Huge Decline in Valeant! Who cares?

Yesterday, the stock of one of Canada's top companies, Valeant Pharmaceuticals, dropped 39%!

Yikes. A pretty big drop.

As a holder of index funds, in a way, I own some stock in Valeant Pharmaceuticals.

So why did it happen?

Was it a product recall? Was it disappointing sales numbers? Was it the sudden shortage of some product the company needs to make their medicines?


It was a random report from a small "analyst" known for short selling that accused Valeant Pharmaceuticals of fraud.

What the what?

People panicked and sold their shares because of that? Because someone not tied to the company, who was probably trying to short a stock, released a report that accused the company of fraud?

The report, by the way, was labelled as "erroneous" by Valeant Pharmaceuticals. The conspiracy theorists would likely say that they would say that. But more likely, given the evidence so far, this is the truth.

I mean.. Wow.. a drop of 39%! That means people aren't thinking long term when they are investing. They were riding the wave of this bullish stock. I mean, back in August the company was the most valuable company in Canada. I guess people wanted to get out once they saw the stock price begin its decline.

Of course, not everyone got out. Apparently, some billionaire activist purchased $2 billion worth of Valeant shares during yesterday's sell off. He got a nice deal. Essentially 40% off deal. The type of deal people go nuts for at the Gap or H&M. Likely, he recognized the value of the company and that the sudden price decline in no way reflected the future sales.

If you're an index investor like myself, who doesn't rely on the fortunes of a particular stock, yesterday was just a regular day. If anything, despite the decline and the corresponding decline of the TSX Index, my portfolio went up thanks to my bond, US, and International holdings.

So the next time you see news of a massive price decline, just be glad you're an index investor. If you've cherry picked your stocks, you're a braver person than I.


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