“Baby Buffett” Takes a Bath on Valeant

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No stranger to being in the business news headlines, William A. Ackman is at it again. This time, however, it’s for suffering a loss of about $4 billion for his investors after his firm, Pershing Square Capital Management, finally dumped its holdings in Valeant Pharmaceuticals. How does a billionaire investor like Ackman handle buying 27 million shares, on average, for $190 and selling for $12.11? He declares that “I have an enormous stomach for volatility,” and tries to quell the humiliation by having his firm say the change of fortune enables it to “realize a large tax loss.”

Only later in his annual letter to investors would Ackman admit that he had made “a huge mistake” by wagering so big on Valeant.

Eating humble pie certainly isn’t Ackman’s style. He cuts a dapper presence and as recently as last year was hailed by Forbes magazine as a “Baby Buffett” for becoming the hottest new name among the so-called activist investors who used to be known as corporate raiders. What distinguishes Ackman emotionally? Easily his most common facial expression is a combination of a slightly cocked right eyebrow, steely-eyed glares and slight, frosty smiles. Alert, determined and only a little congenial, Ackman couldn’t be temperamentally farther from the Sage of Omaha, Warren Buffett.

Bold with blind spots is a phrase that could describe both the since-departed CEO of Valeant and Ackman.

If Buffett has a signature expression, it’s the combination of furrowed eyebrows and a hearty smile. There’s a warmth to Buffett that eludes Ackman. Buffett exudes folksy charm, and his furrowed eyebrows express, among other feelings, an emotion that Ackman and his investors could benefit from: sadness. One advantage to sadness is that it slows you down and makes you more reflective. Certainly, Ackman has enjoyed coups. But he’s also been burned by his holdings in J. C. Penney and his on-going spat with the senior management at Herbalife may end badly for him.

At 28, Ackman made a name for himself by bidding for Rockefeller Center. Pershing Square’s office in Manhattan features a jet fighter’s ejector seat as a reminder that investors can bail on a bet any time they choose. The reminder is helpful, I suppose, but do Ackman’s investors fully understand that he’s not really running a hedge fund that hedges against risk so much as pushing the envelope again and again?

Valeant was a spiritual fit for Ackman, a pharmaceutical company rapaciously buying up other companies and refusing to do its own research and development work to establish new drugs. Bold with blind spots is a phrase that could describe both the since-departed CEO of Valeant and Ackman. Being a “Baby Buffett” on the other hand is a non-starter of a comparison. A Buffett lieutenant called Valeant a “deeply immoral” company for its loose accounting practices and price-gouging strategy. Ackman shot back at one of Buffett’s most famous investments, Coca-Cola, chiding the company for contributing to obesity and diabetes. Both men are wealthy investors, but one has plenty of EQ and the other isn’t bothered by himself or the management teams he invests in lacking it. A cocker spaniel and a pit bull are both dogs, for instance, but there the similarity ends.