While everyone has had their share of losing trades during their career, the most high profile losing trade over the last year or so has been Pershing Square’s long position in Valeant Pharmaceuticals (VRX). After establishing a position in the stock back in Q1 of 2015, VRX was initially a profitable trade for Pershing — briefly trading above $250 before coming crashing down in the second half of 2015, into 2016, and then into this year. All along the way, the big question everyone was asking was, “Will Ackman sell now?” For well over a year, the answer to that question was no, but just today after the close, news hit the tape that Pershing has liquidated its position in VRX at a price of $11, which is more than 9% below Monday’s closing price. With Ackman and Pershing Square now out of the nightmare position in VRX, we’ve heard a number of people ask whether this may mark some sort of short term bottom as a former large holder finally cries uncle.
For some guidance on how VRX may react, it might help to look how another big, high profile losing trade for Pershing Square played out a few years back. That trade concerned JC Penney (JCP). In the case of JCP, Pershing first started acquiring a position in the stock back in October 2010. Like the VRX trade, JCP initially worked out well, but beginning in early 2012, it quickly began to sour as CEO Ron Johnson’s vision for the company wasn’t boosting sales, but in fact hurting them.
In August 2013, Pershing Square decided to cut its losses in JCP at a price of around $13. Just like now, back then a lot of people wondered if the fund’s sale would mark a low for the stock. As shown in the chart below, though, while JCP was a big loser for Pershing, it could have been worse…a lot worse. Within two months of Pershing’s sale, JCP lost another 50% of its value, falling to $6.42. Now three years later, JCP is even lower still, closing at $5.99 on Monday. Over this period, the S&P 500 is up 45%. If you are thinking about jumping into VRX now that Ackman is out, hopefully you can come up with a better reason.
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