If you have overinvested in a dog of a stock (or other bet), you are in good company

[MumblesBadly]

Superstar investors have forgotten investing 101 - CNN
https://apple.news/A9z_uo4n4RJGwGUbhuO5RhA

Never wager excessively on one stock. That's investing 101.

It's too risky. If that stock tanks, you lose big time. A great example of just how wrong it can go is playing out right now on Wall Street.

Several of Wall Street's star investors (sometimes called "masters of the universe") bet a lot of money — billions of dollars — on a Canadian drug company called Valeant. Unfortunately for them, Valeant stock plummeted from over $260 a share in early August to $31 now, a nearly 90% drop.

The company just admitted "improper conduct," fired its CEO and warned that it might default in April. On top of that, Valeant is under investigation by the U.S. Congress, the Securities and Exchange Commission and a few state attorneys general. The company's strategy to buy older drugs and raise the prices isn't sitting well with regulators.

The stock's stunning fall is tarnishing the reputations of hedge fund kings Bill Ackman of Pershing Square and John Paulson of Paulson & Co., and mutual fund manager Robert Goldfarb, among others. After a stellar 45-year career, Goldfarb is suddenly retiring because of the bad bet. Investors in his Sequoia Fund aren't pleased with the losses.

These masters of the universe command Cadillac-style fees. In return, investors expect turbo-charged performance. Ackman's fund Pershing Square is down 40% in the past year.

"He has wiped out three years of performance," says Raul Moreno, the founder of the iBillionaire, an app that tracks the investments and performance of many high-profile investors like Warren Buffett and Ackman.

What sets Ackman's fund apart is that he is a "high conviction" investor. That's a fancy way of saying he only owns 10 stocks or less in his fund. A typical fund owns 40 to 50 stocks. When one of Ackman's stocks soars or tanks, it has a huge impact on performance.

"I have always had my reservations since he has a very concentrated portfolio," says Moreno. "He's one of the riskiest managers in the industry for sure."

It's possible that Valeant stock will turn around. Ackman himself has joined the company's board, vowing to "identify new leadership."

Ackman still manages about $12 billion. In a letter to his investors in January, he wrote that great money managers need the "humility to recognize when you are wrong." But what's happening with Valeant stock is a warning to all investors on Wall Street and Main Street of the pitfalls of getting too excited about one company

[Belly Buster]

Do you have any analysis to go with this you-don't-fucking-say article.

Other than a guy called Goldfarb lost money?

[simpdog]

Do you have any analysis to go with this you-don't-fucking-say article.

Other than a guy called Goldfarb lost money?

Never invest or trust anyone with that name

[Sanlmar]

Do you have any analysis to go with this you-don't-fucking-say article.

Other than a guy called Goldfarb lost money?

Never invest or trust anyone with that name

They didn't lose their money. They lost their investors' money. So, on the whole, they were pretty savvy.

You want juice? They gave you juice. No tears.

[DJ_Chaps]

Looks good on Ackmann. Now can we get some of the filthy short hedgies like Einhorn's Greenlight to blow their loads?

[snake_in_the_ass]

Looks good on Ackmann. Now can we get some of the filthy short hedgies like Einhorn's Greenlight to blow their loads?

Ackman blew up his previous hedge fund. He is on pace to blow up his current one and Einhorn will probably do the same. Arabs blow themselves up with suicide vests and Jews blow up their hedge funds.

[MumblesBadly]

Never invest or trust anyone with that name

They didn't lose their money. They lost their investors' money. So, on the whole, they were pretty savvy.

You want juice? They gave you juice. No tears.

Those hedge funds managers typically get paid a percentage of returns above a target, and can have a substantial amount of their own money from previous fees earned invested as a means of qualified for the "carried interest" tax treatment. So the managers also likely lost a bundle, in actual terms and opportunitu costs.

[MumblesBadly]

Pooh, Back in early 2000, a fellow finance academic colleague of mine had 100% of his 401k funds from the previous 3 years invested in a NASDAQ heavy managed portfolio. Over the next year, his 401k portfolio fell by over 70%. Meanwhile, my more diversified portfolio only lost about 30% during that period. And over the next few years, our portfolios returns were similar (in the black). Meaning, he unwisely gambled on too concentrated a portfolio for passive investments and got burned.

You'd figure that since he was formally trained in the value of diversifying a passive investment portfolio, that he wouldn't have fallen into that trap. But, alas, his ego at the time convinced him that he was smarter-than-the-average-bear. And he ended up making a significant investing boo-boo.

 

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