We Have Never Seen Anything Like Bill Ackman’s Dizzying Takedown Of Herbalife
Warning - long presentation, but fascinating.
Thanks for sharing that. He really eviscerated them!
Not sure what happened, but clicking on the first link caused my browser (firefox) to shoot up to 70% cpu usage while the page loaded. I finally had to kill it with the task manager to get control back.
Did that happen to anyone else?
I couldn’t load it in Firefox - it started to freeze everything I had running, so I closed the tab and opened it in IE.
It was worth the effort.
Lose money now! Ask me how!
Question on this – in the interview, Bill Ackman said that his company has shorted (is that the right term?) $1 billion in shares just prior to this scathing 3 and a half hour presentation about how shitty the company is. The stock then immediately takes a 20 point hit (45-ish to 25-ish a share)
And this is the second time this happen this year. Back in May, some other company shorted a bunch of shares and then publicly attacked the company to the point where the stock went from 70/share to 50/share.
Is that legal? I mean, I can’t see why it’s not, but it’s seems so… transparent.
If the claims he’s making are somehow fraudulent, it could be described as a “short and distort” scam. But as long as he’s sticking to the facts and is disclosing his interest in Herbalife, he should be on relatively safe ground. (I didn’t listen to the video.)
Ackman also has stated that any money he makes from the short is going to charity. Reading through the presentation, it’s clear that Herbalife and their business practices just plain offend him, and exposing their scam and driving their stock price down is the most effective way to punish them for their misdeeds. Making money while also doing good is just gravy.
It’s more or less behaving for me, but the problems may relate to the fact that it endlessly loads static1.businessinsider.com, static2.businessinsider.com … all the way to static6.businessinsider.com and then starts over. Doesn’t stop me from doing anything else though, and if I tell Firefox to stop loading it behaves itself.
Basic counterpoint boils down to the argument that the company is selling itself as something that it’s not, and that if analyzed relative to what it purports to be - which is what Ackman did - it would be correctly deemed a failure, but that what it actually is is itself a workable model. Most notably:
[ul]
[li]While Herbalife products are not as cutting edge as the company presents them, the actual prices paid for them by most consumers are not all that high either, and it’s a sustainable price for both the company and consumers.[/li][li]The vast majority of ostensible “distributors” and simply end users who sign up as distributors in order to avail themselves of discount prices. It’s therefore a mistake to include their “profits”, dropout rates, or similar measures in calculating averages for distributors.[/li][/ul]The guy’s market point is that the current stock price for Herbalife shares is not realistic and has been heavily influenced by Ackman’s presentation. Depending on whether Ackman is right or wrong, the true price should be either a lot higher or a lot lower than it currently is. Interesting to see what will happen.
I think this was well covered in the presentation, though. These fake distributors-who-are-really-just-discount-buyers are paying more for their products than they could get them for on eBay. How can you tell the difference between a failed distributor and a discount buyer? I guess you’d have to ask them directly, but the fact that they’re paying more than market price is telling. Also, the fact that fewer than 10% renew their discount plan is extremely telling.
The presentation also points out that HerbaLife’s growth has been dependent on their aggressive expansion into new markets, and they’re tapping the bottom of the barrel for new markets (3rd world countries, basically). Once all of those new markets are dried up, I expect the share price will fall to 0 soon after.
Ramey addressed this in his counterargument. He noted that the amount sold on eBay is about 0.05% of total sales, and it’s absurd to insist that this is the true market price. A lot of things are sold for cheaper on eBay, and many people prefer a simpler or more stable source of supply.
Very possible, but it needs to be compared to turnover by users of such products.
That doesn’t follow. Nothing can keep rapidly growing forever. Eventually every business has to reach some plateau. That doesn’t mean that when this happens the business will then go to zero.
[At least in the short term. Eventually all businesses go to zero too. But that’s beyond our horizon.]
Note that that’s any money he personally would have made. The company he works for still gets to make millions in profits.
There was a Calvin Grondahl (or Pat Bagley, I’m not sure which) political cartoon that ran over 25 years ago in Salt Lake City – a notorious home for pyramid schemes (because a lot of trusting folk there, weho do business on a handshake) – showing two views – The Great Pyramids of Egypt (you can imagine this) and The Great Pyramids of Utah, which featured a car bumper with bumperstickers for may obvious pyramid schemes, including “HerbalCide”, a pretty thin disguise for HerbaLife. People have been onto this bunch for decades, but I guess it has to be pointed out over and over.
Can anyone translate the stock-n-bond speak into English? Actually, I don’t have any idea what stock prices have to do with pyramid schemes… aren’t pyramid schemes flat-out illegal? And in that case why is no one prosecuting it?
In the presentation, it states that current law defines a pyramid scheme as one that makes >50% of its revenue from recruitment rather than selling product. Herbalife states they make ~25% from recruitment and ~75% from selling product.
A fair bit of Ackerman’s presentation seems to be (I skimmed) trying to suggest those numbers are either fudged or unsustainable.
I couldn’t suffer through the download which appeared to be endless numbers of pages but I did glean that they bragged about research but their own reports to stockholders shows little or no research.
So what is a short position and what does it have to do with Herbalife, or pyramid schemes, or whatever? All I can figure out is this guy is apparently trying to make the stock price tank (and bankrupt them? I guess?) with this presentation, because he hates them. Or something.