Correcting research mistakes: Pharmstandard – SELL

A few days ago, I introduced Pharmstandard as a potential special situation with a catalyst in the form of a buy out offer.

Thanks to the input of a few commentators, I recognized that I got one very important detail wrong:

The record date for the potential 16,50 USD offer was already on July 5th, so a few days before they announced this offer. Anyone buying now will not be able to tender the shares. Interestingly, this information was nowhere to be found in the English language section of the official releases.

This of course wipes out the most significant part of the investment case at the current stage and explains the relatively low price.

As a consequence, I will therefore sell my 1% position as of today and watch the developement from the sideline. Maybe there will be another potentially interesting entry after they spin of the OTC drug unit.

In general, I think it is quite important to act quickly if a significant part of a stock analysis turns out to be wrong. It would be even better to identify this beforehand, but that is one of the drawbacks of not having an awful lot of time to analyze. In those cases it is even more important to start a position small in order to lower the risk of things turning out like they did here.

I think it is also a good example for extending the “Circle of Competence”: In this case I have learnt that you should not rely only on the English language announcements of a Russian company….

Anyway, thanks to all the commentators for their helpful comments !!! This is what makes blogging so much fun


  • Vielleicht interessiert es dich, um eventuell Investitionen in Russische Firmen doppelt und dreifach abzuwägen.
    Mal schauen wie das Abenteuer Russland für AS Creation weitergeht.

    “ PHARMSTANDARD had fallen victim to Russian corporate governance. Shareholders were basically told that if they don’t agree to a proposed spin-off, the company can buy them out at an 18 percent discount or they will get unlisted shares of the stock. Predictably, the stock collapsed. This is white-collar mugging; there is no other way to put it. The company effectively says, “You are a shareholder as long as you agree with management; otherwise we’ll screw you.” Now Russia is uninvestable to me for another reason: Its corporate governance makes Tony Soprano look angelic. ”


    Möglicherweise darf man nicht zu erfolgreich werden in Russland.

  • As far as I understood, that is the reason meandmyself didn´t call his blog “Value”, but “Value and opportunity”. For his “opportunity”-part he seems to have got some appetite for betting. As long as he gets more wins than losses, that may work well.
    Nevertheless I totally agree with you. For me Greek shares are also more reliable than Russian shares. In case of frauds supported or covered by the government, in Greece you may go finally to the European Court. In Russia you are simply lost. That predictability of legal decisions (Rechtssicherheit) should not be underestimated.

    PS: @ meandmyself: Please don`t overastimate that sarcasm. I appreciate your blog as one of the most thoughtful value blogs I know. Even if I dont understand your appetite for Russia, especially after your experience with A.S.Creation.

    • Well, the reason to be willing to invest in Russia was almost exclusively based on the 16,50 USD offer. I had already followed one similar deal (Norilsk) and normally, Russian companies do execute those offers according to international rules.

      Without the offer indeed, Pharmstandard would be a very risky gamble and therefore I sold.

      Up until recently, Pharmstandard looked like a well managed company but I know now that this can change quickly.

  • I didn’t understand your willing to invest russia in the first place. Particularly with regard to this article
    BTW I strongly beleave greek stocks were much safer at those prices in 2012 than Russian stocks today. Greece is in the EU.

    • M<rtin,

      to answer directly to your question:

      I am not planning to invest in "russian stocks". This was a very specific situation, which turned out to be not so attractive after all. As I mentioned, I have looked deeply at the Norilsk offer before this. As the offer is not valdi for me, there is no reason to invest.


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