giofranchi Posted October 28, 2015 Author Share Posted October 28, 2015 They absolutely misjudge character whereas that is what I search for before taking a big position. +1 Cheers, Gio Link to comment Share on other sites More sharing options...
petec Posted October 28, 2015 Share Posted October 28, 2015 The pharma business as a whole has historically been one of the best industries as measured by return on equity. So your gut opinion that it is not a good industry is disproven by facts. A business with historically high but rapidly falling ROE. Limited organic reinvestment opportunities. Massive legal and regulatory risks. Patent cliffs. An industry rife with corruption and conflicts. What's not to love? I'm taking this directly from Valueline, so I make no representations about validity: Merck: ROE 2005: 31% ROE 2015: 21.5% Pfizer: ROE 2005: 22.9% ROE 2015: 13% In the future, these might be wonderful businesses but I don't think I would rely on historical ROE as the core to my investment thesis. It might be worth running return on net operating assets instead - most of these companies have been through big mergers so the ROEs and ROCEs are somewhat distorted as indicators of business 'quality'. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 I didn't bother with waiting to get through the whole story. My cost basis is $110.80. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 28, 2015 Share Posted October 28, 2015 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. Always great to hear your thoughts -learn something everytime! Does this mean you would assess favorably the characters of Pearson, VRX BoD, valueact etc? I'm not sure how closely you follow this situation or if there were enough instances to make such a determination during the Allergan drama up to recent developments. Curious if you have any thoughts... Link to comment Share on other sites More sharing options...
petec Posted October 28, 2015 Share Posted October 28, 2015 I didn't bother with waiting to get through the whole story. My cost basis is $110.80. Not surprised - I tried to print this thread and my 'print preview' crashed at 1200 pages ;) Link to comment Share on other sites More sharing options...
giofranchi Posted October 28, 2015 Author Share Posted October 28, 2015 A business with historically high but rapidly falling ROE. Limited organic reinvestment opportunities. Massive legal and regulatory risks. Patent cliffs. An industry rife with corruption and conflicts. What's not to love? I'm taking this directly from Valueline, so I make no representations about validity: Merck: ROE 2005: 31% ROE 2015: 21.5% Pfizer: ROE 2005: 22.9% ROE 2015: 13% In the future, these might be wonderful businesses but I don't think I would rely on historical ROE as the core to my investment thesis. M&A won’t go away. On the contrary a lot more companies will embrace it. Small, nimble, and very entrepreneurial biotech will do the bulk of R&D, while big companies will buy them, rewarding their successful job and improving and commercializing their products. Imo a high ROE needs entrepreneurial thinking to be sustained: you simply cannot point to Pfizer nor Merck and say: look, their ROE has gone done, so everyone else’s ROE must come down. Pfizer and Merck have simply grown too bureaucratic: either you do R&D or you do M&A (or a mix of both), you need a person focused on return on capital to sustain a high ROE. These are definitely NOT businesses that could be run by an idiot! Cheers, Gio Link to comment Share on other sites More sharing options...
KCLarkin Posted October 28, 2015 Share Posted October 28, 2015 M&A won’t go away. On the contrary a lot more companies will embrace it. Small, nimble, and very entrepreneurial biotech will do the bulk of R&D, while big companies will buy them, rewarding their successful job and improving and commercializing their products. Yes, that's why 5% of my portfolio is in Valeant. Link to comment Share on other sites More sharing options...
ATLValue Posted October 28, 2015 Share Posted October 28, 2015 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. Exactly. I posted this same point the day Valeant was crashing and I was buying based on character of Pearson and the board of Valeant vs the character of this group of jokers. Prem surrounded himself with guys like Chou (ie one of the only mutual fund managers I know of who gave back MER in a bad year and whose trailer fees go to remaining unit holders rather than himself), etc. Anyhoo. The other thing I think they have a problem with is understanding acquisition accounting. In the FFH case, the didn't get the concept of buying below book (where book is after-tax) and then incurring restructuring costs for the next three years (in the form of pre-tax combined ratios above 100%) is, in my book, all part of the acquisition costs (I mentally was booking that upfront as a capital cost that is actually tax efficient). Rating agencies could not get their heads around that either. Same shit here, Valeant is incurring deal and integration costs upfront in their capital expense for acquisitions, then adjusting cash EPS going forward. The shorts either don't "get it" or are just using that as part of the same dumb ass argument this time. Also (maybe a year ahead of your FFH time), FFH had one financial reinsurance cover for $1B which only gave them real protection of around $100M. I did not know/understand that until the shit hit the fan (and in my view FFH mischaracterised that). Similar thing here with Valeant and Philidor. Philidor = FFH's financial reinsurance cover (both went / are going to go away to a degree after this) Not good, I don't like it, but even people of the highest standards push things too far sometimes potentially. Buffett included. I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 28, 2015 Share Posted October 28, 2015 I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. 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. Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2015 Share Posted October 28, 2015 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. +1 And this is essentially why you must be very careful about reputation in business! I know it sounds strange said by me… I have invested a long time with Biglari… Saying over and over again that all I cared about were business results! But I make mistakes, lots of them… I want to recognize them, and hopefully correct them: I now believe reputation is paramount, because our economic system is basically based on trust. Cheers, Gio It sounds like you're in Valeant for the wrong reasons. Judging by your previous history in stocks like GLRE, TPRE, OAK, PSH, BH, NHL, etc., you're trying to find a good jockey but overpaying in the process, or not fully understanding the risks. It's like looking back at the best mutual funds and picking out the best ones and thinking you'll get great returns in the future. It might work but successful investing doesn't usually work that way. Anyway I hope you do well on your portfolio (I'm too am long VRX), but I think you should spend a lot more time understanding the financials, risks, valuation, sentiment, and other price drivers when you decide to bet on a jockey. It can be hard to distinguish the results from having a clear understanding of the business/valuation and just playing the flavor of the day and getting lucky. Valeant in particular is a very, very complicated business. I hope you don't take that the wrong way but rather reconsider the risks involved with owning these kinds of stocks. I'd say the same thing to a friend :P Link to comment Share on other sites More sharing options...
jay21 Posted October 28, 2015 Share Posted October 28, 2015 I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. 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. Link to comment Share on other sites More sharing options...
giofranchi Posted October 28, 2015 Author Share Posted October 28, 2015 I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. 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. I have never spoken personally to Buffett nor Watsa. I simply have read all they have written, and listened to all they have said for many years now. And I have come to my conclusions. Idem with Pearson and other managers I have decided to invest with. But, as I have said, Pearson has not been so focused on his reputation as Buffett and Watsa have been instead… That’s why I have had some trouble with the fraud stuff. Cheers, Gio Link to comment Share on other sites More sharing options...
Picasso Posted October 28, 2015 Share Posted October 28, 2015 I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. 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. Most of the comments from ex-coworkers have been very positive. In fact, several called Munger and talked very highly of Pearson when those infamous VRX comments were made. That said I agree that those of us on this board have limited insight on his character. His association with Ackman during the Allergan "insider trading" vehicle rubbed some people the wrong way. Then there's the massive layoffs that may have occurred when Pearson said he would not be laying them off. And one could argue that raising the prices on those Marathon drugs was not that great of a move either. However I do get the sense that Pearson has a large amount of integrity. While his pay package incentivizes some level of rule bending, it's also not a liquid holding he can manipulate. He's forced to hold his shares, take $1 salary, and relatively small bonuses tied to yearly performance. He's yet to sell a single share so I think that you would have to think he's going to sacrifice a billion dollar fortune to make an extra hundred million if VRX is indeed a fraud. I suppose stranger things have happened. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 28, 2015 Share Posted October 28, 2015 Most of the comments from ex-coworkers have been very positive. In fact, several called Munger and talked very highly of Pearson when those infamous VRX comments were made. That said I agree that those of us on this board have limited insight on his character. His association with Ackman during the Allergan "insider trading" vehicle rubbed some people the wrong way. Then there's the massive layoffs that may have occurred when Pearson said he would not be laying them off. And one could argue that raising the prices on those Marathon drugs was not that great of a move either. However I do get the sense that Pearson has a large amount of integrity. While his pay package incentivizes some level of rule bending, it's also not a liquid holding he can manipulate. He's forced to hold his shares, take $1 salary, and relatively small bonuses tied to yearly performance. He's yet to sell a single share so I think that you would have to think he's going to sacrifice a billion dollar fortune to make an extra hundred million if VRX is indeed a fraud. I suppose stranger things have happened. Great, thanks. Very useful. Had no idea Pearson's colleagues called Munger. Link to comment Share on other sites More sharing options...
jay21 Posted October 28, 2015 Share Posted October 28, 2015 Most of the comments from ex-coworkers have been very positive. In fact, several called Munger and talked very highly of Pearson when those infamous VRX comments were made. That said I agree that those of us on this board have limited insight on his character. His association with Ackman during the Allergan "insider trading" vehicle rubbed some people the wrong way. Then there's the massive layoffs that may have occurred when Pearson said he would not be laying them off. And one could argue that raising the prices on those Marathon drugs was not that great of a move either. However I do get the sense that Pearson has a large amount of integrity. While his pay package incentivizes some level of rule bending, it's also not a liquid holding he can manipulate. He's forced to hold his shares, take $1 salary, and relatively small bonuses tied to yearly performance. He's yet to sell a single share so I think that you would have to think he's going to sacrifice a billion dollar fortune to make an extra hundred million if VRX is indeed a fraud. I suppose stranger things have happened. Great, thanks. Very useful. Had no idea Pearson's colleagues called Munger. Stated multiple times in this thread: Munger said he was not close to the situation, was speaking off hand, and many people who he respects reached out after and actually said great things about Pearson. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted October 28, 2015 Share Posted October 28, 2015 I was not long VRX in the past and I am not long now; I am also not a big user of the healthcare system. I am approaching this whole thing dispassionately. If you were long in the run-up to this whole debacle and are sitting on a hefty paper loss (a la Sequoia & Pershing Square), I question whether you are sufficiently emotionally detached to think straight about what is happening. Sequoia's average cost is under $30, and ackman's still in the black if you consider his profits in Allergan (which he originally planned to roll into vrx after the acquisition anywase. In fact most of the big longs are by far in the green so I'm not sure that avenue of critique (them being entrenched or pit committed) is in play. Valueact could probably watch their remaining holdings go to $0 and still come out ahead on gains already realized.. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 28, 2015 Share Posted October 28, 2015 I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. If a person consistently says what he is going to do. And then does it. If a person constantly denies serious allegations, and is later proven correct. If a person has 100% of his net worth at risk. If Allergan's largest shareholder, Ackman, chooses Valeant over Allergan. When an Allergan board member chooses Valeant over Allergan. When Lou Simpson, Glenn Greenberg, Sequioa, ValueAct make outsized bets on Valeant. And when the people attacking his character, have no character. Of course there is no way to be 100% sure, but sure seems like a safe bet to me. Link to comment Share on other sites More sharing options...
Liberty Posted October 28, 2015 Share Posted October 28, 2015 Most of the comments from ex-coworkers have been very positive. In fact, several called Munger and talked very highly of Pearson when those infamous VRX comments were made. That said I agree that those of us on this board have limited insight on his character. His association with Ackman during the Allergan "insider trading" vehicle rubbed some people the wrong way. Then there's the massive layoffs that may have occurred when Pearson said he would not be laying them off. And one could argue that raising the prices on those Marathon drugs was not that great of a move either. However I do get the sense that Pearson has a large amount of integrity. While his pay package incentivizes some level of rule bending, it's also not a liquid holding he can manipulate. He's forced to hold his shares, take $1 salary, and relatively small bonuses tied to yearly performance. He's yet to sell a single share so I think that you would have to think he's going to sacrifice a billion dollar fortune to make an extra hundred million if VRX is indeed a fraud. I suppose stranger things have happened. Great, thanks. Very useful. Had no idea Pearson's colleagues called Munger. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg240300/#msg240300 http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg222064/#msg222064 Can also infer a lot by the fact that ValueAct and Mason Morfit/Jeff Ubben handpicked him and worked with him for 7+ years, and they basically base their whole competitive advantage and built their fund around good governance, and these two guys are highly repected (both were on the board, Mason now back). On top of that, I've been listening to him speak for a few years on conference calls and at presentations, and after you've heard someone speak for hundreds of hours, see what they promise and what they deliver, you get a sense of who they are and how they think about things. That might be intangible and qualitative and subject to uncertainty, but that's how it is with humans... (btw, that's one reason I prefer audio to transcripts even if they take longer; I feel like I can better get a glimpse of someone's character if I heard them speak for a long time... might be just me, though. I usually go back to the transcripts, but only after I've heard the audio onces) Link to comment Share on other sites More sharing options...
giofranchi Posted October 28, 2015 Author Share Posted October 28, 2015 I hope you don't take that the wrong way Not at all! But if you look at the businesses you have mentioned, most of them are not great businesses (GLRE, TPRE, BH). To focus more on the quality of the business is the lesson I have learnt, not to look for a cheaper price: I have made money in all three companies exactly because I paid a low price, even if they didn’t perform as I expected. I still hold PSH and I still think activist investing will do very fine, and Ackman is good at what he does. Not every year will be great, but that is to be expected. Isn’t it? As far as OAK is concerned, I still think your short thesis is wrong. Finally, I changed my mind about NHL because I thought it was still at the beginning and not proven yet. Liberty also made me think about compensation, and I agreed it was too egregious and not in line with shareholders’ interests. You might be very sophisticated in how you invest, and I am sure you achieve great results. But I don’t have to best you at all costs, right? It is not a competition for me. I run some businesses that luckily enough until now have generated good fcf, and I use that fcf to buy what I think are great businesses run by great entrepreneurs at attractive prices. Do I change my mind? Sure! If the quality of the business turns out to be lower than what I had thought, I change my mind. If the quality of management turns out to be different than what I had thought, I change my mind. If business results turn out to be not as good as I had thought, I change my mind. Will I beat the S&P500 this way? I cannot say… Probably not!... Let alone beating Picasso!! Ahah!!... But thinking about the businesses I own through the stock market is what I enjoy, and also helps me make better decisions for the businesses I manage on a daily basis. Therefore, I think it is worthwhile. Cheers, Gio Link to comment Share on other sites More sharing options...
Phaceliacapital Posted October 28, 2015 Share Posted October 28, 2015 So Eric are you long or not? Link to comment Share on other sites More sharing options...
ourkid8 Posted October 28, 2015 Share Posted October 28, 2015 How large of a position? - just curious I didn't bother with waiting to get through the whole story. My cost basis is $110.80. Link to comment Share on other sites More sharing options...
shalab Posted October 28, 2015 Share Posted October 28, 2015 I think Pearson's character is immaterial for this business. If you want to judge character check out valueact guys. If not Pearson, they will get someone else. The board will set the milestones and the CEO's job is to execute against it. If Pearson can't execute, they will find someone else who can - it is that simple. I dont understand how anyone on this board is in a position to favorably judge Pearson's character based on the history of his actions without having any personal connections to him. FWIW I completely agree with Munger's comments about VRX. The only second level analysis that makes sense here is to go long HLF when Ackman needs to close out his position to cover redemptions at the end of the year. 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. Link to comment Share on other sites More sharing options...
Liberty Posted October 28, 2015 Share Posted October 28, 2015 So Eric are you long or not? Why do you think the stock is up right now? It's called the ERICOPOLY bounce. Either that, or it's just Eric's volume moving it up... :D Link to comment Share on other sites More sharing options...
ERICOPOLY Posted October 28, 2015 Share Posted October 28, 2015 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. Link to comment Share on other sites More sharing options...
giofranchi Posted October 28, 2015 Author Share Posted October 28, 2015 Valeant in particular is a very, very complicated business. By the way, I don’t agree with this either. Imo VRX basically is a business run by a very good value manager in the pharma and biotech sector. Not complicated at all. M&A has been his focus until now. A mix of M&A and R&D might be his focus going forward. Debt makes the situation a bit more complicated, as I have always admitted. But not much else. As far as I am concerned, the problem was the accusation of fraud. Period. Cheers, Gio Link to comment Share on other sites More sharing options...
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