$1B bet AGANST a pryamid scheme (HerbaLife)

[Ashenor]

So where an i toss a thousand or so on a stock to short? Sounds like fun rooting for the demise of a company vs it doing well.

 

[Phoenix86]

I didn't want to go into detail because the financial industry is massivly complicated and I always feel like I can make a mistake or omit something, or my understanding is outdated.

But interestingly, you've wandered into an area of at least semi-expertise for me. Five years ago I worked as a portfolio accountant, reconciling cash positions and P&L for hedge funds. Those recs are performed daily, the managers need to know how much liquidity they have and which of their investments are performing. That's true for long and short positions in the stock market, and all futures positions which are even more abstract.

At the end of the month we would prepare a statement of P&L and cut an NAV for the fund. The P&L broke out realized Gain/Loss and Unrealized Gain/Loss, but ultimately they both counted the same when figuring performance.

Fair enough, you ARE an accounting wizard.

I thought I was getting by on a technicality that unrealized losses in this sense only related to stock owned. From an accounting standpoint at best I'm splitting hairs and either way it's likely accounted as an unrealized loss.

However, it's not an actual loss which was my point from the get go.

 

[Blackjack200]

Open a brokerage account. Point. Click. Done.

...you know what, you might just want to do a little more research about trading if you're actually asking people on the internet how to take a basic position on a stock...

 

[Blackjack200]

Fair enough, you ARE an accounting wizard.

I thought I was getting by on a technicality that unrealized losses in this sense only related to stock owned. From an accounting standpoint at best I'm splitting hairs and either way it's likely accounted as an unrealized loss.

However, it's not an actual loss which was my point from the get go.

If you're actually interested in this stuff there's a book called "Hedge Hogging" that I read when I started working there. It's probably dirt cheap if you can find it, it has some really good stories about hedge fund managers shorting stocks and how stressful it is on them. Long or short, when the market moves against a leveraged position, you can lose tons of money in a hurry. It fucks with these guys in the head, and some of them go off the deep end.

 

[Schfifty Five]

To me, this is just a case of pot calling keddle black. A hedge fund guy calling a direct selling guy a pyramid schemer? Hilarious.

 

[Pohemi]

Very good explanation.

And yeah, big hedge fund managers publicly stating they're shorting a company is fucked up. Saying "this company is ridiculously overvalued and I think its stock will drop, so I'm shorting it" is a self fulfilling prophecy when you are a public figure in charge of a shit ton of capital.

I know it's all about money in the end, but this makes me think "ego" as well.

To me, this is just a case of pot calling keddle black. A hedge fund guy calling a direct selling guy a pyramid schemer? Hilarious.

 

[SphinxnihpS]

Seems like a very very big gamble. Unless Ackman has good reason to believe the FTC will take some action or that there's something big about to go down, he's gambling the entire hedge fund on this...

High risk, high reward, he could make billions..... but he could lose billions just as easily.

Herbalife seems like a pyramid scheme to me, and I wouldn't even consider taking part in it (or buy the products), but I don't know if the FTC will consider it a pyramid scheme and take action.

If he bought it at today's price, the most the fund could lose if the stock doubled is roughly $700,000,000. That's also the most he could make if the stock goes to zero. My advice: quit poker.

I think he might get in some hot water with the SEC over his statements though.

 

[SphinxnihpS]

To me, this is just a case of pot calling keddle black. A hedge fund guy calling a direct selling guy a pyramid schemer? Hilarious.

Your name is baked, you can't spell, and you are providing us with immeasurable wisdom on the perils and and moral hazards of shady market practices?

When you were abducted, who was better on the fiddle, you or the aliens?

 

[Blackjack200]

If he bought it at today's price, the most the fund could lose if the stock doubled is roughly $700,000,000. That's also the most he could make if the stock goes to zero. My advice: quit poker.

I think he might get in some hot water with the SEC over his statements though.

He's speculating that the FTC is going to shut the whole thing down, so the daily movements don't concern him that much unless the stock starts rising and trading volume starts falling, then he could get caught in a short squeeze.

- again, I'm wandering outside my area of expertise -

Not so sure about the SEC, I don't know what specific rules would apply here, but this is not some kind of stealthy manipulation. He's just publicly saying that he's betting against the company and he thinks it's garbage. I think you're allowed to do that.

 

[ElFenix]

Reading through this thread is depressing. That is not how the stock market works.

i was going to add a line that a shorting wizard can't neccesarily beat good fundamentals. i had supposed adding that line wasn't necessary, but it appears that it is. and also, a line that you don't really even need to announce publicly because the information comes from the sale itself, though now i suppose that is necessary too.

you even admit that short run the shorting causes downward price pressures. which is what one expects when there's more being sold. supply and demand balance out in well-functioning markets through price movement. more shares being sold will tend to reduce price.

 

[preslove]

i was going to add a line that even a shorting wizard can't beat good fundamentals. i had supposed it wasn't necessary, but it appears that it is.

you even admit that short run the shorting causes downward price pressures.

Isn't it more the fact that if you're good enough to beat the market, then you're going to charge enough $$ in compensation that the ROI is usually less than indexed funds for actual investors?

 

[SphinxnihpS]

He's speculating that the FTC is going to shut the whole thing down, so the daily movements don't concern him that much unless the stock starts rising and trading volume starts falling, then he could get caught in a short squeeze.

- again, I'm wandering outside my area of expertise -

Not so sure about the SEC, I don't know what specific rules would apply here, but this is not some kind of stealthy manipulation. He's just publicly saying that he's betting against the company and he thinks it's garbage. I think you're allowed to do that.

I don't think you're allowed to publicly spread unfounded rumors about a company in order to manipulate its share price when you have a vested interest. The fact that the vested interest is failure makes this even more dubious.

The SEC has no authority to shut any company down.

 

[Blackjack200]

^^^^^^^^ That's not a rumor. ^^^^^^^^^
A rumor would be if he leaked to his friend at the WSJ that he heard that the FTC was going to investigate, the WSJ published it, and then he covered on the resulting price dip.

To be clear, I was referring to the FTC, not the SEC shutting down HerbaLife, though I'm not really that familiar with what authority either agency has.

i was going to add a line that a shorting wizard can't beat good fundamentals. i had supposed adding that line wasn't necessary, but it appears that it is. and also, a line that you don't really even need to announce because the information comes from the sale itself, though now i suppose that is necessary too.

I think you need it because the way your post looks now, it reads to me like you're suggesting that the trader can have an enduring impact on the stock price the way a cartel like DeBeers has on the price of diamonds. Rereading your post, you didn't explicitly say that, but I've heard that kind of suggestion enough that I assumed you were suggesting something similar. (For example, people complaining that futures traders are keeping the price of gas up).

As for the announcement, I think it's pretty clear that he's trying to influence the perception of HerbaLife as pyrimid scheme, and hopefully put some pressure on the FTC.

you even admit that short run the shorting causes downward price pressures. which is what one expects when there's more being sold. supply and demand balance out in well-functioning markets through price movement. more shares being sold will tend to reduce price.

All of this is true, but we should remember that HerbaLife is a publicly traded company on a major exchange. We wouldn't expect much price movement to be needed before market makers start pulling the stock back up.

All said, while I think my criticism is fair, I also think my original comment was a bit harsh, so I'm removing it.

 

[Gooberlx2]

I'm kind of ok with the business model as long as they have an actually useful product (generally a material good, not services). It's the ones selling shit products with an iffy business model that are the real thorn in people's sides.

Think Mary Kay.

This. I signed up with Solavei. I know damn well it's MLM, but I don't care.

It's unlimited voice/sms and 4GB data on Tmobile's network for $50 per month. I pay for the service and skip all the MLM BS. Works for me.

All the "health products" MLM can definitely go DIAF though.

edit: Interesting thread though. I had no idea how shorting worked.

 

[preslove]

Best multi-level-marketing firm of all is passion parties. I had a girl friend who was finishing up her PhD. She would have 'passion parties' with bridal parties and other groups of horny women. I tested out a whole lot of her merchandise with her

 

[Blackjack200]

Best multi-level-marketing firm of all is passion parties. I had a girl friend who was finishing up her PhD. She would have 'passion parties' with bridal parties and other groups of horny women. I tested out a whole lot of her merchandise with her

You don't say?

 

[holden j caufield]

people should not be able to short. Basically you've got incentives to fail a company. It makes for some very shady practices.

 

[SphinxnihpS]

people should not be able to short. Basically you've got incentives to fail a company. It makes for some very shady practices.

Just keep reaching for that gold ring.

 

[KeithTalent]

people should not be able to short. Basically you've got incentives to fail a company. It makes for some very shady practices.

Ok Buffet.

KT

 

[jagec]

people should not be able to short. Basically you've got incentives to fail a company. It makes for some very shady practices.

We're not talking about a CEO shorting his own company, we're talking about random investors doing it.

 

[LegendKiller]

If only he could take down Visalus too. Gawd I hate suckers and their MLM scams. They spam the crap everywhere.

 

[oogabooga]

I'm torn. I don't really like the fact that people can do that to a company.... but if it's against pyramid schemes... hrmm...

 

[Mermaidman]

I almost speculated on HLF for a short-term play when it hit $26 a few weeks ago, but chicken'd out.

Damn . . . It's up to $40 now! It'll be fun to watch how this pans out.

 

[KeithTalent]

FYI summarized pretty well here with some decent discussion/explanation as well (only about 17 minutes) plus they talk to the guy betting against them:
http://www.npr.org/blogs/money/2013...billion-dollar-bet-against-weight-loss-shakes

KT

 

[Blackjack200]

NPR reporter:

"I...I mean suppose, just suppose you are wrong in this case and you end up taking down this company by, by sewing doubts about it and its actually a healthy company, just suppose that were true, I know you don't believe it's true, but suppose it were..."

How can you take down a healthy company just by sewing doubts about it? Is there any record of a company as large as Herbalife being destroyed by unfounded rumors?

Lehman Brothers, AIG, Bear Sterns, etc. were effectively destroyed when doubts in their liquidity surfaced in 2008, but those doubts were grounded in reality.