In a Fortune article written by Paul Krugman, he lays out the Seven Habits of Defective Investors listed below:
1. Think short term.
2. Be greedy.
3. Believe in the greater fool
4. Run with the herd.
6. Be trendy
7. Play with other people’s money
Even though the article was written almost 20 years ago, the behavior still and will always apply to a certain type of investor who wants more from investing than an average return. They are looking for the easy win, the ride, the outperformance, the moonshot, or whatever buzzword they are using to justify owning the hot stock of the day.
Valeant Pharmaceuticals fit the bill perfectly for these investors. It was engineered by short term thinking to produce growth and attract shareholders who are looking for the next big winner. It was a momentum stock run by management and investors who were greedy and playing with other people’s money.
Now with stock down 70% from its high, the management and investors that were pushing the stock higher through short term financial engineering will be forced out. Investors have already lost faith in management and the “smart, aggressive” CEO Michael Pearson will soon be jettisoned. Investors like Bill Ackman and Ruane, Cunniff & Goldfarb, will be forced to sell by investors pulling their money from the funds they run.