written by reader Pershing Square (PSH)

By Feddie, September 29, 2015

Almost 5% drop due to Valeant. Good entry point vs. big red flag for Ackman’s risk assessment skills. I am already in so have to ride the storm but deciding whether to nibble in or wait.

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Travis Johnson, Stock Gumshoe
September 29, 2015 11:31 am

You never have to be in. Selling a losing stock (or fund) is OK if you change your mind about it, or if the company isn’t what you thought it was.

I’m basing my holdings in Pershing Square on Ackman’s long-term performance of beating the market, including several high profile mistakes (Target, JC Penney, perhaps now Valeant)… I don’t imagine Bill Ackman is sending candy to Martin Shkreli for calling attention to the pricing arbitrage taking place (to at least some degree) at Valeant, and it is somewhat troubling that Pershing Square got into biotech (Valeant/Allergan) just moments before the peak in that market and doubled down in Valeant recently, so you might consider that a reason to question Ackman. I consider it a reason to be diversified, this is a bit of a panic political/regulatory crash in biotechs — and it happens to be hitting Valeant much worse than most, since Martin Shkreli was, it seems to me, hoping to grow up to become Mike Pearson.

Pershing bought into Valeant early this year, probably somewhere in the $160-200 range, though I don’t remember seeing exactly what price they paid. It was a substantial positive driver of positive NAV in the first half of the year, and will likely cut further into NAV when they release this week’s asset value. NAV is priced on Tuesdays, so when they release the weekly NAV on Thursday this week it will reflect the near-25% drop in Valeant since the last NAV was tallied, which itself would be good for a couple percent drop in Pershing NAV. I like nibbling on Pershing when the discount to NAV gets big, as a general rule, but you can’t time it very precisely because the NAV isn’t reported every day and large holdings, like Valeant, can sway the NAV quickly.

I’m not particularly interested in micromanaging Ackman’s risk assessment on an individual investment — though I wouldn’t have bought Valeant personally and I am still pretty exposed to it because I have money invested with two of Valeant’s largest shareholders (Pershing Square and the Sequoia Fund, both of whom have been excellent long-term managers — Sequoia for much longer than Pershing, and with a much larger Valeant stake, and was down 5%+ yesterday). Part of investing with experienced managers with a good track record is accepting that they make different judgements than you do — which is good, if you’re trying to diversify, but not always good in each instance for each year.

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