Recareering, Encore Career and Lifestyle Creep

For those in 50’s retirement means different things to different people.

If you are the lucky one to be in “sarkari naukri” (Govt job), retirement means inflation linked pension for rest of your life and after your death pension to your spouse.

If you are working in private sector, it means managing your post retirement life with retirement benefits like provident fund savings, superannuation pension and gratuity. Here biggest worry is how to protect your money from inflation.

Those in late 50’s should spend some time thinking on three issues- Recareering, Encore Career and Lifestyle Creep.

Recareering is not just a job change, but a move to a completely different career path for ex. a journalist may become stock broker. If you feel that your current job has reached dead end then recareering makes sense, it can give you money for longer period than remaining stuck in dead-end career.

Encore Career is different from recareering, it about using your skills for public service ex. using your experience and knowledge for NGOs. As social entrepreneur Marc Freedman puts it – “An encore career seeks to combine a sense of purpose with public-service passion and a paycheck for people in their 50s and 60s”. Encore Career can also be described as second vocation in second half in one’s second life.”

Just before retirement the income of individual is at its peak. He/She uses that income to improve lifestyle. After retirement, it becomes difficult to maintain that lifestyle.

Lifestyle creep is a situation where people’s lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.

It makes sense to tone down your lifestyle after retirement.



Carson Block, Yang Kai and Huishan Dairy

“Muddy waters makes it easy to catch fish.”

-Chinese proverb


Yang Kai started his life as a farm worker. He was talented and was able to use his business acumen in buying a government dairy- Shenyang Dairy. He increased revenue and profits of dairy and called it Huishan Dairy. The company is into growing alfalfa grass, owning cows, packing of milk and milk products and delivering them to supermarkets. Yang called his company – grass to glass company.

Yang was ably supported by CFO So Wing Hoi and treasury head Ge Kun.

Carson Block is a short-seller and the founder of Muddy Waters Research. It specializes in exposing fraudulent accounting practices of publicly traded Chinese companies.

Huishan Dairy was on radar of Muddy Waters. Carson declared that stock of Huishan dairy was worthless. He said that the company had overstated its sales, misrepresented its self-sufficiency in alfalfa and made an unannounced transfer of assets to an entity controlled by Yang.

“When others were using underhanded means to snatch market share and capital, I created the most perfect supply chain…I’ve fulfilled my dreams, but Huishan has its own dreams: of 1 million cows, 100 year-old stores and a 100 year-old brand.”

-Yan Kai

Yang dismissed allegations and said that Huishan was financially sound company.

Since Chinese economy is very opaque and media too lacks transparency, it was difficult for Muddy Waters to do more research.

“Since at least 2014, the company has reported fraudulent profits largely based on the lie that it is substantially self-sufficient in producing alfalfa…even if Huishan’s financials were not fraudulent, the company appears to be on the verge of default due to its excessive leverage.”

-Muddy Waters Research

But some time later, treasury head Ge Kun just disappeared, followed by resignation of CFO Hoi, who underwent heart surgery. This was followed by news of huge debt accumulated by Huishan Dairy and its inability to pay debt on time. The share price of Huishan Dairy crashed in Hong Kong Stock market. Yang being biggest shareholder of dairy lost billions in just 2 hours. The company now owes $ 5.8 billion to banks and other creditors. Now Yang wants government to bail out dairy as closing down of dairy will mean bad debts for banks.

High leverage and lack of transparency resulted in financial losses to shareholders and bankers.

“If you add derivatives and CO2 to the mix, it can be quite sexy”

-Allen Chan, CEO Sino Forest on monetization of forestry industry

Carson also targeted $5 billion market capitalization company Sino Forest Corporation. It was a tree plantation management company, which planned to sell wood fibre to other organisations.

Muddy Waters Research report suggested that Sino-Forest had been fraudulently inflating its assets and earnings, and that the company’s shares were essentially worthless. Muddy Waters claimed that Sino Forest was a “multibillion-dollar Ponzi scheme”. Sino Forest denied allegations. But soon Sino Forest filed for bankruptcy protection.



Price Gouging, Financial Fraud and Valeant Pharma

“The butcher, the baker and the drugmaker don’t produce and sell us the things we want out of benevolence, but out of their own self-interest.”

-Adam Smith

Whenever you have allergic reaction due to insect bite, food, medication etc., effective medicine for it is Epinephrine. Mylan Pharma had developed an autoinjector called EpiPen which helps in injecting Epinephrine.

“That $608 is a list price (of EpiPens) …What Mylan takes from that, our net sales is $274, so $137 per pen…Mylan has costs that include manufacturing the product, distributing the product, enhancing the product, investing.”

-Heather Bresch, CEO Mylan

To improve profits the company decided to increase price by 500%. US does not have any price controlling mechanism. This improved profit of company and CEO of the company Heather Bresch got 600% salary hike.

“To me the drug was woefully underpriced,” he said. “It is not a question of ‘Is this fair?’ or ‘What did you pay for it?’ or ‘When was it invented?’ It should be more expensive in many ways.”

-Martin Shkerli

Martin Shkerli was a fund manager who founded a company called Turing Pharmaceutical. He acquired drug called Daraprim, it was an old drug whose patent had expired, but no generic version of it was available. Daraprim is used to treat parasitic infection in case of HIV patients, so it is a critical drug for HIV patients.

Martin decided to tightly control distribution of Daraprim, and increased price from $ 13.5 per pill to $ 750 per pill. Lifesaving drug became money making racket for Turing pharma.

This act of hiking prices beyond reasonable limits is called as price gouging. It is exploiting customers to earn windfall profits.

CEO of Valeant Pharma, Michael Pearson, used combination of price gouging and financial frauds to take company to dizzy heights and then whole thing collapsed.

Diabetic patients use metformin tablets to keep their blood sugar under control. Valeant pharma manufactures metformin tablet called Glumetza. Valeant decided to increase price by 800%. It also increased prices of other drugs in range of 300%-1600%.

“I don’t think you’d want your son to grow up and run a company in the manner that Valeant was run,”

-Warren Buffet

Michael Pearson had worked with McKinsey & Company for two decades, before taking over as CEO of Valeant Pharma. Michael came up with strategy for growth of company. He decided to slash cost of R & D (from nearly 12-15% of sales to 3%), instead of spending money on research he decided to buy smaller companies with better track record.

To make it more profitable he decided to move the company to Canada to save taxes. He slashed manpower of acquired companies. He then went for price gouging to improve the sales.

Acquisition combined with price gouging and cut in manpower and R & D cost made Valeant darling of Wall Street. Since compensation of Pearson was skewed towards stock options, he too benefited from rise in share price.

One of the major shareholder of Valeant Pharma was American investor William Ackman. Ackman fulling supported Pearson and kept buying shares of Valeant.

But year of year growth based on price gouging and cost cutting was not sustainable.

Soon Valeant started getting negative press due to price hikes. Citron Research accused Valeant of creating a network of phony pharmacies to generate “phantom sales”. Valeant recorded sales when drugs where shipped to pharmacies not when drugs were actually dispensed to patients. Citron said that Valeant dumped medicines in pharmacies, which lay unsold, but were shown as sales by Valeant. This created fake sales and profits for Valeant. Besides acquisition of companies resulted in debt of $ 30 billion.

Philidor is an online pharmacy, it was used by Valeant to push its drugs instead of giving patient freedom to choose from cheaper generic drugs.  In some cases, the drugs prescribed by doctors were altered and patients were instead sold drugs manufactured by Valeant.

Unethical practices, fake accounting and huge debt resulted in sharp fall in prices of Valeant, as a result Ackman suffered huge loss. Ackman confessed that hiring Pearson was a mistake and Pearson was sacked. He was replaced by pharma industry veteran Joseph Papa. Joseph Papa is now busy undoing the damages done by aggressive Pearson.