HLF - Herbalife

[ZenaidaMacroura]

Now the stock trades back to 60 on earnings after hitting 70 this morning.  Ridiculous amounts of volatility for something which Icahn and Stiritz have done back of the envelope "no-brainer" math on.

I don't think there's any meaningful relationship between volatility and the fundamental merit of a position (justified by back-of-the-envelope math).  I feel like Icahn positions may even exhibit more turbulence...

[yadayada]

so he makes a billion$ bet against HLF and he has 11 billion AUM? It seems like poor risk managament here. I liked the look on Jeffrey Ubben and Rosenstein's faces when Ackman was discussed. That look of I will wisely not say anything, but what the hell is that guy doing.

 

It is somewhere in the activist hedgefund interview video on youtube.

[Liberty]

so he makes a billion$ bet against HLF and he has 11 billion AUM? It seems like poor risk managament here.

 

He's always been very concentrated, that's nothing new. He has 4 billion in the AGN-VRX deal.

[ZenaidaMacroura]

so he makes a billion$ bet against HLF and he has 11 billion AUM? It seems like poor risk managament here.

 

He's always been very concentrated, that's nothing new. He has 4 billion in the AGN-VRX deal.

I feel like due to the mechanics of being short you have to take more care when looking at the position size relative to your AUM -which is not to say ~9% is necessarily too much.

[gfp]

I was under the impression he had somewhere around $15 Billion under management at the moment.

 

so he makes a billion$ bet against HLF and he has 11 billion AUM? It seems like poor risk managament here.

 

He's always been very concentrated, that's nothing new. He has 4 billion in the AGN-VRX deal.

[Liberty]

I feel like due to the mechanics of being short you have to take more care when looking at the position size relative to your AUM -which is not to say ~9% is necessarily too much.

 

AFAIK he has puts, he isn't just directly short.

[peter1234]

I feel like due to the mechanics of being short you have to take more care when looking at the position size relative to your AUM -which is not to say ~9% is necessarily too much.

 

AFAIK he has puts, he isn't just directly short.

 

He was straight short at first.

 

Later switched to Puts, maybe after position moving against him.

:D

[peter1234]

Ackman claiming Icahn didn't do his due diligence when he bought HLF.

 

So far Icahn's back of the envelope investing beats Ackman's 300 page long nonsense. I am the only one that thinks that Ackman's prowess is overrated by the investment community? I think he is a gambler by nature mipore than an investor - big gains like GGP and others, but also epic failures like TGT, his first Gotham fund, BKS, JCP and most likely now HLF.

 

Hasn't he been doing over 20%/year overall since the early 2000s? (that's what I saw, anyway)

 

Gotham was before his current fund.

 

Target write-off was a separate side fund and probably not included in current fund performance.

 

;)

[Liberty]

I feel like due to the mechanics of being short you have to take more care when looking at the position size relative to your AUM -which is not to say ~9% is necessarily too much.

 

AFAIK he has puts, he isn't just directly short.

 

He was straight short at first.

 

Later switched to Puts, maybe after position moving against him.

:D

 

Yeah, after other billionaires tried to squeeze him, not exactly a fundamental change in the company or a validation of the business model by the regulators. ;)

[Liberty]

Gotham was before his current fund.

 

Target write-off was a separate side fund and probably not included in current fund performance.

 

;)

 

Sure. He constantly mentions his mistakes. I don't think he's pretending to be batting a thousand. He's still been doing pretty well for almost 15 years doing what seems to me one of the hardest kinds of investing (concentrated portfolio, high-profile activism), and that's not nothing. I certainly wouldn't want to be doing what he's doing...

 

If you're going to go through all that trouble, you'll need a situation that is almost binary. You can't do all that and just do a little better than you would otherwise, or do something that anyone else could do. So there are big homeruns that pay for the big failures (GGP vs. JCP) and in the end the average seems pretty good so far.

 

As I said, if I learn really terrible things about Ackman, I'm going to change my mind about him.

[ZenaidaMacroura]

I feel like due to the mechanics of being short you have to take more care when looking at the position size relative to your AUM -which is not to say ~9% is necessarily too much.

 

AFAIK he has puts, he isn't just directly short.

He was straight short originally, he converted something like half the position to puts.  But it was after realizing that he painted a huge "X" in between his eyes...

[ZenaidaMacroura]

 

Yeah, after other billionaires tried to squeeze him, not exactly a fundamental change in the company or a validation of the business model by the regulators. ;)

But if we are criticizing the size of his short position then this is not a valid defense - this goes under the mechanics of shorting (and activist investing - he lead a crusade against HLF, he didn't just sit on his short passively).  I think this comes with the territory of being a showman - which he certainly is and he's a very entertaining one at that.

 

Ackman certainly has a niche and is good at what he does, but atleast from the perspective of a detached outsider I can typically envisage which positions are going to be his winners/losers.  I feel like the more hyperbole he employs the less likely the position is to end being a winner for him ~ Borders, TGT, HLF, JCP (got the last one wrong, was long JCP at one point with him).

[yadayada]

has anyone watched the presentation? Are there actually herbalife users on this forum? I remember buffett buying a MLM business with dinner parties. And that business was more about the community aspect, and then maybe making some on the side. I think the same principle goes for Herbalife right?

 

If this is a complete fraud, that should be easy to verify. But there is no way i will sit through that 3 hour presentation.

[peter1234]

has anyone watched the presentation? Are there actually herbalife users on this forum? I remember buffett buying a MLM business with dinner parties. And that business was more about the community aspect, and then maybe making some on the side. I think the same principle goes for Herbalife right?

 

If this is a complete fraud, that should be easy to verify. But there is no way i will sit through that 3 hour presentation.

 

Could someone make the claim that the Pampered Chef force feeds people dinner...?

;D ;D

[yadayada]

has anyone watched the presentation? Are there actually herbalife users on this forum? I remember buffett buying a MLM business with dinner parties. And that business was more about the community aspect, and then maybe making some on the side. I think the same principle goes for Herbalife right?

 

If this is a complete fraud, that should be easy to verify. But there is no way i will sit through that 3 hour presentation.

 

Could someone make the claim that the Pampered Chef force feeds people dinner...?

;D ;D

They sure had a suspicious amount of these lying around:

http://haxo.nl/slir/w394-h408//uploads/webshop/Productafbeeldingen/1047085_1.jpg

[TwoCitiesCapital]

has anyone watched the presentation? Are there actually herbalife users on this forum? I remember buffett buying a MLM business with dinner parties. And that business was more about the community aspect, and then maybe making some on the side. I think the same principle goes for Herbalife right?

 

If this is a complete fraud, that should be easy to verify. But there is no way i will sit through that 3 hour presentation.

 

Yes. I watched it.

 

Could someone make the claim that the Pampered Chef force feeds people dinner...?

;D ;D

I think you're missing the whole point of his short thesis. It certainly isn't the Herbalife is forcing distributors to buy. No one was forced to invest with Bernie Maddoff either...doesn't mean what he was doing wasn't wrong. The point is the company targets poor and financially illiterate individuals to buy products, force them to give it away for free, so they can get  churn enough product to be eligible to get paid to train others who want to do the same. There's no money made in the products...only in recruiting. Most people who are recruited are recruited through the promise of significant additional income if they go through the training and begin recruiting and training others. It's pretty clear from the marketing material, conference videos, and the general structure that recruitment is the point and that product is just a means to give it some form of legitimacy - this is exactly how US law differentiates between ponzi schemes and legitimate MLMs.

 

Ackman's presentation was pretty damning for something that is responsible for 40% of company revenues and is the model for future growth. That being said, I'm generally cynical of federal regulators and have no understanding of law or precedence in similar cases to know what a likely outcome is. Ackman better hop for more than a wrist slap.

[ZenaidaMacroura]

It's pretty clear from the marketing material, conference videos, and the general structure that recruitment is the point and that product is just a means to give it some form of legitimacy - this is exactly how US law differentiates between ponzi schemes and legitimate...

Ackman says the 90 day "cooling off " period between signing up and opening a nutrition club induces people to partake in the training- I feel like that's a stretch.  It stops someone who has the means to just purchase a supervisor package and just opening up a club from doing so.  Ackman claims that making bop people consume these shakes during the training process introduces a sense of path dependency due to sunk costs.  But this is specious because each of these people taking the class doesn't actually open their own nutrition club - most don't.

 

I'm having a hard time finding herbalife corporate's club 100 advisory.  The herbalife nutrition club guideline doc is most searchable and clearly states that attendance is not mandatory/making shakes unpaid cannot exceed 2 hrs, etc...

 

 

[Liberty]

It's pretty clear from the marketing material, conference videos, and the general structure that recruitment is the point and that product is just a means to give it some form of legitimacy - this is exactly how US law differentiates between ponzi schemes and legitimate...

Ackman says the 90 day "cooling off " period between signing up and opening a nutrition club induces people to partake in the training- I feel like that's a stretch.  It stops someone who has the means to just purchase a supervisor package and just opening up a club from doing so.  Ackman claims that making bop people consume these shakes during the training process introduces a sense of path dependency due to sunk costs.  But this is specious because each of these people taking the class doesn't actually open their own nutrition club - most don't.

 

I'm having a hard time finding herbalife corporate's club 100 advisory.  The herbalife nutrition club guideline doc is most searchable and clearly states that attendance is not mandatory/making shakes unpaid cannot exceed 2 hrs, etc...

 

In theory, theory and practice are the same. In practice, they aren't.

[fareastwarriors]

http://www.bloomberg.com/news/2014-07-31/ackman-says-my-bad-on-herbalife-presentation.html

 

 

Ackman Says ‘My Bad’ on Herbalife Presentation

[ni-co]

Am I the only one who finds John Hempton's rebuttal of the short thesis totally convincing? It's a very simple long thesis ("real customers") that should be very easy to disprove by the bears if false. Instead of making this an argument about facts Ackman is making it a moral one.

 

If this is all he has he is really completely nuts to put 10% of his portfolio into this. I think it's completely nuts to put 10% of your portfolio into any short idea for that matter. There is really a risk to blow up your fund if you do this. I think Ackman is a great stock picker, but this is nutty risk management – no matter how sure you he is about his short thesis. I actually like Ackman, but I would never invest in a fund (and pay 2/20 or whatever exorbitant fee he charges) for this kind of risk management.

 

http://brontecapital.blogspot.de/2014/08/for-kicks-just-how-big-is-herbalife-and.html

[peter1234]

Am I the only one who finds John Hempton's rebuttal of the short thesis totally convincing? It's a very simple long thesis ("real customers") that should be very easy to disprove by the bears if false. Instead of making this an argument about facts Ackman is making it a moral one.

 

If this is all he has he is really completely nuts to put 10% of his portfolio into this. I think it's completely nuts to put 10% of your portfolio into any short idea for that matter. There is really a risk to blow up your fund if you do this. I think Ackman is a great stock picker, but this is nutty risk management – no matter how sure you are about your short thesis. 

 

http://brontecapital.blogspot.de/2014/08/for-kicks-just-how-big-is-herbalife-and.html

 

My gut feeling as well.

 

I think it boils down to what you think about MLMs in general.

 

They are about recruiting massive amounts of people.

 

;)

 

[ZenaidaMacroura]

Am I the only one who finds John Hempton's rebuttal of the short thesis totally convincing? It's a very simple long thesis ("real customers") that should be very easy to disprove by the bears if false. Instead of making this an argument about facts Ackman is making it a moral one.

 

If this is all he has he is really completely nuts to put 10% of his portfolio into this. I think it's completely nuts to put 10% of your portfolio into any short idea for that matter. There is really a risk to blow up your fund if you do this. I think Ackman is a great stock picker, but this is nutty risk management – no matter how sure you he is about his short thesis. I actually like Ackman, but I would never invest in a fund (and pay 2/20 or whatever exorbitant fee he charges) for this kind of risk management.

 

http://brontecapital.blogspot.de/2014/08/for-kicks-just-how-big-is-herbalife-and.html

 

I am long and I agree with you - with that said, I am a lot less excited due to the potential for a slowdown in growth.  But I feel it's still fairly attractive given the CF and Ackman induced depressed prices.

[ni-co]

There is no doubt in my mind that HLF is earning their large profits on the back of people who get screwed. I think it's a deeply unethical company – but so are big tobacco and gambling companies.

 

Tobacco and gambling companies exist in legality because there are lots of legitimate customers who simply enjoy the products or who enjoy them only partly but are fully aware that they get partly screwed every time they consume. That's not how these companies earn their big profits, though. They earn them on the back of people who become really addicted and therefore only get screwed.

 

What dawned on me is: What if HLF is – structurally – such a company? HLF seems to know very well where the legal boundaries are of what defines a pyramid scheme; and they try very hard to manage just not to fulfill the definition of it. The problem I see with Ackman's short thesis is that he is utterly convinced that HLF overstepped the line which defines an illegal pyramid scheme and he is totally committed to prove it. But has he ever thought about the possibility that there might not be a sharp line but a grey zone between pyramid schemes and MLM? A grey zone HLF may very intentionally operate in?

 

After reading all I could and watching Ackman's presentation I'm more or less convinced that there is both: lots of real consumption and lots of people who think they're going to be a Herbalife millionaire.

 

So, now what?

 

For me personally, this means that I won't invest because I really don't like HLF and the people who run it. This doesn't make it a bad investment from a financial point of view, though. In my mind, HLF has a long way to go before they essentially run out of new people to screw. There are not that many long time HLF consumers, I suppose, so I expect HLF sales to collapse sooner or later – but rather: later.

 

If you're callous with these kinds of investments (I certainly won't blame you), this is going to be a great investment, though. It's going to be great because the stock price does not reflect the expectation of years of good profitability, but this is exactly what I would expect. I think chances are almost zero that authorities are going to shut this company down or even hinder its growth in a substantial way.

[merkhet]

The general concept that Ackman is putting forth is that what Herbalife categorizes as "consumers" are not consumers but rather "people in recruitment." This was the lead that Ackman buried in three hours of rambling...

 

If the relevant governmental agencies agree with him, then that's probably the end of Herbalife. What's their operating margin? Around 15%? I've read estimates that HLF depends on these nutrition clubs for almost 40% of their revenue. What happens if/when those 40% go away?

[ni-co]

The general concept that Ackman is putting forth is that what Herbalife categorizes as "consumers" are not consumers but rather "people in recruitment." This was the lead that Ackman buried in three hours of rambling...

 

If the relevant governmental agencies agree with him, then that's probably the end of Herbalife. What's their operating margin? Around 15%? I've read estimates that HLF depends on these nutrition clubs for almost 40% of their revenue. What happens if/when those 40% go away?

 

I totally got that. But what are the odds that this scheme defines legally as a pyramid scheme?