]

So, this is what I have done today:

I had to admit I might have exagerated the threat of "government intervention", because of how the market received it. Therefore, I have not sold my entire investment, but I have just cut it in half. And I have bought back FFH.

 

1) If the "government intervention" is just noise, very well and I might add more even at an higher price.

 

2) If the "government intervention" really causes some unforeseen trouble, I think I have limited my downside, while hopefully making a good return with FFH.

 

Regarding FFH, it is true my timing couldn't have been more wrong... But in the end I also got lucky somehow, because the market has not recognized yet that FFH's macro thesis has started to materialize. Therefore, I think I can still capture all the upside.

 

Cheers,

 

Gio

[KCLarkin]

If you are old enough, you will recall the 60s and early 70s when the corporate Earth was ruled by great beasts named Bluhdorn (Gulf+Western), Ling (LTV), Riklis (Rapid American) and others who acquired everything in sight and used accounting nonsense to paint up earnings until the game ended and they collapsed.

 

Valeant certainly rhymes. But Lou Simpson is OLD enough to recall the 60s and early 70s. And is known as a very prudent investor. What does he see that you don't?

[cmlber]

If you are old enough, you will recall the 60s and early 70s when the corporate Earth was ruled by great beasts named Bluhdorn (Gulf+Western), Ling (LTV), Riklis (Rapid American) and others who acquired everything in sight and used accounting nonsense to paint up earnings until the game ended and they collapsed.

 

Valeant certainly rhymes. But Lou Simpson is OLD enough to recall the 60s and early 70s. And is known as a very prudent investor. What does he see that you don't?

 

Lou bought at much lower prices and trimmed his position by ~9% (in terms of shares owned) last quarter.  Clearly not behavior that indicates he thinks VRX will collapse, but I wouldn't invest in VRX because Lou Simpson invested in it.

[KCLarkin]

Lou bought at much lower prices and trimmed his position by ~9% (in terms of shares owned) last quarter.  Clearly not behavior that indicates he thinks VRX will collapse, but I wouldn't invest in VRX because Lou Simpson invested in it.

 

Actually, looks like Lou bought more in Q1 at roughly current price.

[cmlber]

Lou bought at much lower prices and trimmed his position by ~9% (in terms of shares owned) last quarter.  Clearly not behavior that indicates he thinks VRX will collapse, but I wouldn't invest in VRX because Lou Simpson invested in it.

 

Actually, looks like Lou bought more in Q1 at roughly current price.

 

Was Q1 last quarter?  When you net out his buys/sells he basically hasn't been a buyer since 2012.  Obviously not selling is the same as buying, but again, point being it would be one thing to follow Lou in if he had just bought his position, its another to follow Lou in 3 years later after the stock tripled.  Doesn't mean it isn't a good buy (idk, I haven't spent more than 45 minutes on VRX in total), but just pointing out not to rely on Lou on this one at this price...

[ccplz]

Apparently the new VRX bull argument is: VRX is a good investment because Lou Simpson/Bill Ackman/Jeff Ubben think it is.

 

Because apparently invoking Lou Simpson's name defeats any and all opposing arguments.

[Picasso]

This thread just turns into a dumpster fire every time there's some volatility.  You'd think we were a bunch of novice retail investors whipping out our genetalia every time the stock does what our lines on a chart said it would do.  The bulls and bears need to grow up. 

 

There are a lot of successful roll ups with no GAAP earnings (LBTYA, CSU, etc) of which no one here is going over there and trashing each other because we're either bulls or bears.  Who cares whether one is bullish or bearish, it's a question of what the price is at and how much value we're getting. 

 

The last time VRX was at 10x cash EPS on various allegations, it more than doubled in price.  Here we are again at 10x cash EPS and so we should be debating things that matter like 1) durability, 2) impact of new legislation, 3) time frame of that legislation, 4) what fund is puking their shares, etc. 

 

There's clowns on both side of this board.  We could probably whittle down this thread to 20 pages of real information.

[rpadebet]

This thread just turns into a dumpster fire every time there's some volatility.  You'd think we were a bunch of novice retail investors whipping out our genetalia every time the stock does what our lines on a chart said it would do.  The bulls and bears need to grow up. 

 

There are a lot of successful roll ups with no GAAP earnings (LBTYA, CSU, etc) of which no one here is going over there and trashing each other because we're either bulls or bears.  Who cares whether one is bullish or bearish, it's a question of what the price is at and how much value we're getting. 

 

The last time VRX was at 10x cash EPS on various allegations, it more than doubled in price.  Here we are again at 10x cash EPS and so we should be debating things that matter like 1) durability, 2) impact of new legislation, 3) time frame of that legislation, 4) what fund is puking their shares, etc. 

 

There's clowns on both side of this board.  We could probably whittle down this thread to 20 pages of real information.

 

Picasso,

Not to pick on your comment, but I now think the whole business model is at risk. So something like 10 cash eps might not be the value it once was.

 

VRX is going to be questioned about price increases. The traditional defense has been, well R&D expense makes such pricing necessary. VRX can't defend this that way.

 

Next they are going to move to tax inversions. Lots of material on VRX here.

 

Then they will hit them on acquisitions and layoffs.

 

Then on leverage/debt due to low interest rates like they hit the banks

 

Finally, the big bad hedge fund investors who are profiting from all this and not paying taxes.

 

As you see VRX is an easy poster boy ( fair or unfair) for politicians on either side. It's election season. HY markets are also not cooperating, so almost a perfect storm is brewing.

 

The setup reminds me a bit of Goldman Sachs in 2008

[original mungerville]

This thread just turns into a dumpster fire every time there's some volatility.  You'd think we were a bunch of novice retail investors whipping out our genetalia every time the stock does what our lines on a chart said it would do.  The bulls and bears need to grow up. 

 

There are a lot of successful roll ups with no GAAP earnings (LBTYA, CSU, etc) of which no one here is going over there and trashing each other because we're either bulls or bears.  Who cares whether one is bullish or bearish, it's a question of what the price is at and how much value we're getting. 

 

The last time VRX was at 10x cash EPS on various allegations, it more than doubled in price.  Here we are again at 10x cash EPS and so we should be debating things that matter like 1) durability, 2) impact of new legislation, 3) time frame of that legislation, 4) what fund is puking their shares, etc. 

 

There's clowns on both side of this board.  We could probably whittle down this thread to 20 pages of real information.

 

Agree on all points. 

[original mungerville]

This thread just turns into a dumpster fire every time there's some volatility.  You'd think we were a bunch of novice retail investors whipping out our genetalia every time the stock does what our lines on a chart said it would do.  The bulls and bears need to grow up. 

 

There are a lot of successful roll ups with no GAAP earnings (LBTYA, CSU, etc) of which no one here is going over there and trashing each other because we're either bulls or bears.  Who cares whether one is bullish or bearish, it's a question of what the price is at and how much value we're getting. 

 

The last time VRX was at 10x cash EPS on various allegations, it more than doubled in price.  Here we are again at 10x cash EPS and so we should be debating things that matter like 1) durability, 2) impact of new legislation, 3) time frame of that legislation, 4) what fund is puking their shares, etc. 

 

There's clowns on both side of this board.  We could probably whittle down this thread to 20 pages of real information.

 

Picasso,

Not to pick on your comment, but I now think the whole business model is at risk. So something like 10 cash eps might not be the value it once was.

 

VRX is going to be questioned about price increases. The traditional defense has been, well R&D expense makes such pricing necessary. VRX can't defend this that way.

 

Next they are going to move to tax inversions. Lots of material on VRX here.

 

Then they will hit them on acquisitions and layoffs.

 

Then on leverage/debt due to low interest rates like they hit the banks

 

Finally, the big bad hedge fund investors who are profiting from all this and not paying taxes.

 

As you see VRX is an easy poster boy ( fair or unfair) for politicians on either side. It's election season. HY markets are also not cooperating, so almost a perfect storm is brewing.

 

The setup reminds me a bit of Goldman Sachs in 2008

 

Yup poster boy potential for sure. Lot of regulation could be done, if indeed its done at all. If done at all, how long is that going to take? How much EBITDA will Valeant earn in the meantime?

 

Right now, all that has happened is that they have a potential subpoena on pricing which relates to a small portion of their business. That's it.

 

My bigger worry related to Valeant's stock price shorter term is an equity market crash and junk bond yields going materially higher, maybe combined with the bad optics of this subpoena in the context of a misunderstood business model. I'd be pretty comfortable as a short-seller right now in Valeant stock for these three reasons and would not be surprised to see the stock drop another 35% - although I would not be surprised to see the whole market come down 20% in a hurry right about here (followed by a final Fed rescue attempt).

 

We are currently transitioning from Fed-induced stable markets of the past 20 years to something very different and more volatile going forward (possibly with one more small leg up when they do QE4). Bullet proof balance sheets are the place to be, not Valeant in this environment. As such, its going to be very rocky for Valeant longs going forward. You have to believe in the model, Pearson, the board, and be willing to endure a lot of volatility to hold. This isn't BRK, its VRX. And this isn't the past 5 years, its different going forward.

[original mungerville]

So, this is what I have done today:

I had to admit I might have exagerated the threat of "government intervention", because of how the market received it. Therefore, I have not sold my entire investment, but I have just cut it in half. And I have bought back FFH.

 

1) If the "government intervention" is just noise, very well and I might add more even at an higher price.

 

2) If the "government intervention" really causes some unforeseen trouble, I think I have limited my downside, while hopefully making a good return with FFH.

 

Regarding FFH, it is true my timing couldn't have been more wrong... But in the end I also got lucky somehow, because the market has not recognized yet that FFH's macro thesis has started to materialize. Therefore, I think I can still capture all the upside.

 

Cheers,

 

Gio

 

Excellent decision Gio. You mention moving into FFH because their macro picture seems to be unfolding and went to a 50/50 FFH/VRX position relative to your previous VRX position.

 

For the reasons in my above post, I believe Valeant is a great vehicle for the biz/market environment of the last 5 years (possibly with one more period after the Fed tries QE4). FFH is a great vehicle for the biz/market environment which seems to be developing in the last month (for what it is worth I would sprinkle some precious metals and related miners in there too), BRK may also be a decent vehicle.  I would add that although VRX is taylor made for the macro picture we have just been through, and it is not for the FFH picture which seems to be unfolding here in recent weeks, it does not mean it won't be a decent investment (unless Pearson is a liar, basically).

 

For these reasons, a 50/50 split makes a hell of a lot of sense to me (due to the potential change in the macro picture, not this subpoena and not anything Valeant did or did not do) and depending on how things develop, further shifting. I believe we are at (ie next few weeks), or very near (ie within 1-2 years) to a secular change in developed world markets. We are transitioning environments and your action today makes total sense to me.

 

 

[original mungerville]

So three things happened today to affect VRX's price:

 

1) biotech sells off,

2) potential subpeona on pricing for Valeant,

3) junk bonds sell off causing a continued sell off in "platform / roll-up" companies more generally

 

Stock is now selling at less than 10x expected 2016 cash earnings per share, although they have a big load of debt.

 

I had call LEAPS on Valeant at higher prices (the notional of which was fully hedged against the S&P) and given the 35% drop here in the price of VRX over the past week or two, I decided it was time to reload today and lower my strike price on the call LEAPS - effectively I increased my long position in relation to Valeant. Let's see how this works out. If it falls another 35% to around 6-7 times 2016 earnings, I'll do the same thing.

 

EBITDA is growing, they are expecting $7.5 billion next year. They have the option to slow acquisitions and focus on debt repayment while EBITDA grows. I am not sure I want to see share purchases of Valeant stock, I would rather see debt repayment and/or build cash up for future acquisitions.

 

I am maintaining puts on the S&P because I think it is going to get a lot uglier than this for the general market. No or very few stocks will be spared (ie that would include downward pressure on Valeant going forward) in my view.

 

I tried to play a bounce this morning. Did not happen and sold - as such, although it is hard to know for sure because I am using call LEAPS here and moved to a lower strike price, I would say I maintained my VRX position (after including the failed play on the bounce this morning) rather than increased it. I can see this easily dropping more here short term because I see the risk of an equity market crash being high here and also because most of the VRX longs were already overweight (and will not be doubling down any time soon because of those positions, potential redemptions and also because junk yields are rising). Little bit of market speculation on my part, sorry I know this is a value investing board and we shouldn't care about that stuff!