Part I: http://csinvesting.org/2016/02/05/analyst-quiz-is-gold-overvalued-based-on-cpi-go-short/ I will discuss in another post and send a gift to all who provided comments.
Mr. Ackman calls you into his office and tells you that he shorted gold three days ago, because he wants to make money to support his positions in VRX, etc. Goldman Sachs promised sub-$1,000 gold in 2015. He ignored whatever you said because you are a “junior” analyst. But today gold is up $50 +. Pershing Square recently installed two hotlines: 1. for investor suicide prevention and 2. for death threats. Phones are ringin’ off the hook.
Also, this morning Janet Yellen had a nervous breakdown during her testimony to Congress. She told Congress that, “We have no clue what is going on.” Then she asked Congressional leaders to join her in prayer, “God, Help us!”
Her testimony: Negative Rates a failed strategy so do it
You recently read:
- Misconceptions about gold
- What Determines the Price of Gold and What determines the price of gold_Blumen
- Murphy’s Law of Gold Analysis
- Gold and 1937 Depression
- Money Gold and Chaos
- Losing Control
The above readings you may or may not agree with but you press on to learn more. And you see this:
What do you advise Mr. Ackman to do now?
God, Help us!
Part II on Valeant Let’s pretend you are asked to evaluate the situation for Mr. Ackman. He is in deep #$%^& and has brought in fresh eyes to advise him. Pershing Square has had to install two hotlines–Hotline 1: for investor suicide calls and Hotline 2: for investors who wish to phone-in death threats.
All bad joking aside, you have a huge pile of information to present the critical issues. Do you advise Mr. Ackman to buy more, sell immediately, sell down to a “more reasonable amount,” or hold? Use reason not opinion or emotion to guide you.
Step back and ask what are the important issues? What is Valeant worth? Can you know that? Pretend you are an investigative journalist trying to uncover the story.
You can start here with company documents:
What does Valeant do? Does Valeant have assets or a business method that gives the company a higher sustainable return on capital? What roll-ups/acquisition firms have been very successful in the past and how was success achieved?
Then you can read all the rumours and commentary swirling around Valeant, but be quick to focus on what you determine to be important. There are several links in the documents for you to follow further.
If anyone has other information to share please post in the comment section.
Also follow the links to the prior posts on Valeant to read the comment sections.
In a week, we will go through this exercise. Now YOU have the chance to do the work.
Good luck and have a great weekend!
Excellent Video of Carl Icahn below.
If you haven’t tried the case study, go here:
After 20 minutes to complete the case study, go here for my comments and analysis:
The above scribd document has an Appendix on page 20 where you can find other links to more indepth studies of the company. A diligent student can continue to hone their analytical skills.
If you are not willing to read the primary documents like a company’s 10-K to understand the operational and financial characteristics of the company, then be prepared to feel like this (without a parachute) when investing:
Again, this case study should drive home the points of asking simple questions, walking away from the difficult and finally, showing humility. The legions of MBA and CFA analysts who blew up their clients may have more to do with the fact that they have neither competence nor humility rather than pure intelligence.