Tag Archives: Bronte Capital

The Ongoing Saga of Valeant Part II

Dead Cat

Post 1 on Valeant is here

Is Valeant the Next Enron–NYT

  1. Bronte Capitals Comments on Valeant Conference Call  The Bronte posts will give you a thorough background on the controversies surrounding Valeant and Philidor.
  2. Valeant and its captive pharmacies-Bronte Capital
  3. Simple Proof that Philidor has shipped drugs where not licensed

A torrent of SeekingAlpha articles:

You can follow the reactions of investors and analysts at Seeking Alpha.

Hedge Fund Herding  The psychological aspects of following others and the pressures of the short-term performance derby. Lesson: Never cease to do YOUR own thinking and analysis.

Ackman down 16% and will hold CC on Valeant this Friday (Oct . 30th)  Below are charts of Ackman’s portfolio. The sharks front-run the potential liquidation as Ackman’s investors go queasy.

Ackman Portfolio

Ackman Blowup?

Link to CC on this Friday at 9 AM EST

Readers should share if they believe there are actionable lessons here for investors in terms of psychology, portfolio management and analysis.  Time is precious so we need to learn the important lessons.

My take-away so far.

First, Valeant’s Low Valuation and Rip Roaring Growth (Aug. 20th 2015 by Barrons  Note the author’s focus on growth–but IF that growth is not sustainable within a franchise (protected above the cost of capital profit margins) then  cause this: changed investor expectations:


And that ladies and gentlemen is called a permanent loss of capital IF investors paid too much for growth in a company doing roll-ups of commodity-like products (generic drugs) at unsustainable retail prices (competition and insurer push-back will cap price gains).


Meanwhile, investors face the second most overvalued equity market in history (Source: Hussman Funds).

Investor Interview (Audio)

Russian Bear

A good interview of a self-taught professional investor (John Hempton of http://brontecapital.blogspot.com/.   GO HERE: https://soundcloud.com/the-odd-lot/john-hempton-audio-interview

Certainly this investor is a tad eccentric, but he certainly has found a great method to find and manage short selling opportunities.  A great listen. Also, seek out http://oddlotinvest.wordpress.com/about/   Wow, a treasure chest of obscurities.

Risks for equities, IN GENERAL, are high.  Note that the equity and debt market combined for companies is at all-time highs. Be careful.

EV multiple all time high

EV mult vs return_0

Overvalued stock market HussmanInfAdjDow_2

How Could Ackman be So Wrong? Where’s the Inflation?


We continue our study of Herbalife’s saga with a recent post from www.brontecapital.com. There are lessons here on conducting research and on hubris.

What this story is really about

Herbalife is a company which combines a lot of good (think the life-saved diabetic above) with some pretty ugly features.

But this is not really a story about Herbalife – Herbalife will survive globally. Like all multi-level marketing schemes it will have its ups and downs. There will be all sorts of problems (such as tax compliance throughout the scheme, cash handling, perhaps even using Herbalife accounts to launder money).

What this has (deservedly) become is the story about how Bill Ackman can be so wrong. He spent (by his own admission) a year and a half analysing this company and his thesis can be falsified by visiting a few clubs in his home city. Bill Ackman’s thesis is the most easily falsified bear-thesis I have seen from a major hedge fund ever.

You have to wonder how this happened. So I am going to tell you: 

Bill Ackman a Harvard educated (magna cum laude) billionaire New York hedge fund manager bet over a billion dollars on a short position (imperilling his fund and his reputation) without checking the facts.

And he did not check the facts because he was so rigid with a misplaced silver spoon that he could not stoop to sit on a subway for thirty minutes and talk with poor people for ninety minutes.

Read the entire article–an important read



Expectations of Low Future Growth?

Market Review LMCM See Future Value (See page 5).  Perhaps the market is discounting real growth vs. nominal growth?  Don’t take that chart at face value.

Where is the Inflation (CPI) ?  Another lesson in why price aggregates are so misleading.

Critics of the Austrian School of economics have been throwing barbs at Austrians like Robert Murphy because there is very little inflation in the economy. Of course, these critics are speaking about the mainstream concept of the price level as measured by the Consumer Price Index (i.e., CPI).



High prices seem to be the norm. The US stock and bond markets are at, or near, all-time highs. Agricultural land in the US is at all time highs. The Contemporary Art market in New York is booming with record sales and high prices. The real estate markets in Manhattan and Washington, DC, are both at all-time highs as the Austrians would predict. That is, after all, where the money is being created, and the place where much of it is injected into the economy.

This doesn’t even consider what prices would be like if the Fed and world central banks had not acted as they did. Housing prices would be lower, commodity prices would be lower, CPI and PPI would be running negative. Low-income families would have seen a surge in their standard of living. Savers would get a decent return on their savings.

Of course, the stock market and the bond market would also see significantly lower prices. Bank stocks would collapse and the bad banks would close. Finance, hedge funds, and investment banks would have collapsed. Manhattan real estate would be in the tank. The market for fund managers, hedge fund operators, and bankers would evaporate.

In other words, what the Fed chose to do ended up making the rich, richer and the poor, poorer. If they had not embarked on the most extreme and unorthodox monetary policy in memory, the poor would have experienced a relative rise in their standard of living and the rich would have experienced a collective decrease in their standard of living.



Learn About Short Selling–Learning Resources

We can all become better investors if we become better sellers and, especially, if we avoid bad businesses, we can reduce our mistakes. Studying short selling will improve your analytical abilities and help you be a more flexible investor.

Forensic accounting can a fun—like solving a puzzle and it provides a moral framework in which to look at public disclosures.

Video of a Short Seller’s Lecture to Accounting Professors

Kathryn Staley at the 2007 CARE Conference (video)
A lecture from the author of “The Art of Short Selling” given in 2007 at Notre Dame.

You want to learn how to sell even if you don’t want to be a short seller.

Staley’s book on short selling: http://www.amazon.com/When-Stocks-Crash-Nicely-Selling/dp/0887304974/ref=lh_ni_t

Short Selling Research Reports from Offwallstreet http://www.offwallstreet.com/research.html   There are examples of good forensic accounting research here where you can also download the financials of the company mentioned so you can understand the analyst’s research. Try downloading a company’s financial report to find the problems BEFORE you read the corresponding research report. Create your own case studies! Hard work, but you will learn to improve your skills.

Blog on Chinese Stock Frauds:http://www.muddywatersresearch.com/

http://brontecapital.blogspot.ca/   (China’s Kleptrocracy)

www.fool.com on shorting stocks: http://www.fool.com/FoolFAQ/FoolFAQ0033.htm

White Collar Fraud: http://whitecollarfraud.blogspot.com/2009/12/overstockcom-and-patrick-byrne-have.html

Recommended reading

Reuters – Special Report: From Hannibal Lecter to Bernie Madoff by Matthew Goldstein

Dag Blog – “Crazy Eddie” Fraudster Sam Antar To Return To Crime – Thanks to Darrell Issa & Anti-Regulation Republicans by William K. Wolfrum

Gary Weiss – Novastar and Overstock in the News

Crowe Horwath – Putting the Freud in Fraud: Focus on the Human Element, Catching a Crook Isn’t Only a Numbers Game By Jonathan T. Marks, CPA/CFF, CFE, CITP

Read more: http://www.businessinsider.com/the-feds-are-drinking-the-same-kool-aid-as-crazy-eddies-former-auditors-2011-5#ixzz1xg7WWMt0


Howard Schilit’s Financial Shenanigans: http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071386262/ref=sr_1_1?s=books&ie=UTF8&qid=1339591819&sr=1-1

Thorton O’Glove’s Quality of Earnings (Joel Greenblatt uses this in his Special Situations class) http://www.amazon.com/Quality-Earnings-Thornton-L-Oglove/dp/0684863758/ref=pd_sim_b_4

Forensic Accounting Book: http://www.amazon.com/The-Financial-Numbers-Game-Accounting/dp/0471770736/ref=pd_sim_b_9

Earnings Magic: http://www.amazon.com/Earnings-Magic-Unbalance-Sheet-Financial/dp/0471768553/ref=sr_1_1?ie=UTF8&qid=1339592203&sr=8-1

A plug for Earnings Magic: I try to read various books on the subject of manipulating or managing earnings to enhance my analytical abilities. Because the GAAP rules give executives certain freedoms, it is valuable to know the true story behind these numbers. I like how this book educates readers on where to look to find clues for earnings management. For me, the chapter on pensions and other postemployment benefits was beneficial. During the current economic crisis, many companies struggle with their defined benefit plans, and this chapter educates readers better how to read through financial notes to gain better understanding of the pension status. – Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

 Research on Short Sellers

Overall, our evidence suggests that the information short sellers exploit mainly concerns the market’s misperception of these firms’ fundamentals. Research_Shorts Signal Misperception

Giving Away Money; Interesting Blogs Organized; Avoid Small Caps

I’m for human lib, the liberation of all people, not just black people or female people or gay people. –Richard Pryor


Not all here are of interest to me but you decide: http://www.onlineuniversities-weblog.com/50226711/100-best-blogs-for-econ-students.php

Bronte Capital with a post on avoiding small caps: http://brontecapital.blogspot.com/2012/02/why-i-do-not-like-small-cap-stocks-much.html


Trying to give away money http://www.youtube.com/watch?v=Gk5aRIz17fk

Why don’t you think people won’t take a $1,100 in market value 0ne-ounce gold coin for $50 or for free?