Ackman, Icahn and Herbalife

Bill Ackman, hedge fund manager who runs Pershing Square Capital Management made a 1 billion USD short bet against Herbalife (HFL) stock.

He then went public to say that Herbalife is a pyrimadic scheme company. Basically a modern day Ponzi scheme tricking people into believing they will make money selling their products.

Herbalife is just like Amway and Avon, they are multi-level marketing company that sells these products, they say they are great products, but they just sell normal products, nothing special, but make a huge story around their products and motivate people to sell their products by giving them examples of other peoples' successes who on their on now drive Ferraris, villas with swimming pools etc....

In former Yugoslavia, we had a company like that, it still exists today, it's called Zepter. Everybody was selling cooking pots that basically cook the food themselves, it was all a big lie. It had nothing to do with great cooking, it had everything to do with multi-level marketing and money for the few at the top of that ladder. So, I believe, actually I am convinced that Herbalife, Avon and Amway are just like Zepter. Nothing special, no big difference. All of them exist today, even Zepter.

Bill Ackman is 100% right, it is a Pyramid Scheme, and it is a scam. Nevertheless, I don't understand how can you make short bet (that the stock price will go down drastically) and then go public that Herbalife is a scam company. I don't see how SEC can allow something like that.

Carl Icahn, famous Wall Street investor who is long on Herbalife stock, so he bought HLF shares believing the stock will go up, he attacked Bill Ackman for being a cheater, a liar, etc... Obviously, Icahn cares about his money invested in HFL, so he wants to protect his investment, just as Ackman tries to protect his bet against Herbalife.

Who is right?

Overall Ackman is right. Herbalife is a scam and a pyramid scheme.

However, Ackman is also wrong. He made a short bet and then he went public with his vision of Herbalife. I think that is low and I am surprised SEC allows that.

What about Icahn?

He protected his investment by attacking Ackman. He is both right and wrong. I would never ask Icahn for investment advice, simply because he went long with HLF stock, what a terrible judgment of character.

What will happen?

I don't know, but Zepter is still around. I think people don't mind a scam as long as they are sold a story once in a while that they will succeed one day, and whether it is Avon, Herbalife of Zepter, it doesn't really matter, they want to escape their reality for a while and they want to get burned, because promise of money is involved. Just like Casinos, those will never go out of business.

Morally, Ackman is right, but as an investor, he is wrong and he will lose a lot of money on this Herbalife bet. He is also wrong because he was shorting the stock, there is no reason to do this, it is better to look only long, I would much rather own a stock that I believe will return me a huge investment in 20 years then make a short bet that some company will go bust, what a terrible way to invest.

As you see, brothers and sisters, comrades and friends, this is how billions of dollars are used every single day, by people that are no smarter than you. They just make themselves sound smart, but their actions are ridiculous. Smart investing is all about buying a company you want to keep forever.

Happy investing!

Damian

CNBC

I don't watch TV. Yesterday, I was at home, I decide to turn on my TV and watch some news. I quickly changed all the channels and came to CNBC. I watched it for 10min and I must say we live in a ridiculous world. It is a theater with actors, everybody seems to know everything yet everything is either a shocking or breaking news, or both. Investing is not a theater, it is a discipline. Without discipline, investing doesn't mean a thing.

If you ever plan to know what is going on in the world of investing, don't watch TV. I suggest reading traditional newspapers, for instance: Financial Times or Wall Street Journal, but most importantly read annual reports. Find a field you really like, like Sports Equipment & Apparel for example, if you understand this business and you are interested to find out more, reading their Annual Reports will be fun. NIKE is a huge company, their Annual Reports are so well written, reading them you can actually learn so much, not just about the numbers, but the culture of their products, their strategies, their marketing, etc... Just please don't watch any TV to find out what is going on in the world of investing. Better yet, don't watch any TV if you want to know what is going on. (period)

Happy investing.

Damian