Tag Archives: Analysis

Fraud, Lies, Social Proof, and the Will to Believe: Theranos

So what do you think? Are you enthused, impressed, and a believer?   Read

Here is an early interview of Eliz. Holmes: Could this finger prick blood test be the next “Game-Changer? Imagine if this company can change the cost and inconvenience of diagnostic care? Wow!

Why study this case of Theranos?

Whenever you study an investment, you should make notes on your thoughts at the time to go back and check your thinking and biases.  How else can you improve as an analyst?

Now, unless you have been living in a cave, you know what happened.   However, pretend that you didn’t know the outcome and you were reading the articles above for the first time and seeing the video.   What RED FLAGS jump out at you.  Or what would you need to prove in order to invest?  And if you could not find the answer easily to the main question of the investment, what else would you scrutinize carefully?    Think hard before reading on………..


Fortune Article Author Follow up with how he was misled by Theranos

Notes on Bad Blood

I highly recommend the above book as a great read.  You will also learn about investor manipulation, the will to believe and how it shuts off our critical thinking abilities, incompetent governance, employee abuse, EXTREMELY bad management, criminal actions, and a female sociopath.  I could not put the book down–read it in a day.

Next, a few years later, when Theranos, a private company with an estimated $9 billion value (!), faced a barrage of critics over the lack of transparency and no verification of the technology (“The Edison”), Cramer gives her a chance to rebut her critics.

Cramer asks Holmes about her Technology. What do you think of the answers? If you were an investor, what would be the first area to investigate?) Did Cramer ever follow-up specifically? No.

By the way, did you notice her deep (affected?) voice and her black uniform. Creepy.

As a former employee said Theranos product was like building a bus while driving down the highway with passengers.   The problem is that people could get killed.   This fraud hit home since I have amyloidosis.  Not only did she and her accomplices hurt employees, investors, and–most importantly–PATIENTS! She and her CEO deserve a minimum 25-year sentence.

Note how SOCIAL PROOF euthanized investors critical thinking.   Look  at the prestigious board: George Schultz, General , etc.   But note the lack of specific product/industry expertise to vet Holmes’ claims.    She brilliantly piggybacked on the prestige of others.   Any investor could have visited the Walgreen stores to check on the accuracy and completeness of the tests. Red flags would fly.

The employee turnover and secretiveness would have been other flags.  What relevant experience to this field did she have?  I am not knocking outsiders, but she and her CEO lacked any background in biochemistry.   That isn’t enough to suspect problems, but it would place more urgency on verifying the efficacy of the technology.

Analyst Quiz Part II

fed-blog-federal-reserve-chairman-janet-yellen-testifies-on-capitol-hill

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

http://seekingalpha.com/article/3889006-gold-outlook-improves

You recently read:

  1. Misconceptions about gold
  2. What Determines the Price of Gold and What determines the price of gold_Blumen
  3. Murphy’s Law of Gold Analysis
  4. Gold and 1937 Depression
  5. Money Gold and Chaos
  6. Losing Control

The above readings you may or may not agree with but you press on to learn more. And you see this:

bank shit

What do you advise Mr. Ackman to do now?

God, Help us!

The Valeant Saga, Part III; Master Class in Deep Value Investing by Icahn

ackman

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.

image002

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.

http://greenbackd.com/2015/11/05/icahns-masterclass-on-deep-value-and-activism/

Answer to Case Study: So What Is It Worth?

If you haven’t tried the case study, go here:

http://csinvesting.org/2011/09/19/so-what-is-it-worth/

After 20 minutes to complete the case study, go here for my comments and analysis:

http://www.scribd.com/doc/66676207/Enron-Case-Study-So-What-is-It-Worth

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:

http://www.youtube.com/watch?v=go9uekKOcKM&feature=fvst

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.

Update: http://www.marketwatch.com/story/lopsidedly-bullish-consensus-on-apple-2012-09-19?link=MW_story_popular