Risk of Ruin

Zero, by Way of a Hundred

11 snips
Jul 21, 2024
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ANECDOTE

John Hempton's Valeant Short

  • John Hempton shorted Valeant Pharmaceutical, identifying its business model as unsustainable and fraudulent.
  • His calls on Valeant became a career-defining win after exposing accounting irregularities and shady sales tactics.
INSIGHT

Challenges of Shorting Frauds

  • Finding an edge by knowing a stock is worthless is valuable, but exploiting it is risky.
  • Fraudulent companies keep lying and can cause losses even if you are ultimately right.
ADVICE

Use Shorts for Negative Correlation

  • To achieve returns uncorrelated with the market, consider short bets that profit when markets fall.
  • Such negatively correlated returns let you buy quality companies when the market dumps.
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