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The Daily Dose: Questions For Stock Traders

Was This the Absolute Worst Trade of All Time?

By March 20, 2017February 1st, 20212 Comments

Bill Ackman Sells Valeant (VRX) Stake For $4 Billion Loss:

As you may or may not know, Bill Ackman is the founder and CEO of American hedge fund management company, Pershing Square Capital Management. Back in 2015, Ackman purchased roughly 27 million shares of Canadian drugmaker stock, Valiant Pharmaceuticals International, Inc. (VRX), at an average price of over $190 per share. Last Monday, 3/13, he sold his entire stake in the company at around $11 per share, resulting in a loss exceeding $4 billion. In response to the event, Ackman admitted that the investment was “one very big mistake” – you got that right!

I wanted to share this example of a “bad investment” not to scare people away from the markets, but to show that there are many valuable lessons to be learned here. First, even the most intelligent investors make bad predictions sometimes. Nobody likes to admit being wrong, but if you can’t put your ego aside and take losses when positions aren’t performing as planned, then Mr. Market will surely humble you. It seems like Ackman didn’t plan for the possibility that this particular trade would go south on him, and if he did have a Stop Loss in mind, then he completely ignored it. That lack of discipline and failure to limit losses certainly cost him a lot of money – over $4 billion dollars worth.

In the end, it goes back to the basics of trading and money management: create detailed trade plans before entering positions, be disciplined and respect stop losses, and never be too proud to admit that you’re wrong sometimes.

Related Post: Top 4 Trading Principles That Every Trader Must Understand

Matt Thomas

Founder of TradingParadigm.com, Creator of the Trading Success Framework Course & Trading Paradigm Skool Community, and Intraday Futures Trader Using Auction Market Theory & Profiling (Volume & Market Profile).

2 Comments

  • Jordan says:

    Losing that much money would make me physically ill. I am pretty green to the whole trading aspect, but, having something called a “Stop Loss” seems like a very reasonable thing. I wonder if it was pride that kept him from bailing sooner… Anyway, do you have anymore resources for someone as green as myself for trading stocks?

    • Matt Thomas says:

      Hi Jordan. I agree 100% – losing that much money would definitely make me feel physical ill. It’s crazy that he was even able to stomach being in the trade that long. So many traders/investors stick to rules and risk management concepts that allow them to keep emotions out of it, so I’m not entirely sure what Ackman was thinking on this trade. It’s just beyond explanation. Luckily for him though, he’s still a billionaire even with this enormous loss.

      For someone green to stock trading, I’d recommend these Free Resources, which lists some of my favorite e-books, newsletters, trading platforms, and other helpful websites. Take care!

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