As I previously opened up about my horrific Valeant Pharmaceuticals story, I committed to compiling a list of the lessons I’ve learned over the course of my holding period of the infamous VRX shares.
So, here’s a list of what I’ve learned – and how, by now knowing these things, I am ultimately a better investor despite the loss.
Only invest money that you are 100% comfortable with losing 100% of. Because chances are, when you’re speculating, you could very well lose your entire investment. Come to terms with what you may be doing is speculating and not investing.
Set a stop-loss limit sale on a “fun money” growth stock. Sure, you may tell yourself (like I did, a thousand times) that the stock will bounce back. But it’s just as, if not more, easy for the price to continue declining than it is to jump back up.
If you realize you made a mistake when your investment has dropped 50%+, then sell and be done with it.
Sometimes it’s easier to reallocate your capital into a better-positioned stock to make up the loss you’ve incurred. Take advantage of that realization.
Don’t invest in an equity that doesn’t return cash in the form of a distribution. While you may be down on an investment for a long time, a dividend will at least pay you to wait as you decide what you’ll be doing with the stock or holding it. I also like to believe it indicates shareholder appreciation from the company / management. It’s also much easier to stomach a huge decline in your stock’s market value with a dividend.
There were a ton of warning signs throughout my holding term, and I heeded none of them; too stuck in the DGI mentality of “Hold the stock as it comes back up” – but it never came back up. And worse of all, I never received a dividend from the company. It was not a DGI stock and so it should not follow DGI rules.
Does anyone else have a horror story investment they’d like to share? Let me know in the comments section.
8 Replies to “5 Lessons From Investing in Valeant Pharmaceuticals”
It’s a hard lesson to learn but I think most have seen it with an item or two in their own portfolios. I myself learned that lesson with WindStream in my first year of investing. Thankfully I wasn’t playing with much at the time but I can imagine how it would have felt if I had thrown more at it. The market is a fickle beast. I think however that Valeant may see a come back. It will take awhile to recover but I think they’ve got the juice left in them to go for another run.
I’m not as optimistic about VRX’s future as you seem to be. I’m very glad to be rid of that laggard in my portfolio. It also took a lot of time to monitor and keep up-to-date with new things coming out every day. Glad to have the opportunity to invest my attention elsewhere.
Hey DB, thanks for sharing those lessons 🙂 No investor will have a perfect record, and there’s a huge chance one (or more) of your current or future investments may turn out horribly. But that’s just part of investing and allows you to learn lessons like you have.
Of course dude! Lessons from failed investments are very important, and almost impossible to avoid.
I really like lessons 2 and 4. 4 is probably my favorite. Just gotta move on and find a better investment after a beat down happens. I have had a few of those myself too!
After selling Goldcorp I realized that #4 is a huge deal. The chance to have another go with the same money when you realize it’s not working out is an incredibly realization and I think about it sometimes now with investments I made that I’m not too thrilled about today.
I was lucky with VRX bought it last when it was dip and sold it soon with a week or 2 week for some capital gain.Did the same with chiptole this year.
Good choices. VRX seems to be getting destroyed continually. Don’t know much about Chipotle.