Bill Ackman Sells Valeant (VRX) Stake For $4 Billion Loss:
As you may or may not know, Bill Ackman is the founder and CEO of American hedge fund management company, Pershing Square Capital Management. Back in 2015, Ackman purchased roughly 27 million shares of Canadian drugmaker stock, Valiant Pharmaceuticals International, Inc. (VRX), at an average price of over $190 per share. Last Monday, 3/13, he sold his entire stake in the company at around $11 per share, resulting in a loss exceeding $4 billion. In response to the event, Ackman admitted that the investment was “one very big mistake” – you got that right!
I wanted to share this example of a “bad investment” not to scare people away from the markets, but to show that there are many valuable lessons to be learned here. First, even the most intelligent investors make bad predictions sometimes. Nobody likes to admit being wrong, but if you can’t put your ego aside and take losses when positions aren’t performing as planned, then Mr. Market will surely humble you. It seems like Ackman didn’t plan for the possibility that this particular trade would go south on him, and if he did have a Stop Loss in mind, then he completely ignored it. That lack of discipline and failure to limit losses certainly cost him a lot of money – over $4 billion dollars worth.
In the end, it goes back to the basics of trading and money management: create detailed trade plans before entering positions, be disciplined and respect stop losses, and never be too proud to admit that you’re wrong sometimes.