gg Posted July 30, 2013 Share Posted July 30, 2013 This whole thing is really blown so out of proportion, and (shockingly) the financial press keeps on misrepresenting the situation. Regardless of which side you think is right, the only thing that is certain is that it is too early to tell the winner. Even if Ackman is totally wrong on HLF, he still gets the $1,000,000,000 in cash to invest from the HLF short position to invest in the meantime. If he is doing decently this year, then that goes a long way to cover HLF losses. Either way, at the end of the day, a billion dollars is a large number in absolute terms for a short position, but in the context of Ackman's portfolio, its closer to a 10% position. If HLF triples in value during his short, it still is not the end of the world for Pershing Square. Link to comment Share on other sites More sharing options...
Myth465 Posted July 30, 2013 Share Posted July 30, 2013 And GG you are right. That article title is very misleading. I think there is a risk though for a fairly big loss for Ackman if its taken private. Link to comment Share on other sites More sharing options...
kevin4u2 Posted July 30, 2013 Share Posted July 30, 2013 Some interesting posts from John Hempton, falsifying Bill Ackmans HLF thesis. http://brontecapital.blogspot.ca/2013/07/it-was-night-before-christmas.html http://brontecapital.blogspot.ca/2013/07/multi-level-marketing-schemes-and-their.html And this post comparing HLF to Buffett's Pampered Chef is perhaps the best reply. http://brontecapital.blogspot.ca/2013/07/an-incomparable-business-opportunity.html I would have to say I agree with John, Ackman is wrong on this one. Link to comment Share on other sites More sharing options...
siddharth18 Posted July 30, 2013 Share Posted July 30, 2013 This whole thing is really blown so out of proportion, and (shockingly) the financial press keeps on misrepresenting the situation. Regardless of which side you think is right, the only thing that is certain is that it is too early to tell the winner. Even if Ackman is totally wrong on HLF, he still gets the $1,000,000,000 in cash to invest from the HLF short position to invest in the meantime. If he is doing decently this year, then that goes a long way to cover HLF losses. Either way, at the end of the day, a billion dollars is a large number in absolute terms for a short position, but in the context of Ackman's portfolio, its closer to a 10% position. If HLF triples in value during his short, it still is not the end of the world for Pershing Square. More than anything, the hubris with which he proclaimed that HLF was a fraudulent pyramid scheme really annoyed people. That something which flourishes for over 30 years can all of a sudden be accused of being a fraud, and that a single person can move a stock worth billions even in the absence of a "smoking-gun" is what was annoying. So now, everyone can't help but point it as an ill-advised move (obviously with the benefit of hindsight). While Ackman will or won't be right isn't certain. What is certain that his first attempt didn't succeed and he faces an uphill battle. Even if Ackman is totally wrong on HLF, he still gets the $1,000,000,000 in cash to invest from the HLF short position to invest in the meantime. If he is doing decently this year, then that goes a long way to cover HLF losses. Yes but with much risks and little benefit. He could've borrowed $1 billion and just paid interest on it rather than interest + HLF dividend. But you are right, if he parked the $1B somewhere he might have soothed his paper loss. Link to comment Share on other sites More sharing options...
siddharth18 Posted July 30, 2013 Share Posted July 30, 2013 What kind of price are you forecasting, if it works out, for 2015? I look at it and see earnings maybe in the $5 range by then. Being pessimistic, I would think 10-12x earnings would be reasonable once the regulator shutdown threat passes. I guess if people view it as a growth business maybe you get 15-18x but I hate to plan for that. With 10-12x you are looking at $50-60. If you buy the '15 $35 call at $8.8 then you have about 80%-180% upside. It could hit a higher multiple but I am not sure I would bank on that. With the equity you are looking at 50% to 70% upside. If regulators pull the pin it goes to 0, agreed. I guess the only argument I can make for equity is if you hit a general index pull-back you can wait a bit longer. As I write this out, I am actually leaning more towards the options. I think the $30 call might be a better balance as it gives you more breathing room if we are in a market slump in 2 years. As far as the binary aspect, I agree with you but think while the outcome is binary the odds heavily tilt towards it not being shut down. I hope you bought those LEAPs! Alas, I didn't. :'( While the timing wasn't certain when the market would react and push HLF to rational multiples, the opportunity was there. Although I learned a lot from this saga which I'm sure will help me in future situations. It was fun uncovering an "ick" investment as my favorite investor Dr. Mike Burry described it and then identifying the asymmetric opportunity the way Charles Ledley and James Mai did in their early days. The "fear" trade has run its course and the asymmetrical opportunity no longer exists; at-least the way I perceive it. The company may continue to flourish but profiting off of it may be tall order at non-depressive valuations. The margin of safety has been drastically decreased due to the run-up in price. While I'm sure there's more to come, cheers to all that followed this so far! The biggest bet on HLF I've heard so far (as % of AUM) is Robert Chapman http://bit.ly/13x1Zdi Link to comment Share on other sites More sharing options...
JEast Posted July 30, 2013 Share Posted July 30, 2013 John Hempton? Was he not the great analyst that said a certain Canadian company was a fraud? Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted July 31, 2013 Share Posted July 31, 2013 Even if Ackman is totally wrong on HLF, he still gets the $1,000,000,000 in cash to invest from the HLF short position to invest in the meantime. Yes, you can invest the proceeds from the short sale. But if you are losing money on your short, you have less margin available. If he runs out of margin, he can get margin called and he will be forced to liquidate positions to reduce leverage. What happens in the short term matters a lot for the short sellers. The longs can ignore any short-term fluctuations. (I think it's obvious that Ackman sized his position way too big.) Link to comment Share on other sites More sharing options...
bmichaud Posted July 31, 2013 Share Posted July 31, 2013 I cannot imagine Ackman is so stupid to go completely unhedged from wherever HLF traded back in December. He initiated in what the $50's?? Even if you had all the conviction in the world, why would you not enter some type of derivative transaction to hedge the gains once Uncle Carl entered the fray? Link to comment Share on other sites More sharing options...
Matson125 Posted July 31, 2013 Share Posted July 31, 2013 Billionaire investor Soros takes long position in Herbalife - CNBC http://www.reuters.com/article/2013/07/31/funds-hedge-herbalife-idUSWEN009ZE20130731?feedType=RSS&feedName=financialsSector&rpc=43 Link to comment Share on other sites More sharing options...
kevin4u2 Posted July 31, 2013 Share Posted July 31, 2013 John Hempton? Was he not the great analyst that said a certain Canadian company was a fraud? Yes. What is your point? I don't understand the comment. Don't worry, I likely agree with your assessment of his ethics, but I found his discussion of the entire HLF saga to be interesting. Especially with the comparison to BRK's Pampered chef. I am a BRK shareholder and so I have a vested interest in this HLF discussion. Link to comment Share on other sites More sharing options...
Vish_ram Posted July 31, 2013 Share Posted July 31, 2013 I think one trait that Ackman picked up from his MBIA short was that , if you are convinced that you are right on the short thesis, hold on to it no matter what. It took years for MBIA thesis to work out. This explains why he was totally unhedged on HLF short. The timing of his short is also very curious. He planned it for year end so that the distributors wont sign up for the new year. He was waiting on an implosion + shut down from regulators. Both hasn't happened. His short may cost him 1-2 billion as HLF keeps going up. Given the recent perf of JCP, he may have to sell some PG, CP, GGP etc. What if investors panic and pull funds out? What if Icahn/Soros start shorting PG, CP.. in anticipation of fire sale? Link to comment Share on other sites More sharing options...
orion Posted July 31, 2013 Share Posted July 31, 2013 I´m looking at this from the sideline and I´m just curious: Considering the large short position in HLF, why are the borrow rates still so low? For example Interactive Brokers is offering a borrow at ~2%. Link to comment Share on other sites More sharing options...
fareastwarriors Posted August 7, 2013 Share Posted August 7, 2013 http://online.wsj.com/article/SB10001424127887323838204578654082809374320.html?mod=WSJ_hps_LEFTTopStories#articleTabs%3Darticle Billionaires Take Sides Over Herbalife William Ackman's Big Short on Herbalife Has Lured Other Wall Street Titans.. Link to comment Share on other sites More sharing options...
fareastwarriors Posted August 13, 2013 Share Posted August 13, 2013 http://dealbook.nytimes.com/2013/08/13/herbalife-safety-issue-draws-scrutiny/?_r=0 Herbalife Safety Issue Draws Scrutiny Link to comment Share on other sites More sharing options...
orion Posted August 16, 2013 Share Posted August 16, 2013 Interesting. The borrow rates are up to 3.5% since my last past two weeks ago (~2%). Link to comment Share on other sites More sharing options...
HJ Posted August 22, 2013 Share Posted August 22, 2013 This one is just too juicy to pass up. From Bronte Capital website, below is link to the S-1 filing when Herbalife was going public in 2004. Check out the picture at the back cover, right after page F-60. You can't make this stuff up! http://www.sec.gov/Archives/edgar/data/1180262/000104746904030210/a2143847zs-1.htm Link to comment Share on other sites More sharing options...
OracleofCarolina Posted August 22, 2013 Share Posted August 22, 2013 is this real? That's crazy! Link to comment Share on other sites More sharing options...
LakesideB Posted August 22, 2013 Share Posted August 22, 2013 Holy .... UnReal!!! Link to comment Share on other sites More sharing options...
MYDemaray Posted August 22, 2013 Share Posted August 22, 2013 Uncanny. Obviously not the Obamas...but uncanny. Link to comment Share on other sites More sharing options...
dcollon Posted September 4, 2013 Share Posted September 4, 2013 Interesting to see Stiritz file as a 5% holder of HLF. He was featured in Thorndike's book, The Outsiders, as one of 8 unconventional CEO's. They all allocated capital very well. http://www.businessinsider.com/william-stiritz-herbalife-stake-2013-9 Link to comment Share on other sites More sharing options...
fareastwarriors Posted September 11, 2013 Share Posted September 11, 2013 Ackman to PwC: Herbalife may get you in trouble http://www.cnbc.com/id/101026213 Link to comment Share on other sites More sharing options...
fareastwarriors Posted September 11, 2013 Share Posted September 11, 2013 http://www.latimes.com/business/money/la-fi-mo-herbalife-ftc-latina-group-20130911,0,6706499.story Latina advocacy group asks FTC to investigate Herbalife Link to comment Share on other sites More sharing options...
xtreeq Posted October 3, 2013 Share Posted October 3, 2013 Looks like Ackman started to close some of his short position: "In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks we have restructured the position by reducing our short equity position by more than 40% and replacing it with long-term derivatives, principally over-the-counter put options" http://www.zerohedge.com/news/2013-10-02/ackman-books-herbalife-losses-forced-cover-40-short-avoid-being-forced-cover-short Link to comment Share on other sites More sharing options...
fareastwarriors Posted October 18, 2013 Share Posted October 18, 2013 http://www.nytimes.com/reuters/2013/10/18/business/18reuters-herbalife-demonstration.html?src=busln Latinos Urge California Attorney General to Probe Herbalife Link to comment Share on other sites More sharing options...
fareastwarriors Posted October 31, 2013 Share Posted October 31, 2013 the saga continues! Bill Ackman to unveil new Herbalife information: Source http://www.cnbc.com/id/101159883 Link to comment Share on other sites More sharing options...
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