Valeant Pharmaceuticals was the worst investment I could have ever thought of to funnel my very hard-earned money into.
Maybe that’s not 100% true; but it is the worst investment I’ve actually committed to. I saw as the company became the largest Canadian company, surpassing Royal Bank of Canada (RY) in late July, as it approached a Market Capitalization of nearly $112 Billion CAD. The market cap today is $10.5 Billion CAD. That’s a decrease of 96.3% of their value. And all within a couple months; it’s absolutely insane.
Back when it became the largest Canadian company, it caught my eye. I watched it for a little longer as it continued to climb; it seemed as though everyone who was investing in this company was getting rich! I had a little money lying around, and I thought – maybe it was time to expand my portfolio into some pure growth stocks – shifting away with some “fun money” from my dividend growth strategy. I’d read quite a few times, that when it came to playing the stock market as I was about to do, you should “only invest money you’re comfortable losing 100% of” – boy, I didn’t think it would ever actually happen, especially not to me.
After seeing how much the stock had flown and continued to fly daily, and considering I really liked Michael Pearson’s business model at the time, I decided to invest $2, 000 into Valeant shares. That was my second biggest position at the time, and the most I’ve ever invested at once. My traditional purchases are in batches of $1, 500. I was ready to start making money with my 6 VRX shares. Day by day my investment grew and I was pleased with myself… until not long after Citron Research discovered the hidden tie between Valeant and Phillidor Rx Services, which shone a very dark, Enron-esque light on the company.
Valeant then subsequently shed 30% on their share price, and that was the beginning of the end – but I held on; after all, based on some simple things I’d learned from the beginning of my investment journey was to hold when stock prices drop as a dividend growth investor; but this was not a dividend growth stock; in fact, it wasn’t event a dividend stock. In Citron’s early November report, they claimed Valeant was “engaged in manipulation of the insurance reimbursement system, and very possibly the law, to alter their financial results” through Phillidor.
A little after that, Hillary Clinton began to start attacking Valeant for price-gouging along the lines of Turing Pharmaceuticals. Share price continued to drop. Investors shorted the stock like no tomorrow. Continued allegations were whipped against Valeant. Michael Pearson came down with severe pneumonia and an interim-CEO was brought in. The entire thing was a huge mess.
But I held on, believing that the stock price will have to come back up after they release their earnings and commit to a strong, but believable future guidance. Unfortunately, that’s not the information they released last week. Things were a lot worse than that, and after they released lower than expected earnings, dropped future guidance, and announced a potential default on debt – shares fell another 50%. My $2, 000 investment was a pittance at that point – and it was during that day as the share price was down between 40% and 50% until the end of the day that I sold my shares as I wanted what little money I had left there, because I honestly believe the company’s future is now in the dumps and I don’t want to be there. The small money I received for the once $300+ shares could be used to earn me a little something through dividends rather than going to $0.
I learned A LOT from investing in Valeant. I learned exactly what NOT TO DO when making investment decisions, and the difference between when one should hold and sell. Now that I’ve started selling the bad choices I made in the past year, it’s getting easier to admit to myself that I made some bad decisions, and to take action on that realization will make me a stronger investor.
Later this week I’d like to share with all of you what I’ve learned in from my Valeant investment in a list format; it’d make me happy if even only one person learned something from the list. I know that it will help to solidify my investment ideals to have those lessons organized in one neat post.
On March 15th, I sold my full position of 6 shares of Valeant Pharmaceuticals (TSE: VRX) at $50.80 with a trading cost of $6.95, for a total recuperation of $297.85. That’s an 85.3% loss of my original $2,024.45 investment, for a total loss of $1,726.6. Unfortunately that would have been a great amount to invest in a 4% or 5% dividend growth stock for some great returns. Or even a pretty damn great vacation. Live and learn. I’ve accepted it, and most importantly, I’ve learned.