Bill Ackman Surrenders in His Five-Year War Against Herbalife
wsj.com
wsj.com
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.
Interesting short term job. GTFO as soon as I saw the real numbers.
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.
(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.)
(Based on how much money he's lost, as mentioned elsewhere in this thread, it's hard to say exactly what else his investment decisions are based on.)
He actually visited Herbalife clubs before making a decision on shorting. He's not a fan of Ackerman.
"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."
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.
But given that the two people you went with both spent their money on the scam, you shouldn’t be surprised at least.
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.
> 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.
Eric Ries has the right idea with the long term stock exchange.
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.
https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...
Why invest in something that has an activist fighting against it? Better to go with something unopposed.
In most mlm compensation schemes, you would receive the same amount of money if you were at the very top of the pyramid or somewhere much lower, assuming you have the same size team built below you.
That being said, as I mentioned above, the top nodes don't necessarily make more money than those below them.
So it is actually very common for someone at the top of the pyramid to have a smaller income than someone several levels below them. Because if you have a much larger team closer to you, you are getting a larger share of their revenue than the guy 5 levels up. In fact, he may be so far above you, that he doesn't get any share of your revenue.
In fact, I would say that your very earliest people usually earn substantially less than those below them who may still be actively working and building. (because the earliest may be retired or focusing on other things). The compensation schemes are built this way to keep people from simply resting on their laurels and not building anything of value after finding a few good men.
The problem is if you share profits with N people then you are not creating extra profit and the average person is no better off.
Rank speculation-- at its core, every mlm depends on not paying people for their time. E.g., want to make a "home visit" by abusing my web of trust? FU pay me. Want me to "attend" a sales pitch? FU pay me. Want to invite me to dinner and use my social time to sell me on vitamins? FU pay me.
Am I right about this?
As for not paying for people's time, yes, they don't, because most everyone in an MLM is considered a business owner. So you are basically franchising a business model rather than getting hired by a company.
If I choose to go and give the Cinnabon at the mall a five dollar bill, they give me some crap and my change. End of transaction.
With every MLM I've ever seen, the salesperson comes to me (or leverages a pre-existing friendship to sneak in to my space) without my permission, tries to pitch me on why I want some product, and then tries to pitch me on becoming part of the MLM. During that time I am not doing what I set out to do-- instead I'm listening to their sales pitch. That's my time and consequent opportunity cost.
I'm claiming that the only way any MLM makes money is if they don't pay their potential customers/underlings for the time it takes to pitch them on what they are selling.
Am I right? Can you think of an example of an MLM that violates my claim?
Example-- Mary Kay salesperson uses someone's residence for their showroom, but doesn't pay the resident for use of their real estate.
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.
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.
Seems a little game of thrones-y.
Sometimes I wonder how much of our rational "systems" are mere fronts for powerful people no different from the chieftains of pre-history. Sigh.
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.)
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
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.
Really does seem like a strong bet that they will go to zero.
See: http://www.nytimes.com/2011/06/21/us/politics/21hatch.html
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.
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??
However, nothing is forever and philosophies can change. Look at the saga of Chipotle, they were so very full of themselves, and now they have someone from Taco Bell to pick up the pieces of their shattered reputation.
Any "family business" undergoes instability as generations hand off to new ones.
Interestingly, someone has been selling fake In-N-Out franchises in California. So you could say that even if you don't want to be pyramid-shaped, the pyramid sellers will find you.
Having a successful public company involves recruiting investors, and being successful in franchising involves recruiting investors.
And, if you have a successful business that is just a family business, maybe you want to sell it at some point...
As I wrote, you can define "pyramid shaped" as you please, but if nothing can be "pyramid shaped" without literally being a "pyramid scheme", then the term "pyramid shaped" has no reason to exist - that violates normal assumptions about reasonable discourse.
You can have a successful In-N-Out and your success absolutely does not depend on someone then buying a franchise on your referral that you skim off of.
> You can have a successful In-N-Out
Only if you are the owners that have all of them; In-N-Out is a private, (mostly?) family-owned business that doesn't franchise, and has stated that they won't ever do that or go public.
Given the cooperative* nature of normal conversation, one must assume (at least initially) that there is a reason for saying "pyramid shaped" rather than "pyramid scheme". The obvious interpretation (to me) is that there is a continuum between pyramid schemes and non-pyramid schemes.
Objecting to the placement of In-N-Out near the "non-pyramid scheme" end of things, on the basis that it is not at all a pyramid scheme seems like an aesthetic preference for binary categories - that's all right for you, but other people may generalize.
<insert eye of providence>
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.
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.
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...
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...
"For no good reason" is carrying a lot of water here. But because the legality is in question, all the examples you are going to get are things that are debatably legal, rather than outright illegal, like Uber. Or things that were intended to be illegal but legal via loopholes, like FedEx.
> no rational person would argue drugs should be legal by default
Plenty of rational people would, in fact, argue that.
Whatever someone feels about recreational drugs, there's a huge difference between freedom to put drugs in your body vs. freedom to advertise drugs for a medical purpose.
The former is (consistent with my argument) legal by default. The latter is not.
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.
I'm not yet convinced of the above, but my trajectory points that way.
https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...
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.
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
Who surrendered ? Bill Ackman or Pershing Square ? Both ?
Worth a watch: http://bettingonzeromovie.com/