The Cult of Personality, the Fallacy of Testimonials $VRX $GS $NFLX $HLF

We are fascinated in this country by celebrity, turning our most valuable asset constantly in their direction. We watch their tweets, buy their books and listen when they speak. 

When people become celebrities in the financial community we put them on TV, we listen to what they say and we give them our money. If we don’t give them our money, we follow them into trades thinking that whatever made them rich, will also make us rich. 

Thursday night I watched an episode of Dirty Money on Netflix. It’s an excellent series. The episode I watched on Thursday was titled ‘Drug Short’ and started off with Martin Shkreli and his legacy of acquiring the rights to Daraprim, a drug used in treating patients with HIV, and then raising the price 5000%. This action, although lucrative, is immoral. The documentary then goes on to investigate the pharmaceutical company, Valeant. 

 

Valeant ($VRX) took Wall Street, and particularly Bill Ackman of Pershing Square Capital, by storm. This company acquired drug companies, eliminated research and development (R&D) and raised the prices on orphan drugs, a la Shkreli. The stock price soared helped along by presentations by Ackman and Valeant’s CEO Michael Pearson.  

Ackman seems to have fallen for Pearson’s cult of personality, and much of the financial news industry seems to have fallen for the Ackman’s cult of personality.  

The last year hasn’t been kind for either of these two men. VRX is down about 90% from its highs and Pershing Square has had a horrible year, losing money when everyone else has been making money. Even after Congressional hearings when Ackman promised to look into pricing, nothing has changed about orphan drug pricing. Syprine, a drug used to treat Wilsons Disease, is still about 2500% higher than it was in 2010. 

On Friday at Fast Money Halftime, over half of the hour was taken up by the report that Lloyd Blankfein may leave Goldman Sachs. Although newsworthy, I’m not sure we needed to spend that much time with this, but again it points our fascination with personalities instead of performance. 

Just because someone is rich, doesn’t mean they are smart or gifted. It’s entirely possible they were lucky and we only pay attention to those that are rich, whether by skill or luck. 

We still pay attention to Ackman because he is still rich. Take a look at his big bet on Valeant, or his big short on HerbaLife and then tell me if you think he is smart/gifted? 

At the very least, we should be skeptical of what anyone says, especially celebrities, financial or otherwise.