Wednesday, July 23, 2014

Tough Day for Ackman being Short Herbalife


Now, that is one ugly chart. One would think Herbalife just released some mega awesome earnings report, but oh contraire.

I just finished watching Bill Ackman with presentation live on why Herbalife is fraud and why he thinks they are running the world's biggest and most well managed pyramid scheme.

I like Bill, he's a pretty nice and smart guy. I even watched a video by him somewhere on the web before where he quite nicely explained the basics of investing in a simple yet rather detailed way. I learnt that day how private companies go public and how they raise funds and sell off their ownership. I think the biggest takeaway from me from that presentation, even though he clearly did not mention is, was to be wary when companies are offering an IPO. Unless their proceeds from their IPO is to fund and capitalize on some amazing opportunity, it's not something you want to be a part of. I think that reasoning has governed me quite well.

Anyway, enough with me fan gurlin' over Ackman. Sure, he's smooth talking and good looking, but he has just made himself the biggest target in the financial world. Everyone is out there giving him a nice long squeeze today. Up 15%, ouch.

Is Herbalife a sham? Personally, I don't know and I actually don't give much of a damn because I am not an owner, short-seller or a consumer. I think Bill has built himself a pretty good case against HLF and it really is up to all the victims in the pyramid scheme to realize that it's a scam, or for people in the middle to start getting scared and causing it to collapse from the middle. Either way, I see it unlikely that anything they uncover from the top up will shake this pyramid. It has to be from bottom up, or it has to be some mind blowing irrefutable proof.

While I was taking a piss while listening to his presentation (yes, rather crude, I know), something struck me. If Ackman is right and can cause Herbalife to really collapse, will it also bring the rest of the market to reality to look under the hood of their stocks and cause the next bear market?

Coincidentally, during the Q&A session, one guy rightly pointed out that Enron started the ball rolling for the first bear market of the new millennium while Madoff contributed to the GFC. Will HLF kill this current bull? Only time will tell, but I am hopeful.

I admire Ackman for his persistence and conviction though. He did quote Warren Buffet, although I'm probably going to butcher the quote by remembering it wrong, but it was something like:
Once the tide goes out, then you can see who's been swimming naked.
Personally, I hope he's right about HLF and the stock goes to zero. The worst thing that could happen is that he is right, but short squeezers massively manipulate the market and forces him out of his position so that he couldn't be solvent when it finally does prove him right.

Hang in there Ackman. The best bets are a "when" problem and not an "if" problem. The only problem with being short (and most likely levered) is that you only have so much holding power to wait for the time comes when you're eventually right. Being caught the other direction doesn't have this problem.

Kind of feel like my U.S. indices shorts. I feel ya bro.

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