🧠 Lessons From A $13 Billion Mistake

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My two favorite sectors to hunt for investment ideas are technology & healthcare (Feroldi here). This is why I’ve had my eye on Teladoc Health for years.

Despite the clear overlap in my investing sweet spot, I never became a Teladoc shareholder. Why? I was turned off by the company’s “growth by acquisition” strategy.

Teladoc boosted its growth rates for years by making acquisitions. While that caused it’s top-line to soar, that strategy is fraught with long-term risks.

Studies show that more roughly 80% of acquisitions fail to live up to their expectations. That’s due (in part) to management teams consistently overpaying for acquisitions and overestimating their odds of success.

Passing on Teladoc looked dumb for years. More recently, it’s looked savvy.

Last year, Teladoc was forced to take more than $13 billion worth of goodwill write-down charges. Translation: “we wayyyy over-paid for our acquisitions.”

For context, $13 billion is more than 3x larger than its $4 billlion market cap.

Teladoc’s rotten year contains many important investing lessons, but we think two are worth highlighting:

  1. Be wary of companies that grow by acquisition (especially when those companies are unprofitable)
  2. Valuation — even when done by professionals — is tricky

That second point is worth double-clicking on. It’s highly likely that Teladoc used complex valuation models created by highly-compensated investment bankers to show why its acquisitions made sense. But, the write-offs show just how quickly those valuation models can fall apart.

This highlights just how tricky it can be to value on a business. Even professional management teams and professional investment bankers can make enormous mistakes.

The task can be even more challenging for individual investors. Not only are there multiple valuation methods to master (TAM, DCF, Multiples…), but there are different valuation mindsets as well (VC, GARP, Growth…).

That’s a lot of information to consider.

Want some help? Join us on in March for new cohort-based course Valuation Explained Simply. This four-week course will provide a complete overview of the different valuation methods and mindsets, all explained in plain English.

If that interest you, use the code COUNTMEIN300 to receive the biggest discount we will offer. (This code expires on Sunday, March 5, at 11:59 pm EST.)

Wishing you investing success!

– Brian Feroldi, Brian Stoffel, & Brian Withers

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