Being the last bull standing isn’t necessarily a good thing. The Wall Street cliche is that the bear market doesn’t end until the last bull capitulates. The complementary, equally hoary, standby is that the bull market isn’t over until the last bear capitulates.
To my mind, both are useful guidelines but not infallible ones. On the one hand, markets are inherently cyclical. So if an equity investor has a close to infinite capacity to endure pain–and if his clients don’t fire him in the meantime–persevering with a bad-performing portfolio can eventually pay dividends.
–that’s assuming the companies whose stocks the suffering-oriented manager holds are inherently sound, and not barreling down the road to bankruptcy. They’re just poorly positioned for the current economic environment, which will sooner or later change for the better.
–a surprisingly large number of pension clients love to hire managers who have a recent hot hand and to jettison ones who are cold as ice, no matter what the long-term record. So my “if his clients don’t fire him” qualification is a much greater risk than one might think.
On the other, there is something to the idea that until the most vociferous and publicity seeking defenders of a given position that’s going wrong give up, the situation rarely changes. This may be as simple as that when, and only when, the buyers of what short-sellers want to offload disappear, so too does the short-selling–and hence the downward pressure on the stock in question.
…which brings me to Valeant Pharmaceuticals (VRX).
It has caught my eye that William Ackman, a long-time booster (and holder) of VRX, has joined the board of the beleaguered drug firm. He’s also raised something like $800 million by selling shares of Mondelez, which was reportedly the largest position in his hedge fund.
To the extent that one believes in the last bull theory, and if Mr. Ackman is in fact the last bull, he’s in a no-win situation.