The Valeant Case Study

In February 2015, hedge fund manager Bill Ackman began building what would become a 42% position in Valeant Pharmaceuticals. He paid an average of $166 per share for a company with negative earnings, justifying the investment with Adjusted EBITDA metrics and a seemingly compelling growth narrative. By March 2017, he sold his final shares at $11 each, locking in a loss exceeding $4 billion. Later that year, he and his wife of 25 years began the process of divorce.

This was not a case of bad luck or an unforeseeable black swan event. It was a failure of process. Valeant’s business model was built on debt-fueled acquisitions, stripping away talent and R&D spend, and aggressive drug price increases, sometimes by 400% or more. Buy it, gut it, and jack up the drug prices for the end-user. When regulatory scrutiny intensified and accounting irregularities surfaced, the foundation crumbled. What appeared to be a high-growth pharmaceutical wonder was revealed to be financial engineering masquerading as value creation.

Ackman’s mistake was not simply picking the wrong stock or getting unlucky. It was ignoring warning signs as he doubled down and publicly committed to the thesis. In October 2015, as Valeant’s troubles began to emerge, he held a three-hour conference call defending the company and predicting shares would reach $306 per share. They never recovered, and now trade under the newly named Bausch Health Companies Inc. (Ticker: BHC) for approximately $7 per share. By the time he exited, Ackman also had to pay $435 million just to close out the put options that he had sold, which had obligated him to buy more shares at prices four times higher than the market value.

As mentioned above, the fallout of Valeant extended far beyond Ackman’s firm. Amid Valeant’s collapse and Pershing Square’s worst performance on record, his 25-year marriage ended in divorce. While no single investment causes a marriage to dissolve, the timing seems telling. His fund’s assets under management plummeted from $20 billion to $11 billion. Investors were fleeing. His reputation was in tatters. The stress of managing a public implosion, testifying before the Senate, fielding redemption requests, and defending the indefensible created a pressure that inevitably seeped into his personal life as well.

What We Learn From This

Ackman’s Valeant disaster offers several critical lessons that directly inform our investment process at Tiger Rock:

1. Negative Earnings Are a Red Flag, Not a Reason to Turn to Adjusted EBITDA

My version of “loose lips sink ships” is “loose valuations sink hedge funds.” In 2022, Tiger Global Management was invested in many companies with very high valuation metrics, including companies with no earnings at all, on the basis of speculative revenue multiples. That year its flagship fund dropped by approximately 56%, causing billions in redemptions.

Back to Ackman. Valeant had negative earnings when he invested. He justified the position using Adjusted EBITDA, a non-GAAP metric that excluded “one-time” charges and acquisition-related costs. When a company cannot generate positive earnings under standard accounting rules, it should trigger skepticism, not creative justification. As Parsa Kiai, my mentor and former boss at Steamboat Capital Partners taught me, it is not our job as disciplined investors to “put lipstick on pigs.” We avoid companies that rely on adjusted metrics to appear profitable.

2. Concentration Risk Can Be Lethal

Ackman allocated 42% of his portfolio to a single position in a company with an unsustainable business model. At Tiger Rock, our maximum position size is generally 10% to 12%. This discipline ensures that no single mistake, no matter how confident we feel, can destroy the portfolio. Conviction matters, survival matters more.

3. Public Commitment Creates Cognitive Traps

Once Ackman publicly defended Valeant, on investor calls, in media appearances, before Congress, reversing course became psychologically and reputationally costly. This commitment and consistency bias is well-documented in behavioral finance. We avoid public predictions or tying our identity to specific positions. Flexibility and intellectual honesty matter more than being right. We reevaluate our thesis and cut losses when appropriate.

4. Business Models Must Be Sustainable

Valeant’s model required constant acquisitions and price increases to generate growth. When regulators stepped in, the structure collapsed. In contrast, the companies we invest in create genuine growth through innovation, operational excellence, or essential services. If we do own a business that engages in consistent M&A, we strip out inorganic growth from sales numbers to confirm the business still grows without acquisitions. We also require business models that can endure regulatory scrutiny, economic cycles, and competitive pressure.

5. Valuation Discipline Prevents Disasters

Ackman paid 20x plus adjusted EBITDA for a company with negative GAAP earnings and significant debt. Even if the story had been legitimate, the valuation left no margin for error. We focus on trailing free cash flow, conservative earnings multiples, and downside protection. Paying the right price is half the battle.

With that framework in place, the sections below highlight two core positions that illustrate how we allocated capital this year: Taiwan Semiconductor Manufacturing Company (TSMC) and Interactive Brokers (IBKR).

Taiwan Semiconductor Manufacturing Company Limited (TSMC)

In April of this year we built a significant position in Taiwan Semiconductor Manufacturing Company Limited at approximately $160 per share. TSMC is a critical component of the global semiconductor industry and a pure-play manufacturer, producing chips at scale for leading technology companies such as NVIDIA and Apple. Apple relies heavily on TSMC to mass-produce its Series A and M processors that power the iPhone, iPad, and MacBooks. Virtually every core GPU that drives NVIDIA’s revenue is built by TSMC. TSMC is the key manufacturing partner for some of the most important companies in the world.

Our thesis on TSMC was straightforward: rapidly growing revenue and earnings, world-class customers, secular tailwinds, and a depressed valuation creating a margin of safety. There was an elephant in the room. TSMC was cheaply valued due to perceived massive geopolitical risk tied to China and Taiwan. At the time, many investors, including Warren Buffett, called TSMC “uninvestable” due to China invasion fears. We saw it differently and spent significant time analyzing the risk.

Geopolitical Risk, Our Assessment

First, China’s ability to execute a full invasion and successful takeover of Taiwan is extremely difficult and remains years out. The geography of the Taiwan Strait, mountainous terrain across Taiwan’s western coast, and operational distance from mainland China create a complex military scenario. Naval assaults are hard operations in modern warfare, and Taiwan is one of the most fortified islands in the world. Many assessments place China’s earliest real preparedness in the 2027 to 2030 window, and even that assumes coordination, domestic stability, and no intervention from regional powers. Taiwan’s military has been restructuring specifically to counter a landing attempt and has invested heavily in defense systems that raise the cost of invasion.

Second, Taiwan’s fabs are strategic global assets that would likely be heavily protected by international allies. The United States, Japan, and Europe have invested billions subsidizing and diversifying TSMC’s production facilities and have made it clear that Taiwan’s independence is in their national interest. Any hostile action would likely trigger severe global economic consequences and a multinational response, further increasing uncertainty and cost for China.

Third, a war over Taiwan would detonate China’s economic foundations. An invasion would likely trigger immediate sanctions, spark global capital flight, and shut down key export channels. Beijing understands the tradeoffs. Posturing may intensify, but a full invasion would risk internal unrest and undermine the legitimacy the CCP depends on.

A recent documentary by Johnny Harris, Why This Island Could Trigger World War III, traces Taiwan’s history from early European colonization through post-World War II geopolitical bargaining. With a deeper understanding of Taiwan’s status since World War II, it validated our view that the invasion threat is elevated in narrative but constrained in practical reality over the intermediate term. China may continue intimidation and gray-zone pressure without crossing a line that triggers catastrophic sanctions or war.

The Real TSMC Bear Case

The real risk with TSMC is industry cyclicality and potential for short-term revenue deceleration. A sales slowdown is always a possibility, as demonstrated by the industry reset in 2023 and more recently certain monthly figures in 2025. TSMC’s 2023 slowdown was not company-specific, it reflected a macro-driven inventory correction following the 2021 to 2022 hardware boom. Similar macro slowdowns can occur again if large technology companies reduce production or pull back on capital expenditures.

That said, consumer spending continues to drive roughly 69% of U.S. GDP, and consumer hardware purchases require consistent semiconductor output, which provides a durable base of fabrication demand. Additionally, technology companies continue to explore lower-cost accelerator solutions, such as ASICs and TPUs, which remain reliant on TSMC for production.

We are patient, multi-year investors prepared to hold through cyclical volatility. If we see another macro slowdown, we stay disciplined and evaluate fundamentals rather than react to noise.

Valuation and Entry

At the time of our research, TSMC traded at roughly 20x trailing earnings with approximately 30% year-over-year revenue growth. To improve margin of safety, we initiated the position by selling cash-secured puts with an exercise price of $160 per share, which lowered our effective entry closer to 17x trailing earnings. During a temporary market sell-off, those puts were exercised, establishing our core position at attractive levels. Since then, TSMC has appreciated more than 70%.

Stock prices are sometimes depressed for valid reasons. Other times they are depressed for non-fundamental reasons. We remain attentive to demand signals and will monitor forward conditions.

Interactive Brokers (IBKR), The Quiet Compounder

Interactive Brokers is a global electronic brokerage firm that provides trading and custody services to individual investors, hedge funds, registered investment advisors, and proprietary trading firms. Founded in 1977 by Thomas Peterffy, IBKR has grown into one of the largest online brokers in the world, serving more than 3 million customer accounts across 100 plus countries.

Peterffy arrived in New York in 1965 with no English, no college degree, and $100 from his father, who told him to make something of himself. He worked as an architectural draftsman by day and taught himself programming at night. In 1977, he bought a seat on the American Stock Exchange, built automated trading systems after the market closed, and helped pioneer electronic trading.

IBKR’s advantage today is clear. It delivers a low-cost, technologically advanced trading platform, institutional-grade tools, and efficient execution across more than 150 markets globally. Customers can trade stocks, options, futures, currencies, bonds, and funds from a single account. Margin rates are among the lowest available, and execution quality and speed are well regarded.

Revenue primarily comes from interest income on customer cash balances and margin loans, commissions on trades, and related market structure revenues. The business model is capital-light, scalable, and benefits from network effects as the platform expands.

Why the Opportunity Existed

Despite scale and profitability, IBKR has historically traded at a discounted valuation relative to higher-profile fintech peers. It is often perceived as “boring” versus more consumer-facing platforms. We view that as a feature, not a flaw. IBKR’s customer base skews toward more sophisticated traders and institutional clients, which tends to be more durable and less prone to churn.

Valuation and Thesis

At the time of our position, IBKR traded at roughly 23x trailing earnings, a fair multiple for a business growing earnings at 15% to 20% annually with high returns on equity and reasonable capital requirements. IBKR also returns capital through buybacks and dividends.

The risk with IBKR is primarily cyclical and interest-rate driven. In a severe market downturn, trading volumes and margin balances decline, pressuring near-term earnings. If rates fall sharply, interest income declines. However, IBKR has operated through multiple cycles and consistently emerged stronger.

In Closing

The lesson from the Valeant disaster is not that investing is inherently dangerous or that mistakes are unforgivable. It is that process matters more than speculation. Belief without discipline is a recipe for disaster. At Tiger Rock, we avoid that trap through position sizing limits, valuation requirements, and intellectual honesty about what we know and what we do not.

The investments discussed in this letter reflect our approach. Each is a profitable, cash-generative business we can underwrite using GAAP earnings rather than adjusted metrics. Each can compound capital over time without requiring heroic stories or flawless execution.

We do not seek to swing for the fences with every investment. We seek to compound steadily, avoid catastrophic mistakes, and preserve flexibility to act when opportunity presents itself. That is how endurance becomes strength, and strength creates outperformance.

Lastly, thank you to our Investment Analyst Andrey Juchau for his research support. Thank you for entrusting me with your capital. I remain committed to growing your assets with discipline, humility, and a relentless focus on long-term value creation.

Disclaimer

This letter does not constitute an offer to sell, or the solicitation of any offer to buy, any interest in any fund managed by Tiger Rock Capital Management LP (“Tiger Rock”). Any offer may only be made at the time a qualified offeree receives a confidential private placement memorandum describing the offering and related subscription agreement, and only in jurisdictions where permitted by law.

This letter expresses the views of the author as of the date cited, and such views are subject to change at any time without notice. The information contained herein, including references to any stocks, securities, or investments, should not be construed as investment advice. While information may have been obtained from sources believed to be reliable, Tiger Rock does not guarantee accuracy or completeness, accepts no liability for direct or consequential losses arising from use, and assumes no obligation to update any information.

The discussion herein is not intended to indicate overall performance that may be expected to be achieved by any fund managed by Tiger Rock and should not be considered a recommendation to purchase, sell, or otherwise invest in any particular security. Securities and private funds referred to do not represent all holdings, purchases, or sales. Any references to notable positions are not based on past or expected future performance of such positions. By accepting receipt of this communication, the recipient is deemed to represent that they possess, either individually or through advisers, sufficient investment expertise to understand risks involved in any financial instruments discussed herein.

Forward Looking Statements

Certain information contained herein constitutes forward-looking statements, which can be identified by terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “goal,” “project,” “consider,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof, or comparable terminology. Due to risks and uncertainties, actual events or results, or the actual performance of an individual investment, an asset class, or any fund managed by Tiger Rock may differ materially from those reflected or contemplated. Past performance is not indicative of future results. Tiger Rock undertakes no obligation to revise or update any forward-looking statement unless required by law. Any projections, market outlooks, or estimates are based on assumptions and should not be construed as indicative of actual events. Unless otherwise stated, representations are Tiger Rock’s beliefs at the time of distribution based on industry knowledge and or research. The forward-looking statements are qualified by this cautionary statement.