Just because you can see that a company is a scam that doesn’t mean the company is destined to fold any time soon. Herbalife is a scam. That doesn’t mean it’s smart to short Herbalife.
Yes, Ackman seems to have agenda-driven investment. He thinks Herbalife is a scam (I do, too), so he wants them to fail, so he is taking actions to attempt to drive them to fail, and then banking on that failure. That hasn’t really worked out for him.
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The New York Times on the Ackman campaign:After Big Bet, Hedge Fund Pulls the Levers of Power: Staking $1 Billion That Herbalife Will Fail, Then Lobbying to Bring It Down
Having some success: Herbalife says U.S. FTC opens inquiry long sought by Ackman
They are, but in order to cash in they also have to wage war against 99% of the 1%. We don’t have any money, the game is to cash in on the others who do have money.
Herbalife sounds like a sleazy pyramid scheme so I was glad when I heard the Ackman was putting pressure on them. But that article from The New York Times makes it clear that Ackman was only interested in doing whatever was necessary to ensure that he made a profit, even if that required him to manipulate members of Congress and other elected officials. Basically I don’t like either side in this.
And here’s a tangential scandal, or something, in the news:
China’s Nu Skin probe drags down Herbalife, USANA too, Reuters, Jan. 16, 2014:
The above article is from mid-January, but with the latest news about Herbalife, this Nu Skin investigation in China was in the news again too. Basically, China is investigating whether Nu Skin is doing MLM illegally in China according to Chinese law. Other companies using similar business models – including Herbalife – are implicitly being tarred with the same brush, to the detriment of their stock prices as well.
This will never happen but really needs to, we need a mandated multilevel marketing definition of the word “customer.” Sounds sorta basic and common sense but many, well not bribes of course but campaign contributions would be made to avoid such a development.
If the legal definition of “customer” was “a person who purchases a product/service with no intention or opportunity to be paid for doing so” it would be very easy to see how much money the average sales person (affiliate) makes. Far too easy in fact. At this point the industry has the luxury of saying things like:
Perhaps the safest way to read that is up to 4% of Herbalife’s affiliate base earns anywhere near what a full time job would pay. But because the line between customer and affiliate doesn’t exist it’s impossible to know how many of the remaining 96% are trying to make money in the company. And that’s how Herbalife wants it.
I believe the real problem is that the relatively small number of people and companies making BIG money in MLM have a vested common interest in avoiding legislation on issues like this while the relative multitude of people who’ve lost time, money and friendships in these schemes do not form an active political counterweight.
I think Ackman is pretty scummy but he is drawing attention. Herbalife has spent the last year trying to clean it’s US operation up and has parted ways with some of their less reputable field leaders. Will that be enough to save them from the FTC? No clue. I just hope for some positive change.
Whatever the problems of Herbalife in the U.S., the system they use is very successful here in Peru and in other Latin American countries and has been for at least 50 years.
It’s not a pyramid scheme.
And now, the game is over. Herbalife wins, Ackman loses.