Bill Ackman Surrenders in His Five-Year War Against Herbalife

https://www.wsj.com/articles/bill-ackman-surrenders-his-in-five-year-war-against-herbalife-1519854456

by mudil • 8 years ago

157 127 8 years ago

Analemma_• 8 years ago

While it feels icky to root for a billionaire hedge fund manager who probably couldn't care less if I lived or died, I was kind of pulling for Ackman. Herbalife is a complete scam, and in a sane universe they wouldn't have any valuation at all. But no one ever went broke underestimating the intelligence of the American public. Sigh.

nwah1• 8 years ago

Felt the same way. The documentary Betting On Zero was eye-opening, and I was surprised that he stuck to this bet for so long.

I suppose it isn't really a pyramid scheme in the sense of being unstable. It is perfectly stable at fleecing people who don't know any better.

Reedx• 8 years ago

It goes way beyond the American public, they're global - in at least 95 countries. I guess that's how they're managing to keep the scheme going as long as they have.

Really does seem like a strong bet that they will go to zero.

glibgil• 8 years ago

The lifecycle of an MLM company: Utah, then the rest of the US, then the world

sg0• 8 years ago

Exactly, I was shocked to see Ackman betting against Herbalife, because I have seen Herbalife craze first hand in India. My office was in M.G Road, Bangalore, a premium spot of Bangalore, and Herbalife had a big distribution center right there (next to our office building). It was always crowded, people coming and going. My then roommate also got into the Herbalife cabal, and got his entire family involved. He claimed that his dad had lost significant weight after regularly having one of their shakes, and left no stone unturned in advertising the product, to the point that some people started avoiding him. But note, he never asked any of us overtly to buy Herbalife products and build a chain of Herbalife-peddling minions. I guess the point is, some people are attracted to the exclusivity factor, they think that wow these products are expensive, so they must be good, and praise about them to others. Some of these praise soaked people get interested enough to check it out, and the iteration continues.

walshemj• 8 years ago

Interesting I have shares in Pershing Square brought as a discount ploy in my ISA

jeffbarg• 8 years ago

I can't view the article behind paywall, but there was a recent documentary about this short position.

Worth a watch: http://bettingonzeromovie.com/

royjacobs• 8 years ago

While I agree that Herbalife doesn't seem like a very kosher company, it's probably also good to realize that that documentary was probably heavily skewed towards the viewpoint of (and probably somehow co-financed by) Ackman.

dhimes• 8 years ago

I think we should disallow paywalled links, personally.

marojejian5• 8 years ago

“The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes

Looks like another case of this applying. Though it's sad, I am heartened to know that giants can succumb to this too. Lord knows it's hit me enough.

zombieprocesses• 8 years ago

“The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes

Or it can stay irrational as long as it has a wealthier billionaire backing it.

People forget that HLF was headed for collapse until Icahn and a few other billionaires backstopped HLF.

There is a reason why Ackman is worth $1 billion and Icahn is worth $16 billion.

marojejian5• 8 years ago

Interesting. Why did Icahn and the other deep pockets care to fight this battle?

stefan_• 8 years ago

Why is it god given inevitable that this is somehow a bad investment? Plenty of companies make their money deceiving the poor or defrauding their customers, lots of the consulting joints come to mind..

ada19815• 8 years ago

This is the second comment I've seen about consulting shops being scams. Can you say more about your experience with this?

pbhjpbhj• 8 years ago

Surely it's a bad investment for anyone who has morals. People may assume that others generally aren't evil and so will not support obvious (to them) scams.

opo• 8 years ago

“The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes

There isn't much evidence that was said by Keynes:

...In conclusion, this saying appeared in print by the 1990s and was closely associated with the financial analyst A. Gary Shilling. Based on current evidence it is possible that Shilling crafted of this apothegm. The journalist Jason Zweig believes he heard the phrase earlier and thinks it was in use by the late 1980s.

https://quoteinvestigator.com/2011/08/09/remain-solvent/

(I don't mean to derail your comment as I agree with the rest of it - just don't like to see misattributed quotes.)

marojejian5• 8 years ago

Thanks opo!

I tried to research the attribution a bit, but clearly fell short. I was pretty surprised that Keynes would be able to come up with that. I'll try to edit my comment appropriately

fitzroy• 8 years ago

For anyone interested, the documentary Betting On Zero is very good (on Netflix). I'd be curious to hear how the film came together and got financed. It certainly has an agenda and Bill Ackman comes out looking pretty good vs Herbalife.

That said, Ackman looks a lot less good in episode 3 of "Dirty Money" regarding Valeant (also on Netflix).

Obligitory "the market can remain irrational longer than you can remain solvent" quote.

EDIT: Just noticed Herbalife owns bettingonzero.com. They put up a "FAQ" saying Ackman secretly funded the doc and they're promoting the link with ads on Google.

justherefortart• 8 years ago

I worked at a small MLM. Saw the actual numbers. The Company took 80% of the revenue. There's some BS about how you're only supposed to steal 42% or something maybe that's the payout, it was a while back.

Interesting short term job. GTFO as soon as I saw the real numbers.

whalesalad• 8 years ago

Also worth watching the Dirty Money episode (Netflix as well) on the pharmaceutical company Valeant. Ackerman was heavily involved here on the flip side (he was helping the wrongdoers rather than trying to short them and expose the fraud)

NicoJuicy2• 8 years ago

Ah, I didn't saw your comment.. +1

soheil• 8 years ago

Note: that documentary is in support of Bill Ackman.

pessimizer• 8 years ago

Obligitory "the market can remain irrational longer than you can remain solvent" quote.

Investing in large financial scams isn't irrational in the current regulatory environment. The only danger to them is that they conflict or compete with some other, larger business that can lobby politicians. Ackman personally was actually the biggest threat to Herbalife, which is why we heard so much about this.

lobster_johnson3• 8 years ago

It's interesting that Ackman seems to have been doing against Herbalife exactly what his opponents were doing when they were shorting Valeant. With Valeant, Ackman seemed pretty naive and/or delusional about its value and operations.

(That said, Valeant still exist today, despite its extremely immoral and shady past doings. I was dismayed to find recently that one of my favourite brands, CeraVe, is actually a Valeant company.)

JauntTrooper• 8 years ago

No need to worry then, Valeant sold CeraVe to L'Oreal last year.

jtzhou• 8 years ago

Problem with Ackman is he thinks he's doing God's work by shorting Herbalife, but in reality if he wanted to "do good" himself he would have gone to law school and taken up the cases themselves (pro bono likely), or pay lawyers to take it on. Maybe the exploited customers would have even won a larger class action. Even though he showed a human side, Ackman failed at doing what he's supposed to do which is invest other people's money.

NicoJuicy2• 8 years ago

I'd also advice "dirty money" on Netflix. It's very good ( but nothing to do with Herbalife though)

paulie_a• 8 years ago

I can't imagine it is very difficult for anyone to come out looking good when compared to Herbalife.

jdoliner• 8 years ago

Mods, the title please. It hurts.

bb88• 8 years ago

It does.

dang• 8 years ago

Should be fixed now. Submitted title was "Bill Ackman Surrenders His in Five-Year War Against Herbalife".

ISL• 8 years ago

Ackman has purchased put options, which, in my understanding, is not surrender.

dna_polymerase• 8 years ago

Exactly, all the did was changing the tool. He learned that the market wouldn't move as fast as he wished and now he has a position that he can actually maintain in the long run.

anilshanbhag• 8 years ago

That was a while ago. Today he said he closed all positions in Herbalife (stock and options).

tchen• 8 years ago

unpaywalled: https://outline.com/YPct

daxorid• 8 years ago

Similarly, David Einhorn and Greenlight continue to get squeezed by the price-insensitive investors of NFLX, AMZN, and TSLA.

He has yet to capitulate positions, but very well may do so soon, as he was forced to apologize to Greenlight investors for recent serious underperformance.

testfoobar• 8 years ago

I have no opinion on the future price/direction of these stocks.

From end of 2017 to today:

NFLX: 192 to 291 51% gain in two months AMZN: 1169 to 1512 29% gain in two months TSLA: 311 to 343 10% gain in two months

valuearb• 8 years ago

Greenlight has crushed for a long time. A bad couple months is meaningless.

sgw928• 8 years ago

Imagine someone super rich shorts Herbalife like Ackman did, lobbies congress to make Herbalife's business model illegal, and then profits from the short position. Would this be conflict of interest legally, or is this just how crony capitalism works in the US nowadays?

loeg3• 8 years ago

What makes you think Ackman didn't lobby against MLMs? The trouble is/was, Herbalife outbid him by a large factor: https://www.theverge.com/2014/4/8/5590550/alleged-pyramid-sc...

starpilot• 8 years ago

Imagine someone invents something currently illegal then lobbies to make it legal, in order to sell it. This is just capitalism and liberalism, and it's a good thing.

smt882• 8 years ago

What if that thing is dangerous?

I can't think of many historical examples where something was already illegal when it was invented for no good reason. Can you? Maybe pharma fits that category, but no rational person would argue drugs should be legal by default...

BLKNSLVR• 8 years ago

How is this a good thing?

What if it's illegal for a good societal reason, and lobbying is just throwing enough money at enough of the right people until they succumb and legalise it?

It's never going to be cut and dried 'a good thing'. In some instances it will be and some it won't.

grafporno• 8 years ago

For a somewhat similar reverse case, you don't need to imagine, Betsy DeVos already has that on lock-down.

eschutte2• 8 years ago

That's roughly what Ackman did. https://www.nytimes.com/2014/03/10/business/staking-1-billio...

loeg3• 8 years ago

What a shame. Herbalife is clearly an MLM, a modern form of a ponzi scheme. Their long term value is clearly zero, they just didn't manage to tank in the period Ackman projected.

Jesus_Jones• 8 years ago

yeah, herbalife is like a lot of the mlm schemes, taking advantage of the poor and disadvantaged. maybe now that he's given up on it, it will conveniently just die? just because you know something is doomed it doesn't mean you know when it dies.

bhouston• 8 years ago

Icann was proping up Herbalife to just f*ck with Bill Ackman for the fun of it. Herbalife is totally going to die now, and has been for a while.

WheelsAtLarge3• 8 years ago

Yes, it's an MLM but unfortunately, they have a business model that works. Amway is an MLM that survived a similar attack as Ackman vs Herbalife. Ackman did not bring anything new to the fight. I wished he would have won since many people lose money since they feel that Herbalife will sell itself. They're not ready to put up with the low pay and long hours until they reach the upper ranks. Most people just give up and lose their investment.

Retric4• 8 years ago

Most people can't reach the upper ranks of any MLM due to how they are structured. It's like a consulting shop you need more leaf nodes than managers.

kurthr• 8 years ago

I recommend reading Bronte Capital's take on this. He regularly evaluates short opportunities mostly related to fraud.

He actually visited Herbalife clubs before making a decision on shorting. He's not a fan of Ackerman.

https://brontecapital.blogspot.com/search?q=herbalife

CrackpotGonzo• 8 years ago

Wow, thank you for sharing this. It was an illimunitaing read and made change my opinion on Herbalife. Comparing it to AA makes a lot of sense.

bagels• 8 years ago

AA = Alcoholics Anonymous in this context, in case you were wondering.

mar77i• 8 years ago

illimunitaing

https://i.imgur.com/7rFgBB1.jpg

evrydayhustling• 8 years ago

Terrific read, thanks for introducing me. Great example of how dangerous it is to think something is popular because others are more stupid or gullible than yourself. Keep looking until you see what they see, whether you end up agreeing or not.

spamizbad• 8 years ago

The fact that these herbalife clubs cannot be sustained ultimately seems to prove Ackerman's point. Just google around for Herbalife shops in Queens today, it doesn't seem like any of them have survived.

gowld4• 8 years ago

It depends on whether there is equilibrium. If someone founds a club and breaks even for a while while losing weight until they meet their goal, then someone new does the time, the cycle can perpetuate until the rate of newly overweight people drops.

twosville• 8 years ago

the kill shot:

"What this has (deservedly) become is the story about how Bill Ackman can be so wrong. He spent (by his own admission) a year and a half analysing this company and his thesis can be falsified by visiting a few clubs in his home city. Bill Ackman's thesis is the most easily falsified bear-thesis I have seen from a major hedge fund ever.

You have to wonder how this happened. So I am going to tell you:

Bill Ackman a Harvard educated (magna cum laude) billionaire New York hedge fund manager bet over a billion dollars on a short position (imperilling his fund and his reputation) without checking the facts.

And he did not check the facts because he was so rigid with a misplaced silver spoon that he could not stoop to sit on a subway for thirty minutes and talk with poor people for ninety minutes."

paganel• 8 years ago

with a misplaced silver spoon that he could not stoop to sit on a subway for thirty minutes and talk with poor people for ninety minutes."

I'm not an Ivy League alumni by any means (I'm a last-year CS drop-out from an Eastern-European country), but I got to see a Herbalife presentation in person 10 years ago and realized it was a scam 10 minutes into said presentation. As a matter of fact, I had a intense verbal fight with my ex-wife and my ex-MIL immediately after the presentation, as I was trying to explain to them that the money they had just spent on those Herbalife products was money thrown out of the window and that there were other ways to lose weight. I was right, those Herbalife products stood on top of one of our drawers for half a year, touched only once or twice, after which we threw them away. The gist was that we should have brought more of our acquaintances and friends into the scheme, but my ex-wife was a smart enough woman to realize that that was a no-go.

Long story short: companies like Herbalife deserve to die. They feed on people's insecurities, more than that, those people which Herbalife feeds on are not very well-off, quite the contrary (the money we spent on their products that one time was money taken from other necessity purchases). They're a despicable company, I'm genuinely let-down that Ackman failed.

Kurtz79• 8 years ago

Great read.

I remember seeing plenty of Herbalife leaflets posted on the street when I was younger, and I always thought it was a scam and something exploitative (which in a way it is).

This helps putting things into context.

bob_theslob6462• 8 years ago

I still do not understand why these people choose to reveal their positions. In ackman's case, it actually made people a lot of money because other people who didn't like Ackman got together and said 'hey what if we take the other side of this because we think that there's another puff left to this cigar."

cryptozeus• 8 years ago

May be at that level they hope to play the market by revealing...more people could get behind the call

bob_theslob6462• 8 years ago

If anything, reading about it from the 13f attracts more attention. ( i.e Buffet), but for Bill and Mr.Dalio, does not seem to be working out.

WheelsAtLarge3• 8 years ago

Read Amway vs (the world?) and you'll understand why Ackman lost.

https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...

fwdpropaganda• 8 years ago

Come on, tell us more.

xref• 8 years ago

I have some family pretty deeply trapped in Lularoe's "MLM", the fact Herbalife is still legal and solvent doesn't give me a lot of hope for a rosy outcome for my fam

phamilton2• 8 years ago

Anecdata is not proof, but plenty of people actually make money in LuLaRoe from sales rather than the pyramid structure.

AlexCoventry2• 8 years ago

Probably means it's a good time for a short-term short.

ada19815• 8 years ago

I hate MLMs so very much.

There is a good book called False Profits by Robert Fitpatrick about the MLM industry.

So much of our culture is some version of sucker capitalism.

panarky• 8 years ago

So much of our culture is some version of sucker capitalism.

It's amazingly difficult to find examples of businesses considered "successful" that aren't somewhat pyramid-shaped.

And as soon as I find one, it turns out it relies on a larger ecosystem that itself is pyramid-shaped.

None of these enterprises can survive for the long run, but since in the long run we're all dead, maybe it only matters if you can ride the wave in the short run??

hueving3• 8 years ago

How is In-N-Out pyramid-shaped?

drngdds• 8 years ago

The problem with MLMs isn't just that they're pyramid-shaped. It's that they trick people into thinking they'll get rich when they'll probably just lose money. (If they succeed in making money, it will probably happen by scamming their friends and family. This is not how a business is supposed to operate.)

randomwalker6• 8 years ago

"Baby Buffett" Bill went long on Valeant, a company so evil that it makes diet smoothie MLM Herbalife look like the Salvation Army, yet people here apparently still think he's a good guy because of his sympathetic portrayal in Betting on Zero. Ackman not only is not a good guy, he's also, like most hedge fund managers, completely incompetent:

The losses in each of the past three years — of 4, 13.5 and 20.5 percent — come against gains in the S&P 500 of 19.4 and 9.5 plus a 0.7 percent dip, respectively. The Pershing losses took its net assets to $9.3 billion from $18.3 billion.

https://nypost.com/2018/01/10/ackmans-pershing-square-fund-t...

PSCM can't even consistently beat the S&P 500, and Ackman's already on his second fund after having blown up his first (Gotham Partners)--why on earth would anyone give this guy their money? Because he's handsome and a smooth-talker, I suppose.

godzillabrennus• 8 years ago

He sure deserves his lumps over Valeant but let’s not play pretend. There are plenty of monsters on Wall Street who will gladly destroy great companies for short term profits.

Eric Ries has the right idea with the long term stock exchange.

hidenotslide• 8 years ago

What is the LTSE? From their website it doesn't really seem like they do anything other than some apps for entrepreneurs?

Often the mechanism for destroying great companies is plundering one group of stakeholders to pay off equity and management. E.g. firing long-time employees, underfunding/changing pensions, over leveraging, or risky regulatory strategies that they won't be around to face the consequences for. I don't see how what stock exchange something is listed on has much effect on any of those.

rajacombinator• 8 years ago

The real untold story of guys like Ackman and most of Silicon Valley is their sales and fund raising ability. Because he sure as hell ain’t a good investor. Yet he still manages billions of dollars of investor funds. At this point he’s like a bizarro world Gartman.

adventured• 8 years ago

Ackman's fund got to where it did, because he actually produced a string of great returns across a decade and a few monster hits (such as Canadian Pacific). Investors would have never given him that level of capital otherwise.

The fact is, Pershing stomped the S&P 500 across a decade, from Q1 2004 to Q1 2014 (without anything from Valeant contributing). Which very few fund managers ever manage to do. Most are lucky to beat the S&P 500 at any point. You can call it luck, which it could be obviously, across a decade that's quite an unusual string of luck.

2004: 42.6% return; 2005: 39.9% return; 2006: 22.5% return; 2007: 22% return; 2008: -13% return; 2009: 40.6% return; 2010: 29.7% return; 2011: -1.1% return; 2012: 13.3% return; 2013: 9.7% return; 2014: 36.9% return; 2015: down the ship goes with VRX

More likely, based on his actual track record over time (including spotting the mess with MBIA years before anybody else), Ackman is a decent investor. His seeming arrogance and stubbornness appears to be the culprit more than lack of skill. He refused to throw in his cards early when losing hands came up. It's what separates decent investors from great investors like a Buffett, who will typically cut an investment the moment he realizes the business is a dog (that his instigation thesis was wrong), rather than stubbornly fight the tide. Ackman likes to fight, and has an immense ego, that's what got him on VRX and Herbalife. Can he learn from those mistakes and become a better investor? He'll have to, or most of the money he'll be managing will be his own.

perl4ever4• 8 years ago

I think that's not exactly wrong, to refer to "a few monster hits", but you didn't mention his single best investment, which overshadows all others. General Growth Properties turned a few million into almost $2 billion.

My impression is that Ackman is simply a gambler who got really lucky once and that has allowed him to raise money and squander it on a scale that compensates for his successes.

Certain famous investors have talked about how it's not so hard to run across some big winners over time; what's really hard is to avoid big mistakes.

There's something particularly perverse about calling a fund that owns a small number of risky stocks a "hedge fund", I might add.

fergie• 8 years ago

I hadn't thought of it like that- it sure would be really interesting to find out exactly how and why people give him so much money.

diiaann• 8 years ago

This makes me sad. I don't care about Bill Ackman being right or wrong about Herbalife's business.

What I care about is that I truly believe that the world would be better off without MLM. If you have ever read sites like Pink Truth, it is gut wrenching how these business prey on people.

I had hoped that this would be a turning point...

simula67• 8 years ago

Mr. Ackman first alleged in December 2012 that Herbalife, which sells through a network of distributors, was an illegal pyramid scheme and would be shut down by the government. He had personally pledged to take his campaign “to the end of the earth,” though he added that Pershing Square would abandon the bet if it got too risky.

Who surrendered ? Bill Ackman or Pershing Square ? Both ?

known• 8 years ago

Ackman pays about $100 million annually to maintain his short position https://en.wikipedia.org/wiki/Bill_Ackman

Bill Ackman Surrenders in His Five-Year War Against Herbalife

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