• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Healthcare

All the Talk Is of Ackman and Valeant

Ackman's VRX trade shows how difficult it is to be consistently disciplined.
By JAMES "REV SHARK" DEPORRE
Mar 14, 2017 | 01:01 PM EDT
Stocks quotes in this article: VRX, HLF

A bounce in oil helped the indices to finally bounce, but it has been a tough day. The bounce fizzled, and now we will see if the morning lows will be retested. Breadth is still worse than 3 to 1 negative, and there is no place to hide today. I'm doing very little, as the technical deterioration is building.

There is lots of talk in the media today about Bill Ackman's Pershing Square hedge fund dumping the last of his stock in Valeant Pharmaceuticals (VRX) and taking a loss of about $2.8 billion, overall. Some of the talk is just Schandenfreude -- taking pleasure in the pain of others -- but it really is remarkable to see a high-profile hedge fund manager handle a position like a rookie.

Ackman is lucky that he had sufficient capital to handle this loss, but for most folks it would have been a death knell. When smaller traders blow up their accounts, they almost always do it in the same manner that Ackman handled this investment.

The first mistake he made was becoming emotionally attached to the stock. Once you do this, then you tend to overlook issues that you shouldn't. Ackman said he knew there were problems once he became a Board member, but he ignored them. You have to wonder if that same emotional attachment occurred in the short of Herbalife (HLF) .

The second mistake he made is averaging down into a losing investment. That can work well when you have a predetermined plan to build a position, but that was not the case here. As the stock continued to fall, Ackman was anxious to show his confidence in the company -- and continued to buy more. It wasn't the plan initially, and he ended up putting more capital at risk than was prudent.

Ackman's third mistake was that there was no clear risk control. Even if you are a pure fundamental investor that believes in the stock you are buying, there has to be a point where you take into account the price action.

Perhaps the market is irrational or wrong, but there needs to be a tipping point where you say "enough is enough" and move on. You don't wait until you lose 90% of your investment before dumping a position that isn't working. Your sales may not be optimal and may feel downright wrong, but your first job is to always protect capital -- regardless of how much you might believe in a stock.

This is a great illustration of what not to do. What I find most interesting about it is that a big shot hedge fund manager fell into the same sort of emotional thinking that plagues novice traders. It shows how difficult it is to be consistently disciplined.

For Real Money chartist Bruce Kamich's take on VRX, see here.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Rev Shark had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Healthcare | Markets | Stocks

More from Healthcare

There Are Market Bright Spots, but I View the July Rally as a Head Fake

Bret Jensen
Aug 3, 2022 10:30 AM EDT

It's hard to see stock valuations rising when inflation remains high and the economy appears headed for a recession if it isn't in one already.

A Recession Appears Inevitable, but There Are Still Places to Invest

Bret Jensen
Jul 27, 2022 10:30 AM EDT

A few homebuilders and healthcare stocks seem likely to hold up better than most of the market in a recession.

Change Healthcare Continues to Knock on a Breakout Level

Bruce Kamich
Jul 25, 2022 11:25 AM EDT

The CHNG chart is at an interesting juncture.

The Healing Process Begins for Cano Health

Bruce Kamich
Jul 21, 2022 1:30 PM EDT

Here's how to approach CANO as the shares have made a bottom formation.

With HCA Healthcare, I'm Getting Healthy Indications

Bruce Kamich
Jul 21, 2022 9:20 AM EDT

The healthcare provider is set to report earnings Friday.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login