12/29/12

Would it be worth $0 immediately and be delisted, or would it stay at the same price and then be delisted.

Looking at some options strategies

Comments (59)

12/28/12

According to Bill Ackman, "Herbalife cannot survive in a middle-ground." Meaning, it is binary. It is either a pyramid scheme (which, as he states, is a zero), or it is a respectable, legitimate multi-level marketing company.

Hope this helps.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

12/28/12

It doesn't fit the technical definition of a pyramid scheme because it markets real products (a true pyramid scheme is built only on promises and is illegal).

12/28/12

inkybinky:
It doesn't fit the technical definition of a pyramid scheme because it markets real products (a true pyramid scheme is built only on promises and is illegal).

That is incorrect. Legally, a pyramid scheme is when a multilevel marketing company distributor makes MORE money RECRUITING than SELLING product. To your point about illegality, pyramid schemes are inherently fraudulent and the repercussions are severe.

Let's just see how it plays out. Will be interesting.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

12/28/12

mhurricane:
inkybinky:
It doesn't fit the technical definition of a pyramid scheme because it markets real products (a true pyramid scheme is built only on promises and is illegal).

That is incorrect. Legally, a pyramid scheme is when a multilevel marketing company distributor makes MORE money RECRUITING than SELLING product. To your point about illegality, pyramid schemes are inherently fraudulent and the repercussions are severe.

Let's just see how it plays out. Will be interesting.

Whenever I see someone defend HLF, I wonder if they themselves are a distributor, or even a cog in another MLM.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

12/28/12

Your question indicates that your general level of knowledge is such that you would be wise to hand over money management to somebody else.

All I care about in life is accumulating bananas

12/29/12

notamonkey:
Your question indicates that your general level of knowledge is such that you would be wise to hand over money management to somebody else.

Couldn't have said it better. If he's asking questions like these, he's way ahead of himself flirting with options
12/29/12

gammaovertheta:
notamonkey:
Your question indicates that your general level of knowledge is such that you would be wise to hand over money management to somebody else.

Couldn't have said it better. If he's asking questions like these, he's way ahead of himself flirting with options

+1,000,000

Event-driven strategies of any kind tend to work best when the position is initiated BEFORE the whole world starts looking at it...or unless you have inisght supporting a contrarian view that nobody else has. But I'm guessing you don't.

12/29/12

mrb87:
gammaovertheta:
notamonkey:
Your question indicates that your general level of knowledge is such that you would be wise to hand over money management to somebody else.

Couldn't have said it better. If he's asking questions like these, he's way ahead of himself flirting with options

+1,000,000

Event-driven strategies of any kind tend to work best when the position is initiated BEFORE the whole world starts looking at it...or unless you have inisght supporting a contrarian view that nobody else has. But I'm guessing you don't.

I think you guys are being a little harsh. Sure the question is a little naive, but if you listen to the webcast and the explanation, you'll realize that Ackman is gunning for HLF to hit $0. The only way this happens is if the FTC destroys this company. On the other hand, if you look at HLF without any opinion on whether you think HLF is a pyramid scheme, the company seems pretty profitable with strong cash flow relative to current valuation. ~$300mm in balance sheet cash and $500mm in operating cash flow can buy back a ton of shares. The short thesis is great, but I'm not sure everyone will buy it.

12/29/12

HarvardOrBust:
mrb87:
gammaovertheta:
notamonkey:
Your question indicates that your general level of knowledge is such that you would be wise to hand over money management to somebody else.

Couldn't have said it better. If he's asking questions like these, he's way ahead of himself flirting with options

+1,000,000

Event-driven strategies of any kind tend to work best when the position is initiated BEFORE the whole world starts looking at it...or unless you have inisght supporting a contrarian view that nobody else has. But I'm guessing you don't.

I think you guys are being a little harsh. Sure the question is a little naive, but if you listen to the webcast and the explanation, you'll realize that Ackman is gunning for HLF to hit $0. The only way this happens is if the FTC destroys this company. On the other hand, if you look at HLF without any opinion on whether you think HLF is a pyramid scheme, the company seems pretty profitable with strong cash flow relative to current valuation. ~$300mm in balance sheet cash and $500mm in operating cash flow can buy back a ton of shares. The short thesis is great, but I'm not sure everyone will buy it.

Fair, but everyone in the world is looking at it right now, so not sure how this kid thinks he will get his edge.

12/28/12

Their products are selling pretty well in China...

12/28/12

inkybinky is an idiot. I love how some people say wrong things with 100% confidence

12/29/12

I know it's been posted several times on WSO, but if you haven't seen this powerpoint presentation yet, it's worth a skim. Wow, as a takedown this is an absolute work of art.
http://factsaboutherbalife.com/wp-content/uploads/...

12/29/12

I just wanna see the CEO freak out on CNBC (i think)

Remember, once you're inside you're on your own.
Oh, you mean I can't count on you?
No.
Good!

12/29/12

snakeplissken:
I just wanna see the CEO freak out on CNBC (i think)

Get on the analyst call.. 10 Jan I believe.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

12/29/12

Take a directional bet with options.
1. You determine the probability of the stock hitting $0
2. You price your options and determine that the price Maybe you don't have an edge but it's fun speculation.

And I guarantee you that even if people are looking at it, I bet you people are trading HLF without even having seen the webcast.

12/30/12

My brother was involved with selling Herbalife for a short while. Two minutes into the conversation, after he described to me how it all worked, I told him it was a pyramid scheme and to GTFO. Fortunately, he listened, but after 6 months into it.

1/4/13

sofib09:
My brother was involved with selling Herbalife for a short while. Two minutes into the conversation, after he described to me how it all worked, I told him it was a pyramid scheme and to GTFO. Fortunately, he listened, but after 6 months into it.

So are Amway and Mary Kay. It doesn't mean that it's legally a pyramid scheme. These companies escape that classification by having real products (regardless of quality or usefulness) that they sell and by structuring their "opportunities" in a way that doesn't *require* large inventory purchases. It's encouraged, of course, but not required.
12/30/12

http://kiddynamitesworld.com/why-bill-ackman-is-wr...

Interesting reply to Ackman. It seems to me that the FTC's statements suggest Herbalife isn't a pyramid scheme, or at least are sufficiently ambiguous that Herbalife could probably make their case successfully.

1/2/13

Ackman is screwing up royally. I worked with a competitor to herbalife 15 years ago and their only weakness is another compay's superior product line. Multilevel marketing is not for everyone (hey, I failed) but it's not a ponzi.

If his positions go south, and I'm pretty sure they will, he's going to get sued into next century. On top of that, he's going to look like a crook who tried to artificially and fraudulently tried to push shareholder value down to smash and grab on a put position. Credibility killer

This, like the London whale fiasco, could cause blowback to the entire industry. Let's hope this blows over quietly, for all our sake. I have a bad feeling about this one though, I see Acknam clearly abusing public trust (or being very stupid) and this can't end well.

Get busy living

1/2/13

UFOinsider:
Ackman is screwing up royally. I worked with a competitor to herbalife 15 years ago and their only weakness is another compay's superior product line. Multilevel marketing is not for everyone (hey, I failed) but it's not a ponzi.

If his positions go south, and I'm pretty sure they will, he's going to get sued into next century. On top of that, he's going to look like a crook who tried to artificially and fraudulently tried to push shareholder value down to smash and grab on a put position. Credibility killer

This, like the London whale fiasco, could cause blowback to the entire industry. Let's hope this blows over quietly, for all our sake. I have a bad feeling about this one though, I see Acknam clearly abusing public trust (or being very stupid) and this can't end well.

Count me in the Ackman-is-overrated camp, but it doesn't sound like you read the presentation or understand his argument.

1/2/13

mrb87:
UFOinsider:
Ackman is screwing up royally. I worked with a competitor to herbalife 15 years ago and their only weakness is another compay's superior product line. Multilevel marketing is not for everyone (hey, I failed) but it's not a ponzi.

If his positions go south, and I'm pretty sure they will, he's going to get sued into next century. On top of that, he's going to look like a crook who tried to artificially and fraudulently tried to push shareholder value down to smash and grab on a put position. Credibility killer

This, like the London whale fiasco, could cause blowback to the entire industry. Let's hope this blows over quietly, for all our sake. I have a bad feeling about this one though, I see Acknam clearly abusing public trust (or being very stupid) and this can't end well.

Count me in the Ackman-is-overrated camp, but it doesn't sound like you read the presentation or understand his argument.


On the contrary. He's taking a bet that the company will crash and then putting forth an incorrect ascertation, either deliberately or ignorantly. The fact is, if this goes to a federal inquiry, he's going to look like an asshole, and the crooks in Washington will get yet another excuse to get all in our business.

So I hope he hedges his bet and shuts his mouth.

....and this coming from a guy who stuck up for Jamie Dimon (and still does).

And if I'm wrong, well, my bad?

Get busy living

1/2/13

UFOinsider:
mrb87:
UFOinsider:
Ackman is screwing up royally. I worked with a competitor to herbalife 15 years ago and their only weakness is another compay's superior product line. Multilevel marketing is not for everyone (hey, I failed) but it's not a ponzi.

If his positions go south, and I'm pretty sure they will, he's going to get sued into next century. On top of that, he's going to look like a crook who tried to artificially and fraudulently tried to push shareholder value down to smash and grab on a put position. Credibility killer

This, like the London whale fiasco, could cause blowback to the entire industry. Let's hope this blows over quietly, for all our sake. I have a bad feeling about this one though, I see Acknam clearly abusing public trust (or being very stupid) and this can't end well.

Count me in the Ackman-is-overrated camp, but it doesn't sound like you read the presentation or understand his argument.


On the contrary. He's taking a bet that the company will crash and then putting forth an incorrect ascertation, either deliberately or ignorantly. The fact is, if this goes to a federal inquiry, he's going to look like an asshole, and the crooks in Washington will get yet another excuse to get all in our business.

So I hope he hedges his bet and shuts his mouth.

....and this coming from a guy who stuck up for Jamie Dimon (and still does).

And if I'm wrong, well, my bad?

Nothing you're writing is making any sense -- Why would he have thousands of man-hours spent on what appears to be very diligent work if he *doesn't* believe in his thesis? Why would Pershing Square, which*tends* to take a long-term view in its public positions, suddenly turn into a pump-and-dump operation? Why does the general public care about Bill Ackman's short position on Herbalife (answer: They don't)? Ask 100 people on the street about David Einhorn and Allied Capital; do you think even 8 of them will know what you're talking about? So what "blowback" do you expect? What securities laws is he breaking? Why would he needlessly risk his reputation on a company like Herbalife? What is *your* evidence that his ascertation is incorrect other than 15-year old anecdotal outsider information? You do realize that he is not singling them out for being a multi-level marketing company, but because he believes very few of their end users are real outside consumers? Why do you even post here (much less have 9,000+ posts) when the sum total of your finance experience is 1 year in a back-office (and maybe some other shitty short-term gig, I can't keep track)?

1/3/13

mrb87:
UFOinsider:
mrb87:
UFOinsider:
Ackman is screwing up royally. I worked with a competitor to herbalife 15 years ago and their only weakness is another compay's superior product line. Multilevel marketing is not for everyone (hey, I failed) but it's not a ponzi.

If his positions go south, and I'm pretty sure they will, he's going to get sued into next century. On top of that, he's going to look like a crook who tried to artificially and fraudulently tried to push shareholder value down to smash and grab on a put position. Credibility killer

This, like the London whale fiasco, could cause blowback to the entire industry. Let's hope this blows over quietly, for all our sake. I have a bad feeling about this one though, I see Acknam clearly abusing public trust (or being very stupid) and this can't end well.

Count me in the Ackman-is-overrated camp, but it doesn't sound like you read the presentation or understand his argument.


On the contrary. He's taking a bet that the company will crash and then putting forth an incorrect ascertation, either deliberately or ignorantly. The fact is, if this goes to a federal inquiry, he's going to look like an asshole, and the crooks in Washington will get yet another excuse to get all in our business.

So I hope he hedges his bet and shuts his mouth.

....and this coming from a guy who stuck up for Jamie Dimon (and still does).

And if I'm wrong, well, my bad?

Nothing you're writing is making any sense -- Why would he have thousands of man-hours spent on what appears to be very diligent work if he *doesn't* believe in his thesis? Why would Pershing Square, which*tends* to take a long-term view in its public positions, suddenly turn into a pump-and-dump operation? Why does the general public care about Bill Ackman's short position on Herbalife (answer: They don't)? Ask 100 people on the street about David Einhorn and Allied Capital; do you think even 8 of them will know what you're talking about? So what "blowback" do you expect? What securities laws is he breaking? Why would he needlessly risk his reputation on a company like Herbalife? What is *your* evidence that his ascertation is incorrect other than 15-year old anecdotal outsider information? You do realize that he is not singling them out for being a multi-level marketing company, but because he believes very few of their end users are real outside consumers? Why do you even post here (much less have 9,000+ posts) when the sum total of your finance experience is 1 year in a back-office (and maybe some other shitty short-term gig, I can't keep track)?

People don't like to see their companies get trashed, regardless of the argument against them. After shorting Chinese RTOs, I don't think I'll ever again be surprised by the ignorance of investors and their desire to cling to a long position when they could easily make money on the short side. I am willing to fund any researcher who wants to study the psychological makeup of these people.

All I care about in life is accumulating bananas

1/3/13

mrb87:
Nothing you're writing is making any sense -- Why would he have thousands of man-hours spent on what appears to be very diligent work if he *doesn't* believe in his thesis? Why would Pershing Square, which*tends* to take a long-term view in its public positions, suddenly turn into a pump-and-dump operation? Why does the general public care about Bill Ackman's short position on Herbalife (answer: They don't)? Ask 100 people on the street about David Einhorn and Allied Capital; do you think even 8 of them will know what you're talking about? So what "blowback" do you expect? What securities laws is he breaking? Why would he needlessly risk his reputation on a company like Herbalife? What is *your* evidence that his ascertation is incorrect other than 15-year old anecdotal outsider information? You do realize that he is not singling them out for being a multi-level marketing company, but because he believes very few of their end users are real outside consumers? Why do you even post here (much less have 9,000+ posts) when the sum total of your finance experience is 1 year in a back-office (and maybe some other shitty short-term gig, I can't keep track)?

Wow, someone can't deal with disagreement. WHAAaaaaaAAAAAA someone disagrees. Get over it.

1. ER, Corpfin, MktResearch, 9 months BO, 3 years S&T. Plus I came out of two other industries (equity partner in both). So, not sure what your point is.

2. I have no idea why Ackman is doing this. From my perspective, it's an act of lunacy.

3. Outsider, perhaps. However, I can call some friends who work there and have them explain the company structure to you. Ackman's report synthesized confusion where there should be none: some customers also buy product to sell to other people, setting themselves up as distributers. Very simple concept. Not sure how that conflates to ponzi scheme. Lousy marketing structure....uh, yeah, it's why I jumped ship on the whole MLM thing after a few months. Some people dig it and have done well. Again though: not sure why Ackman would call it a ponzi scheme.

4. I expect the same blowback as the bullshit laws passed in reaction to the London whale thing. Do I disagree with it? Yes. Are the politicians taking advantage of one thing to pass a law about something else? Yes. Is it bullshit? Hell yeah. However, taking a high profile stand that is either lunacy or criminal at this point in time is a bad idea: keep a low profile until the public finds another whipping boy and stop feeding the machine.

Think what happens in the worst case (and very likely) scenario: it turns out that Ackman defames a company for short term gain and this is proven. Can you imagine the new set of rules that the idiots in Washinton will lay on all of us?

There is a time to speak out, and there's a time to keep quiet. Ackman is standing on that fine line and leaning over the danger zone. Personally, I don't like it. You're free to feel/think what you want.

My personal opinion is that Herbalife is a 2nd rate company, but it's not a criminal conspiracy, so driving the stock lower by saying so is just a bad idea and opens too many cans of worms. That's all.

Chill dude, maybe just hear a different set of ideas out

Get busy living

1/3/13

UFOinsider:
1. ER, Corpfin, MktResearch, 9 months BO, 3 years S&T. Plus I came out of two other industries (equity partner in both). So, not sure what your point is.

You don't need to post your CV; the fact that you once worked as a distributor for a multi-level marketing firm destroys your credibility. It's kind of like signing up for one of those 'earn income while working from home' schemes; only idiots who have no chance at succeeding in the real world sign on.

All I care about in life is accumulating bananas

1/3/13

notamonkey:
UFOinsider:
1. ER, Corpfin, MktResearch, 9 months BO, 3 years S&T. Plus I came out of two other industries (equity partner in both). So, not sure what your point is.

You don't need to post your CV; the fact that you once worked as a distributor for a multi-level marketing firm destroys your credibility. It's kind of like signing up for one of those 'earn income while working from home' schemes; only idiots who have no chance at succeeding in the real world sign on.


I once was one. Now I run several people like yourself.

Since we're taking cheap shots, how does that feel?

Get busy living

1/3/13

UFOinsider:
Now I run several people like yourself.

Since we're taking cheap shots, how does that feel?

These are the kinds of comments I'm talking about. People who do not want to search for the truth spew empty rebuttals to the short-sellers' arguments. You're just shouting words that might be damaging if you had evidence to back them up.

I'm quite sure you don't manage people like me; nobody manages me. I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want. I took an interest in investing early on, so I have something to work on.

You wanted to get rich, so you signed up for an MLM scheme. That's kind of like saying you want to be an entrepreneur and then starting a lawn mowing business; it's cute, but you're never going to be successful until you wake up to reality. You don't want to discover reality, you just want to be protected against the evil people trying to cut off your welfare check.

All I care about in life is accumulating bananas

1/3/13

notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.
1/3/13

SirTradesaLot:
notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.

I wasn't trying to build my credibility. I don't think one needs pedagogical credibility if his argument is sound. The other guy was trying to build his credibility by listing his work experience. He left off that he was a failed Herbalife distributor.

Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

All I care about in life is accumulating bananas

1/3/13

notamonkey:
Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

Most people in life aren't particularly successful and the ones that are the least successful usually haven't failed enough times to be succesful. When you work on wall street long enough, you find that there are many who were born on third base who think they have hit a homerun, which is irritating for those who have had to work for success. Personally, I want my children to feel what it takes to have their own successes and failures and not just hand everything to them on a silver platter.

The point is, you may not realize this, but condescending behavior is particularly distasteful when the condescending person hasn't accomplished much on their own. Most people I have met who were self-made do not display this kind of behavior often.

1/3/13

notamonkey:
SirTradesaLot:
notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.

I wasn't trying to build my credibility. I don't think one needs pedagogical credibility if his argument is sound. The other guy was trying to build his credibility by listing his work experience. He left off that he was a failed Herbalife distributor.

Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

I was going to suggest that, given this guy's a-hole coefficient and his "HF" badge, he clearly works at B-water. But then I saw that he went to UT.

On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/3/13

Sandhurst:
On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

Unlikely here. If it was Yahoo! Finance, that would make more sense.
1/3/13

Sandhurst:
notamonkey:
SirTradesaLot:
notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.

I wasn't trying to build my credibility. I don't think one needs pedagogical credibility if his argument is sound. The other guy was trying to build his credibility by listing his work experience. He left off that he was a failed Herbalife distributor.

Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

I was going to suggest that, given this guy's a-hole coefficient and his "HF" badge, he clearly works at B-water. But then I saw that he went to UT.

On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

Post counts =/= credibility. Unless you're CompBanker or Eddie.

1/3/13

mrb87:
Sandhurst:
On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

Post counts =/= credibility. Unless you're CompBanker or Eddie.

I agree with you. But if you're hiring an army of Filipinos on oDesk to do this en masse, they might take some shortcuts.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/3/13

mrb87:
Sandhurst:
notamonkey:
SirTradesaLot:
notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.

I wasn't trying to build my credibility. I don't think one needs pedagogical credibility if his argument is sound. The other guy was trying to build his credibility by listing his work experience. He left off that he was a failed Herbalife distributor.

Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

I was going to suggest that, given this guy's a-hole coefficient and his "HF" badge, he clearly works at B-water. But then I saw that he went to UT.

On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

Post counts =/= credibility. Unless you're CompBanker or Eddie.


Watch it, dick.

Just kidding.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

1/3/13

Sandhurst:
notamonkey:
SirTradesaLot:
notamonkey:
I had the privilege of being spoiled rich growing up and the continuing privilege to do whatever I want.

This was one of the best examples I've seen yet to instantly undermine one's own credibility.

I wasn't trying to build my credibility. I don't think one needs pedagogical credibility if his argument is sound. The other guy was trying to build his credibility by listing his work experience. He left off that he was a failed Herbalife distributor.

Most people who grow up poor are jealous of my childhood. I don't blame them. But too many poor people create a false world in their minds, which is why they'll always be failures.

I was going to suggest that, given this guy's a-hole coefficient and his "HF" badge, he clearly works at B-water. But then I saw that he went to UT.

On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

I just like to mess around online; I don't actually know any poor people in person.

Re: conspiracy theory -> I hope that's a joke. It amazes me how many people think message boards move stock prices.

All I care about in life is accumulating bananas

1/3/13

notamonkey:
Sandhurst:

I was going to suggest that, given this guy's a-hole coefficient and his "HF" badge, he clearly works at B-water. But then I saw that he went to UT.

On another (conspiracy theory) note: what do we think are the odds that (a) HLF is monitoring forums for these discussions, and (b) is seeking out members with high post-counts and bribing them to come to HLF's defense? It's so crazy it might be true.

I just like to mess around online; I don't actually know any poor people in person.

Re: conspiracy theory -> I hope that's a joke. It amazes me how many people think message boards move stock prices.

Well yes, it was a joke.

But if HLF were to actually do this, it wouldn't be about stock price. For the sake of argument, assuming that it is a pyramid scheme, their single most essential priority is to appear credible to their current and (especially) future distributors. Without new people signing up to join the bottom ranks, they go out of business immediately as all of the converging down-streams (i.e., HLF's entire market) dry up.

As such, they would go out and defend it everywhere, so whenever anyone tries to do their "due diligence" on the "MLM Business Opportunity" by googling "herbalife pyramid scheme," they see a passionate defense of HLF.

For the same reason, HLF would be intent on deflecting Ackman's comments in any way possible. Assuming that HLF is an illicit pyramid scheme and Ackman has "figured it out," they wouldn't be able to win by going after his argument. Another approach would be to turn the discussion against him personally. By, say, talking about options that are about to expire. Or by insinuating that he himself is the criminal, trying to manipulate markets. Anything to discredit him.

Not that these are impossible. But, assuming that Ackman is correct, they probably would avoid the substance of his argument. Which is that HLF's growth (and indeed, existence) is untenable, because nobody really wants to buy the product for its own sake, but rather to make a business out of recruiting other people to sell it. Continuing Ackman's logic, when people realize this, they will stop trying to become distributors, and the music will stop.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/3/13

Sandhurst:

By, say, talking about options that are about to expire.

I hope you're not attempting to claim that I'm a defender of Herbalife.
1/3/13

SirTradesaLot:
Sandhurst:

By, say, talking about options that are about to expire.

I hope you're not attempting to claim that I'm a defender of Herbalife.

Not to my knowledge, no.

With respect to the overarching "goings on" in this thread, I have a final contribution: it doesn't matter if HLF is "technically" a pyramid scheme or not. This should be obvious.

What matters is that, if Ackman is right in his analysis of the distributor network and its compensation structure (and not if he is right that it will be declared a "pyramid" or "ponzi" scheme, or that it will go to "zero" because it is illegal), a lot of people are throwing their money away. And now he is drawing a lot of attention to that (for the sake of this argument) fact. Which will cause fewer people to join HLF, because people don't like to lose money. Which will cause HLF's sales growth to fall, and probably (if he's right) for its sales to fall in an absolute sense, which will cause the stock to become less valuable, etc.

Don't get stuck on semantics. It's possible that he says that it's a pyramid scheme so that his thesis will get some traction, which will get out the message that is contained in his thesis (that HLF's "business opportunity" is actually a bad deal). It's possible that he genuinely thinks that it will be found by the courts to be a "pyramid scheme" because of the reasons he describes in his presentation (i.e., being on the wrong side of the 50/50 split between recruiting and sales and having hid this through accounting). Either way, he believes that the fundamental "business opportunity" of becoming a distributor is a a bad opportunity, and due to his publicity, some (probably large) amount people will catch wind of this, and make their own decision not to give HLF their money.

And even if he fails to get anybody's attention, he makes an argument that HLF will, at some point, exhaust the base of potential distributors out there in the world. This is based on his analysis of HLF's historic sales experience in various markets, which (in a general sense) go up quickly and then go down again, and not his insinuation that HLF is going to get shut down by the authorities. Since a long investment is a bet on growth of value, and value growth comes from revenue growth (and margin improvement, synergistic M&A, etc. But mostly revenue growth), the long-term growth priced into the stock will not be realized, and so the stock will go down, etc.

To put it differently, Ackman just needs to be right that HLF is a poor investment. This could be the case for any number of reasons pertaining to the company. It could be a pyramid scheme. It could be a rip-off MLM. It could even just be an MLM which will soon run its course. There could be other reasons that he has elected not to share with the public for some reason. Point is, I highly doubt that he would bet an "enormous" amount of his and his investors' money, his career, his personal reputation, etc., if he wasn't fairly sure that he was right (note: the fact that Ackman is taking such a huge risk on being correct is not at all a good enough reason to short HLF yourself), and the least that anyone who hasn't yet flipped through his pitch could do is take a look and stop making shit up to sound smart on the internet.

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/3/13

UFOinsider:
mrb87:
Nothing you're writing is making any sense -- Why would he have thousands of man-hours spent on what appears to be very diligent work if he *doesn't* believe in his thesis? Why would Pershing Square, which*tends* to take a long-term view in its public positions, suddenly turn into a pump-and-dump operation? Why does the general public care about Bill Ackman's short position on Herbalife (answer: They don't)? Ask 100 people on the street about David Einhorn and Allied Capital; do you think even 8 of them will know what you're talking about? So what "blowback" do you expect? What securities laws is he breaking? Why would he needlessly risk his reputation on a company like Herbalife? What is *your* evidence that his ascertation is incorrect other than 15-year old anecdotal outsider information? You do realize that he is not singling them out for being a multi-level marketing company, but because he believes very few of their end users are real outside consumers? Why do you even post here (much less have 9,000+ posts) when the sum total of your finance experience is 1 year in a back-office (and maybe some other shitty short-term gig, I can't keep track)?

Wow, someone can't deal with disagreement. WHAAaaaaaAAAAAA someone disagrees. Get over it.

1. ER, Corpfin, MktResearch, 9 months BO, 3 years S&T. Plus I came out of two other industries (equity partner in both). So, not sure what your point is.

2. I have no idea why Ackman is doing this. From my perspective, it's an act of lunacy.

3. Outsider, perhaps. However, I can call some friends who work there and have them explain the company structure to you. Ackman's report synthesized confusion where there should be none: some customers also buy product to sell to other people, setting themselves up as distributers. Very simple concept. Not sure how that conflates to ponzi scheme. Lousy marketing structure....uh, yeah, it's why I jumped ship on the whole MLM thing after a few months. Some people dig it and have done well. Again though: not sure why Ackman would call it a ponzi scheme.

4. I expect the same blowback as the bullshit laws passed in reaction to the London whale thing. Do I disagree with it? Yes. Are the politicians taking advantage of one thing to pass a law about something else? Yes. Is it bullshit? Hell yeah. However, taking a high profile stand that is either lunacy or criminal at this point in time is a bad idea: keep a low profile until the public finds another whipping boy and stop feeding the machine.

Think what happens in the worst case (and very likely) scenario: it turns out that Ackman defames a company for short term gain and this is proven. Can you imagine the new set of rules that the idiots in Washinton will lay on all of us?

There is a time to speak out, and there's a time to keep quiet. Ackman is standing on that fine line and leaning over the danger zone. Personally, I don't like it. You're free to feel/think what you want.

My personal opinion is that Herbalife is a 2nd rate company, but it's not a criminal conspiracy, so driving the stock lower by saying so is just a bad idea and opens too many cans of worms. That's all.

Chill dude, maybe just hear a different set of ideas out

Your ideas just don't make any sense and it's plainly clear that you haven't bothered to read the presentation as you're not disputing Ackman's specific points but just repeating facts about MLMs in general. The stuff you keep saying -- "some customers also buy product to sell to other people, setting themselves up as distributers [sic]" -- is exactly what Ackman digs into in his presentation: That most people are buying product to sell to their downline and not outside customers, and when that downline dries up, Herbalife collapses. I like healthy debate but I'm just getting dumber listening to you. For example, Robert Chapman's write-up explaining his long position in HLF is very interesting and I found myself nodding my head several times.

Also, I don't think there really has been any regulatory "blowback" resulting from the London Whale, certainly nothing that wasn't already in the works before. An SEC and OCC investigation was warranted given their jurisdictions and domains.

1/4/13

mrb87:
That most people are buying product to sell to their downline and not outside customers, and when that downline dries up, Herbalife collapses.

Also, I don't think there really has been any regulatory "blowback" resulting from the London Whale, certainly nothing that wasn't already in the works before. An SEC and OCC investigation was warranted given their jurisdictions and domains.


For point 1: who said the downline dries up? Ackman's analysis looks at one possible contingency and then make that the operating assmption. To me, that looks like a mistake. It's about the same as saying "if franchise locations of McDonald's don't do business, then the company could go out of business. So, McDonald's is going to go out of business." Downlines can be constantly replenished and expanded by the distributors who are very aggressive with their marketing. It someone isn't very good at it, or doesn't keep the list open, then yeah, they go out of business. The other thing left out of the analysis is that if a distributor leaves the company, the company keeps the down line and changes roles to direct marketing, not unlike L.L. Bean. Such customers are a significant sales base for HLF, and this isn't factored into the analysis.

Again, after a few weeks into MLM, I jumped ship because I just didn't see it going anywhere, but it's not a Ponzi scheme.

Point 2: if you don't think some cockeyed law gets more traction lately when one of us screws up in a spectacularly public fashion, well, I don't know what to tell you. Start paying attention.

Get busy living

1/4/13

UFOinsider:
mrb87:
That most people are buying product to sell to their downline and not outside customers, and when that downline dries up, Herbalife collapses.

Also, I don't think there really has been any regulatory "blowback" resulting from the London Whale, certainly nothing that wasn't already in the works before. An SEC and OCC investigation was warranted given their jurisdictions and domains.


For point 1: who said the downline dries up? Ackman's analysis looks at one possible contingency and then make that the operating assmption. To me, that looks like a mistake. It's about the same as saying "if franchise locations of McDonald's don't do business, then the company could go out of business. So, McDonald's is going to go out of business." Downlines can be constantly replenished and expanded by the distributors who are very aggressive with their marketing. It someone isn't very good at it, or doesn't keep the list open, then yeah, they go out of business.

You're supporting my point here. The difference between McDonald's and Herbalife is that if *external customer demand* dries up for McDonald's, then it goes out of business. But McDonald's doesn't need to keep finding new franchisees to pay it up-front franchise setup costs in order to stay in business. Ackman's allegation is that Herbalife does.

UFOinsider:
The other thing left out of the analysis is that if a distributor leaves the company, the company keeps the down line and changes roles to direct marketing, not unlike L.L. Bean. Such customers are a significant sales base for HLF, and this isn't factored into the analysis.

FINALLY YOU MAKE WHAT SEEMS TO BE A REAL POINT. I'm actually curious about this; can you please explain? It still seems to be though that the company then just takes the distributor's place and sells directly to his downline, but that downline is also dependent on recruiting new members, so again that doesn't solve the recruitment revenues > actual external sales problem.

UFOinsider:
Again, after a few weeks into MLM, I jumped ship because I just didn't see it going anywhere, but it's not a Ponzi scheme.

Again, you are making a general point about MLM and not Herbalife.

1/4/13

mrb87:
It still seems to be though that the company then just takes the distributor's place and sells directly to his downline, but that downline is also dependent on recruiting new members, so again that doesn't solve the recruitment revenues > actual external sales problem.

Ok, think of it this way: seperate the company into two parts. First, the part that produces a product. That's a simpler starting point. They produce something, people buy it, the company makes the bulk of it's money here. In this respect, the company is pretty solid.

The second part is distribution. All participants in the company are customers. Some of those customers simply order, consumer, and repeat on a regular basis. The company, again, is solid on this basis. On to the distributers: these are customers who buy more than they need and resell it. They can make money or lose. A lot of people get stuck here. The next step is activly recruiting new customers who will be distributors, and then get an override on their sales: very very very few people in this organization are successfully committed to this, for a variety of reasons. If a distributor leaves, his downline is inherited to his upline or the company, depending on a variety of factors. If the company inherits a customer, it's now playing direct ordering, which is fine, but they don't have in house sales support: THAT's why they want the distributors to recruit, because they do the job of sales. It's really that simple.

There's an even simpler (and much better) model at the company I worked at:
(1) everyone is a customer.
(2) I get an commission on every person I introduce to the company: and the new customer orders directly from the company, I don't handle any product. I am paid commission on everything they ever order.
(3) I also get an override on every person they introduce, several generations on downline. If I become very very actively involved building it out, I get paid on more downlines and farther down, kind of like a bonus.

It sounds hokey, but I knew guys in their early thirties making $10MM+ a year (PLUS RESIDUAL INCOME!!!) and loved it. Realize that the vast majority of people who sign up for these things are looking to get rich quick (I was) but this really is building a business and it takes time and effort. Personally, I'm not a salesman, so I kinda realized this and bounced out.

For more detail than that, you're going to have to talk to someone that works there. The policies change over time, so maybe something is up, but I'm inclined to think that Ackman misread this, or perhaps knows what the deal is and expects other people to misunderstand: thus my apprehension. That he would do so and then go public while holding a short position opens up the possibility of a pretty bad lawsuit, giving fodder to those who don't like finance in general.

Get busy living

1/2/13

And yeah there are spelling errors, I'm drinking on a charter plane to snowboarding. Ficking sue me.

Get busy living

1/2/13

If you think the stock is going down a lot, but don't want to risk too much, then you could try a variation of this.

The 1 year 30 strike put is about 8. The two year 30 strike put is about 10. You can buy 1.25 one year puts for every 1 two year puts you sell without a cash outlay (you do need collateral though). If the stock goes down a lot, the time value approaches zero for both options and they'll trade for close to intrinsic, so you'll make money (if it's trading at $5/share, the intrinsic will be 25 so you're long 1.25 notional *25/share less 1 notional *25/share that you're short). If the stock goes up, the puts will both lose value...the 1 year will expire worthless the 2 year will still be worth something, so you lose, but it's not a disaster. Worst case scenario, the stock stays flat. If that is true, most likely vols will have come down substantially and the 1 year put in 1 year isn't worth as much as it is today, so you don't lose too badly. Even if you want to just trade the options before expiration, the shorter dated options with 1.25 notional exposure will have higher gamma than the longer dated 1-notional position. If the stock moves a lot, that's good for you. You could do a variation of this with different strikes as well.

Of course, this all assumes that something significant will resolve itself within one year or the stock moves enough for you to exit the options positions before the first expiration. If this isn't all crystal clear, you may just want to sit this one out.

1/2/13

SirTradesaLot:
Of course, this all assumes that something significant will resolve itself within one year or the stock moves enough for you to exit the options positions before the first expiration. If this isn't all crystal clear, you may just want to sit this one out.

This will take at least 2-3 years unless someone gives up the goods or cries uncle.

1/2/13

mrb87:
SirTradesaLot:
Of course, this all assumes that something significant will resolve itself within one year or the stock moves enough for you to exit the options positions before the first expiration. If this isn't all crystal clear, you may just want to sit this one out.

This will take at least 2-3 years unless someone gives up the goods or cries uncle.


Maybe so, but the stock could drop 10/share in the interim and you could make money with these options anyway. I'm sure the borrow to short is brutal now.
1/2/13

SirTradesaLot:
mrb87:
SirTradesaLot:
Of course, this all assumes that something significant will resolve itself within one year or the stock moves enough for you to exit the options positions before the first expiration. If this isn't all crystal clear, you may just want to sit this one out.

This will take at least 2-3 years unless someone gives up the goods or cries uncle.


Maybe so, but the stock could drop 10/share in the interim and you could make money with these options anyway. I'm sure the borrow to short is brutal now.

Yeah I've heard the borrow might be as high as 25-30%...and there's a lot more downside risk right now in a short position given the binary nature of the trade.
Binary trade + short squeeze potential = lots of risk...

1/2/13

mrb87:
lots of risk...

no doubt about that.
1/2/13

SirTradesaLot:
mrb87:
lots of risk...

no doubt about that.

Yes, didn't mean to be so inane. But it's probably an unfavorably skewed risk-reward profile at $30 or lower.
1/3/13

I'm with UFO on this one. My parents have been active with one of HLF's competitors for more than two decades now and though I have not followed in their footsteps, I know the structure inside and out. They have presence in two countries and have NOT continued to build the business in one of them after they moved. People in their group, under them so to speak, have now surpassed them and are earning much more then my parents EVEN THOUGH they were "recruited" below. I haven't seen a single person here yet properly define what a pyramid scheme is in the context of MLM, but that's not surprising given that everyone knows someone who went in with dreams of Bentley's, McMansions and tropical vacation only to realize it does not work that way and then proceeded to call anything that even smells of a MLM business as a pyramid scheme, cult, scam, etc. It's definitely not for everyone though.

Not sure who did Ackman's presentation, but there are too many false accusations and more importantly, misunderstandings of the business model, for this to drive the stock price near zero, let alone have HLF delisted UNLESS the FTC drastically changes its definitions or something unexpected comes to light. Something tells me Ackman has already, or is in the process of, booked profits.

The one disclaimer I have to touch on, however, is that MOST of these businesses are fairly sleazy with poor support systems and a lack of structure, not to mention shitty services or products. My experience relates to what I have been exposed to through my parents. The people that work with them would put most people to shame when it comes to networking, communication and interpersonal skills. They exhibit some of the best leadership skills I have seen. Your level of success significantly correlates to who you choose to work with, because those people serve as your mentors. I'm not defending ALL MLM models, because quite frankly majority of them have not been able to replicate the one my parents are with and thus make it exponentially harder for people to succeed in, but HLF has been around for 32 years for a reason and they aren't even near being the oldest or most successful MLM business out there.

" A recession is when other people lose their job, a depression is when you lose your job. "

1/3/13

The.RealDeal:
I'm with UFO on this one. My parents have been active with one of HLF's competitors for more than two decades now and though I have not followed in their footsteps, I know the structure inside and out. They have presence in two countries and have NOT continued to build the business in one of them after they moved. People in their group, under them so to speak, have now surpassed them and are earning much more then my parents EVEN THOUGH they were "recruited" below. I haven't seen a single person here yet properly define what a pyramid scheme is in the context of MLM, but that's not surprising given that everyone knows someone who went in with dreams of Bentley's, McMansions and tropical vacation only to realize it does not work that way and then proceeded to call anything that even smells of a MLM business as a pyramid scheme, cult, scam, etc. It's definitely not for everyone though.

Not sure who did Ackman's presentation, but there are too many false accusations and more importantly, misunderstandings of the business model, for this to drive the stock price near zero, let alone have HLF delisted UNLESS the FTC drastically changes its definitions or something unexpected comes to light. Something tells me Ackman has already, or is in the process of, booked profits.

The one disclaimer I have to touch on, however, is that MOST of these businesses are fairly sleazy with poor support systems and a lack of structure, not to mention shitty services or products. My experience relates to what I have been exposed to through my parents. The people that work with them would put most people to shame when it comes to networking, communication and interpersonal skills. They exhibit some of the best leadership skills I have seen. Your level of success significantly correlates to who you choose to work with, because those people serve as your mentors. I'm not defending ALL MLM models, because quite frankly majority of them have not been able to replicate the one my parents are with and thus make it exponentially harder for people to succeed in, but HLF has been around for 32 years for a reason and they aren't even near being the oldest or most successful MLM business out there.

Again, your comments are about MLM in general and not HLF in particular. Ackman was not shorting MLM in general, he had very specific accusations about HLF.

1/3/13

mrb87:
Again, your comments are about MLM in general and not HLF in particular. Ackman was not shorting MLM in general, he had very specific accusations about HLF.

I know that, and I think it's safe to say at least some of those accusation are based on Pershing's understanding of the MLM business model, which HLF participates in. If you can agree with that, then one would assume that a misunderstanding of how a pyramid scheme operates would render some of those accusations false. Correct me if I'm wrong,but Ackman is betting on FTC declaring HLF an illegal scheme. HLF has been publicly traded since late 2004 and in business for over 3 decades, but forget about their track record and try to actually understand how their compensation plan works. Ackman raises some good points, but if HLF goes down it will not be due to FTC's current definition. By the way, his understanding of what a pyramid scheme is laughable, me thinks he should have studied past court cases and FTC investigations of other MLM companies, especially in the 70's and 80's (including the landmark FTC vs MLM case in those years) in order to better asses the viability of his thesis.

Robert Chapman of Chapman Capital brought up an interesting point by saying that Ackman went public with his attack after realizing the FTC will not take any action against HLF and needed the negativity to crater the stock.Either way, this negatively affects ALL MLM companies because unlike in Hollywood,any publicity is not good publicity for this type of business model these days, especially in the short term.

" A recession is when other people lose their job, a depression is when you lose your job. "

1/3/13

The.RealDeal:
Either way, this negatively affects ALL MLM companies because unlike in Hollywood,any publicity is not good publicity for this type of business model these days, especially in the short term.

Okay, so you're just defending HLF because you're worried mommy and daddy's "business" will crater. That's fine then, I get it. (Seriously, not mocking.)

1/3/13

Huh? I'm not defending anything. I was just saying part of Ackman's thesis is based on wishful thinking, that's all. HLF will be fine in the long-term, even if they might run a business based on unethical behavior, barring something unexpected coming to light a la Enron or FTC having their hand forced to change the definition of a pyramid scheme. I could care less what happens here, but this whole hoopla provides good volatility for traders.

" A recession is when other people lose their job, a depression is when you lose your job. "

1/3/13

As much as I agree with Sandhurst, I thought the amount of confidence behind Ackman's tone of voice made it seem like he expected this to hit $0. The whole long-term viability of the business seems to be second rate to actually having this declared a pyramid scheme. For those of you guys who are questioning Ackman's definition of pyramid scheme and analysis of precedents, I encourage you to read that kiddynamite link earlier and scroll down to the comments. The declaration of a pyramid scheme is not as simple as "if revenue from recruiting > sales of product, then pyramid scheme." I think having a former partner in litigation from White & Case be your general counsel ensures that you're not going to fuck up your opinion on what constitutes a pyramid scheme.

1/4/13

"There are three ways to make a living in this business: be first, be smarter, or cheat."

1/5/13

"Do not go gentle into that good night"

1/6/13
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