Buffett and Munger tackle Valeant
- Valeant CEO Michael Pearson, Howard Schiller, former interim CEO and former CFO, and hedge-fund manager Bill Ackman
- Andrew Harrer/Bloomberg News
Mr. Buffett fields a question about Sequoia Fund and its massive investment in Valeant Pharmaceuticals. (You can read our primer about this topic earlier in this live blog, at this link.)
Mr. Buffett starts by reminding the room that he is “the father” in a way of the mutual fund, in that he steered his early investors to Ruane, Cunniff & Goldfarb Inc. when he shut down his investment partnership. That firm set up Sequoia to handle their money.
He also reminds the room that Sequoia’s long term track record is still among the best in mutual-fund history, despite the recent struggles.
But he says the “unusually large position” it took in Valeant was a mistake–the result of the fund becoming “overly entranced with the business model” of the pharmaceutical giant. Some management of the fund has been replaced, he said. He’s advised people privately to stay with the fund and with Ruane Cunniff, and says the people who remain there are “very smart, decent people.”
On Valeant, Mr. Buffett says “the business model of Valeant was enormously flawed.” He notes that the company was “touted to us,” and intermediaries wanted him to meet with the company’s chief executive, Michael Pearson. (We referenced that in this item last night: “Ackman to Buffett, Munger: Can’t We Get Along.”)
The company’s troubles illustrate a principle passed on to him by a friend. Mr. Buffett says: “If you’re looking for a manager, find someone who is intelligent, energetic and has integrity. If he does’t have the last, make sure he lacks the first two.”
He and Mr. Munger have seen “patterns that frequently come to a bad end, but look extremely good in the short run,” implying that Valeant falls into that camp.
Mr. Munger weighs in to say Sequoia, as “reconstituted,” is a reputable investment fund.
Then he lands on of the haymakers for which he’s famous:
“Valeant, of course, was a sewer,” Mr. Munger says. “Those who created it deserve all the opprobrium that they got.”
