11 ms·
Bill Ackman Surrenders in His Five-Year War Against Herbalife
- Analemma_ 9y agoWhile it feels icky to root for a billionaire hedge fund manager who probably couldn't care less if I lived or died, I was kind of pulling for Ackman. Herbalife is a complete scam, and in a sane universe they wouldn't have any valuation at all. But no one ever went broke underestimating the intelligence of the American public. Sigh.
- nwah1 9y agoFelt the same way. The documentary Betting On Zero was eye-opening, and I was surprised that he stuck to this bet for so long. I suppose it isn't really a pyramid scheme in the sense of being unstable. It is perfectly stable at fleecing people who don't know any better.
- icantdrive55 9y agoSo many companies/people are fleecing people because they can. I thought by now, the perpetrators in slimey businesses would be socially ostracized. Instead, they seem like they are put on a pedastool? In my world, I'm disgusted by those that take advantage of the poor, and uninformed. I see the predatory behavior in so many professions. It seems like ethics/morality just went out of fashion. I'm literally shocked when I meet someone with ethics, or sthics when the heard isn't looking directly at them. I remember sitting through Sunday school classes. Even at a young age, I wondered how will I incorporate this mythology (was just truth back then) into the real world.
- Reedx 9y agoIt goes way beyond the American public, they're global - in at least 95 countries. I guess that's how they're managing to keep the scheme going as long as they have. Really does seem like a strong bet that they will go to zero.
- glibgil 9y agoThe lifecycle of an MLM company: Utah, then the rest of the US, then the world
- defen 9y agoWhy do you say Utah? Near as I can tell Herbalife came out of California.
- sg0 9y agoExactly, I was shocked to see Ackman betting against Herbalife, because I have seen Herbalife craze first hand in India. My office was in M.G Road, Bangalore, a premium spot of Bangalore, and Herbalife had a big distribution center right there (next to our office building). It was always crowded, people coming and going. My then roommate also got into the Herbalife cabal, and got his entire family involved. He claimed that his dad had lost significant weight after regularly having one of their shakes, and left no stone unturned in advertising the product, to the point that some people started avoiding him. But note, he never asked any of us overtly to buy Herbalife products and build a chain of Herbalife-peddling minions. I guess the point is, some people are attracted to the exclusivity factor, they think that wow these products are expensive, so they must be good, and praise about them to others. Some of these praise soaked people get interested enough to check it out, and the iteration continues.
- walshemj 9y agoInteresting I have shares in Pershing Square brought as a discount ploy in my ISA
- jeffbarg 9y agoI can't view the article behind paywall, but there was a recent documentary about this short position. Worth a watch: http://bettingonzeromovie.com/ http://bettingonzeromovie.com/
- royjacobs 9y agoWhile I agree that Herbalife doesn't seem like a very kosher company, it's probably also good to realize that that documentary was probably heavily skewed towards the viewpoint of (and probably somehow co-financed by) Ackman.
- dhimes 9y agoI think we should disallow paywalled links, personally.
- marojejian 9y ago“The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes Looks like another case of this applying. Though it's sad, I am heartened to know that giants can succumb to this too. Lord knows it's hit me enough.
- zombieprocesses 9y ago> “The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes Or it can stay irrational as long as it has a wealthier billionaire backing it. People forget that HLF was headed for collapse until Icahn and a few other billionaires backstopped HLF. There is a reason why Ackman is worth $1 billion and Icahn is worth $16 billion.
- marojejian 9y agoInteresting. Why did Icahn and the other deep pockets care to fight this battle?
- loeg 9y agoIt's an investment they think they'll see return on, and apparently don't have moral compunctions about.
- marojejian 9y agoHmm, also seems like there is a big personal feud there: http://fortune.com/carl-icahn-bill-ackman-feud/ http://fortune.com/carl-icahn-bill-ackman-feud/ Seems a little game of thrones-y. Sometimes I wonder how much of our rational "systems" are mere fronts for powerful people no different from the chieftains of pre-history. Sigh.
- AlexCoventry 9y agoThey doubled their money in five years. The potential for that was probably sufficient reason for them.
- stefan_ 9y ago
- fitzroy 9y agoFor anyone interested, the documentary Betting On Zero is very good (on Netflix). I'd be curious to hear how the film came together and got financed. It certainly has an agenda and Bill Ackman comes out looking pretty good vs Herbalife. That said, Ackman looks a lot less good in episode 3 of "Dirty Money" regarding Valeant (also on Netflix). Obligitory "the market can remain irrational longer than you can remain solvent" quote. EDIT: Just noticed Herbalife owns bettingonzero.com. They put up a "FAQ" saying Ackman secretly funded the doc and they're promoting the link with ads on Google.
- justherefortart 9y agoI worked at a small MLM. Saw the actual numbers. The Company took 80% of the revenue. There's some BS about how you're only supposed to steal 42% or something maybe that's the payout, it was a while back. Interesting short term job. GTFO as soon as I saw the real numbers.
- whalesalad 9y agoAlso worth watching the Dirty Money episode (Netflix as well) on the pharmaceutical company Valeant. Ackerman was heavily involved here on the flip side (he was helping the wrongdoers rather than trying to short them and expose the fraud)
- NicoJuicy 9y agoAh, I didn't saw your comment.. +1
- soheil 9y agoNote: that documentary is in support of Bill Ackman.
- pessimizer 9y ago> Obligitory "the market can remain irrational longer than you can remain solvent" quote. Investing in large financial scams isn't irrational in the current regulatory environment. The only danger to them is that they conflict or compete with some other, larger business that can lobby politicians. Ackman personally was actually the biggest threat to Herbalife, which is why we heard so much about this.
- deleted 9y ago[deleted]
- jdoliner 9y agoMods, the title please. It hurts.
- ISL 9y agoAckman has purchased put options, which, in my understanding, is not surrender.
- dna_polymerase 9y agoExactly, all the did was changing the tool. He learned that the market wouldn't move as fast as he wished and now he has a position that he can actually maintain in the long run.
- anilshanbhag 9y agoThat was a while ago. Today he said he closed all positions in Herbalife (stock and options).
- tchen 9y agounpaywalled: https://outline.com/YPct https://outline.com/YPct
- daxorid 9y agoSimilarly, David Einhorn and Greenlight continue to get squeezed by the price-insensitive investors of NFLX, AMZN, and TSLA. He has yet to capitulate positions, but very well may do so soon, as he was forced to apologize to Greenlight investors for recent serious underperformance.
- testfoobar 9y agoI have no opinion on the future price/direction of these stocks. From end of 2017 to today: NFLX: 192 to 291 51% gain in two months AMZN: 1169 to 1512 29% gain in two months TSLA: 311 to 343 10% gain in two months
- valuearb 9y agoGreenlight has crushed for a long time. A bad couple months is meaningless.
- sgw928 9y agoImagine someone super rich shorts Herbalife like Ackman did, lobbies congress to make Herbalife's business model illegal, and then profits from the short position. Would this be conflict of interest legally, or is this just how crony capitalism works in the US nowadays?
- loeg 9y agoWhat makes you think Ackman didn't lobby against MLMs? The trouble is/was, Herbalife outbid him by a large factor: https://www.theverge.com/2014/4/8/5590550/alleged-pyramid-schemes-lobbying-ftc https://www.theverge.com/2014/4/8/5590550/alleged-pyramid-sc...
- starpilot 9y agoImagine someone invents something currently illegal then lobbies to make it legal, in order to sell it. This is just capitalism and liberalism, and it's a good thing.
- smt88 9y agoWhat if that thing is dangerous? I can't think of many historical examples where something was already illegal when it was invented for no good reason. Can you? Maybe pharma fits that category, but no rational person would argue drugs should be legal by default...
- jdminhbg 9y ago> I can't think of many historical examples where something was already illegal when it was invented for no good reason. Can you? "For no good reason" is carrying a lot of water here. But because the legality is in question, all the examples you are going to get are things that are debatably legal, rather than outright illegal, like Uber. Or things that were intended to be illegal but legal via loopholes, like FedEx. > no rational person would argue drugs should be legal by default Plenty of rational people would, in fact, argue that.
- 9y ago
- loeg 9y agoWhat a shame. Herbalife is clearly an MLM, a modern form of a ponzi scheme. Their long term value is clearly zero, they just didn't manage to tank in the period Ackman projected.
- Jesus_Jones 9y agoyeah, herbalife is like a lot of the mlm schemes, taking advantage of the poor and disadvantaged. maybe now that he's given up on it, it will conveniently just die? just because you know something is doomed it doesn't mean you know when it dies.
- bhouston 9y agoIcann was proping up Herbalife to just f*ck with Bill Ackman for the fun of it. Herbalife is totally going to die now, and has been for a while.
- WheelsAtLarge 9y agoNo, I think Icann felt he had seen a similar attack on Amway and Amway won. Ackman put himself in a no-win situation. Icann does things to make a profit, not for spite. https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusationshttps://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusations https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...
- kurthr 9y agoI recommend reading Bronte Capital's take on this. He regularly evaluates short opportunities mostly related to fraud. He actually visited Herbalife clubs before making a decision on shorting. He's not a fan of Ackerman. https://brontecapital.blogspot.com/search?q=herbalife https://brontecapital.blogspot.com/search?q=herbalife
- deleted 9y ago[deleted]
- CrackpotGonzo 9y agoWow, thank you for sharing this. It was an illimunitaing read and made change my opinion on Herbalife. Comparing it to AA makes a lot of sense.
- deleted 9y ago[deleted]
- evrydayhustling 9y agoTerrific read, thanks for introducing me. Great example of how dangerous it is to think something is popular because others are more stupid or gullible than yourself. Keep looking until you see what they see, whether you end up agreeing or not.
- spamizbad 9y agoThe fact that these herbalife clubs cannot be sustained ultimately seems to prove Ackerman's point. Just google around for Herbalife shops in Queens today, it doesn't seem like any of them have survived.
- bob_theslob646 9y agoI still do not understand why these people choose to reveal their positions. In ackman's case, it actually made people a lot of money because other people who didn't like Ackman got together and said 'hey what if we take the other side of this because we think that there's another puff left to this cigar."
- cryptozeus 9y agoMay be at that level they hope to play the market by revealing...more people could get behind the call
- bob_theslob646 9y agoIf anything, reading about it from the 13f attracts more attention. ( i.e Buffet), but for Bill and Mr.Dalio, does not seem to be working out.
- aj7 9y agoReligious fundamentalism. Multilevel marketing schemes. Nutraceuticals. Gun-nut-ism. Love of Donald Trump. Welcome to the world of the uneducated. They need to have something exclusively of their own.
- jonnybgood 9y agoBrushing off these things as simply the affairs of uneducated people is itself an uneducated thing to do. Understanding is the first step in their non-recurrence. Assuming that’s what you’re after.
- BLKNSLVR 9y agoEducation is a silver bullet. Which is why it's not better funded. The bottom of the pyramid always needs to be larger than the next level up.
- rajacombinator 9y agoIndeed. Depending on who does the educating, it can be a silver bullet to the student’s head!
- refurb 9y agoPeople that say "everyone is dumb except for me" make me question their own analytical abilities.
- praneshp 9y ago(not snark). Could you state your definition of "uneducated"? Is it the normal meaning (lacking a formal education), or do you have a higher bar for calling someone educated? I ask because I have several family members that do Amway (and have been doing so for years), and a subset also loves President Trump. They aren't close to uneducated in it's regular meaning, however.
- WheelsAtLarge 9y agoRead Amway vs (the world?) and you'll understand why Ackman lost. https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusations https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...
- fwdpropaganda 9y agoCome on, tell us more.
- xref 9y agoI have some family pretty deeply trapped in Lularoe's "MLM", the fact Herbalife is still legal and solvent doesn't give me a lot of hope for a rosy outcome for my fam
- phamilton 9y agoAnecdata is not proof, but plenty of people actually make money in LuLaRoe from sales rather than the pyramid structure.
- AlexCoventry 9y agoProbably means it's a good time for a short-term short.
- ada1981 9y agoI hate MLMs so very much. There is a good book called False Profits by Robert Fitpatrick about the MLM industry. So much of our culture is some version of sucker capitalism.
- panarky 9y ago> So much of our culture is some version of sucker capitalism. It's amazingly difficult to find examples of businesses considered "successful" that aren't somewhat pyramid-shaped. And as soon as I find one, it turns out it relies on a larger ecosystem that itself is pyramid-shaped. None of these enterprises can survive for the long run, but since in the long run we're all dead, maybe it only matters if you can ride the wave in the short run??
- hueving 9y agoHow is In-N-Out pyramid-shaped?
- perl4ever 9y agoAccording to a cursory Google search, In-N-Out has stated it will never go public or issue franchises. So they are less "pyramid-shaped" than a lot of businesses. However, nothing is forever and philosophies can change. Look at the saga of Chipotle, they were so very full of themselves, and now they have someone from Taco Bell to pick up the pieces of their shattered reputation. Any "family business" undergoes instability as generations hand off to new ones. Interestingly, someone has been selling fake In-N-Out franchises in California. So you could say that even if you don't want to be pyramid-shaped, the pyramid sellers will find you.
- hueving 9y agoThey are not pyramid-shaped at all. Running a successful franchise does not depend on your ability to recruit other franchise owners and then collect rent from them.
- randomwalker6 9y ago"Baby Buffett" Bill went long on Valeant, a company so evil that it makes diet smoothie MLM Herbalife look like the Salvation Army, yet people here apparently still think he's a good guy because of his sympathetic portrayal in Betting on Zero. Ackman not only is not a good guy, he's also, like most hedge fund managers, completely incompetent: > The losses in each of the past three years — of 4, 13.5 and 20.5 percent — come against gains in the S&P 500 of 19.4 and 9.5 plus a 0.7 percent dip, respectively. The Pershing losses took its net assets to $9.3 billion from $18.3 billion. https://nypost.com/2018/01/10/ackmans-pershing-square-fund-to-slash-management-fee/ https://nypost.com/2018/01/10/ackmans-pershing-square-fund-t... PSCM can't even consistently beat the S&P 500, and Ackman's already on his second fund after having blown up his first (Gotham Partners)--why on earth would anyone give this guy their money? Because he's handsome and a smooth-talker, I suppose.
- godzillabrennus 9y agoHe sure deserves his lumps over Valeant but let’s not play pretend. There are plenty of monsters on Wall Street who will gladly destroy great companies for short term profits. Eric Ries has the right idea with the long term stock exchange.
- hidenotslide 9y agoWhat is the LTSE? From their website it doesn't really seem like they do anything other than some apps for entrepreneurs? Often the mechanism for destroying great companies is plundering one group of stakeholders to pay off equity and management. E.g. firing long-time employees, underfunding/changing pensions, over leveraging, or risky regulatory strategies that they won't be around to face the consequences for. I don't see how what stock exchange something is listed on has much effect on any of those.
- dbuder 9y agoThe Salvation Army is the crim charity. Do they do good work? Yes. But where the money goes, nobody knows.
- rajacombinator 9y agoThe real untold story of guys like Ackman and most of Silicon Valley is their sales and fund raising ability. Because he sure as hell ain’t a good investor. Yet he still manages billions of dollars of investor funds. At this point he’s like a bizarro world Gartman.
- adventured 9y agoAckman's fund got to where it did, because he actually produced a string of great returns across a decade and a few monster hits (such as Canadian Pacific). Investors would have never given him that level of capital otherwise. The fact is, Pershing stomped the S&P 500 across a decade, from Q1 2004 to Q1 2014 (without anything from Valeant contributing). Which very few fund managers ever manage to do. Most are lucky to beat the S&P 500 at any point. You can call it luck, which it could be obviously, across a decade that's quite an unusual string of luck. 2004: 42.6% return; 2005: 39.9% return; 2006: 22.5% return; 2007: 22% return; 2008: -13% return; 2009: 40.6% return; 2010: 29.7% return; 2011: -1.1% return; 2012: 13.3% return; 2013: 9.7% return; 2014: 36.9% return; 2015: down the ship goes with VRX More likely, based on his actual track record over time (including spotting the mess with MBIA years before anybody else), Ackman is a decent investor. His seeming arrogance and stubbornness appears to be the culprit more than lack of skill. He refused to throw in his cards early when losing hands came up. It's what separates decent investors from great investors like a Buffett, who will typically cut an investment the moment he realizes the business is a dog (that his instigation thesis was wrong), rather than stubbornly fight the tide. Ackman likes to fight, and has an immense ego, that's what got him on VRX and Herbalife. Can he learn from those mistakes and become a better investor? He'll have to, or most of the money he'll be managing will be his own.
- perl4ever 9y agoI think that's not exactly wrong, to refer to "a few monster hits", but you didn't mention his single best investment, which overshadows all others. General Growth Properties turned a few million into almost $2 billion. My impression is that Ackman is simply a gambler who got really lucky once and that has allowed him to raise money and squander it on a scale that compensates for his successes. Certain famous investors have talked about how it's not so hard to run across some big winners over time; what's really hard is to avoid big mistakes. There's something particularly perverse about calling a fund that owns a small number of risky stocks a "hedge fund", I might add.
- diiaann 9y agoThis makes me sad. I don't care about Bill Ackman being right or wrong about Herbalife's business. What I care about is that I truly believe that the world would be better off without MLM. If you have ever read sites like Pink Truth, it is gut wrenching how these business prey on people. I had hoped that this would be a turning point...
- simula67 9y ago> Mr. Ackman first alleged in December 2012 that Herbalife, which sells through a network of distributors, was an illegal pyramid scheme and would be shut down by the government. He had personally pledged to take his campaign “to the end of the earth,” though he added that Pershing Square would abandon the bet if it got too risky. Who surrendered ? Bill Ackman or Pershing Square ? Both ?
- deleted 9y ago[deleted]
- known 9y agoAckman pays about $100 million annually to maintain his short position https://en.wikipedia.org/wiki/Bill_Ackman https://en.wikipedia.org/wiki/Bill_Ackman