A documentary showing Bill Ackman’s approach on how to make profit betting against a company, he considers to be worthless. The company in that case is Herbalife, and Bill is placing a one billion dollar bet against it.If you’ve got a Netflix subscription you might simply watch the documentary there, you can find it at here, but you might also enjoy reading my thoughts about it.
In case you’ve watched it already or read Bill Ackman’s WikiPedia page you are probably aware that he became “famous” due to his other bet against a AAA rated company named MBIA back in 2002. He suspected that the company itself is overrated and actually not worth a dime, and he was right.
With Herbalife his speculations are a little bit different, cause he’s not considering the company worthless, but there business model bound to fail, since it seem to be a huge ponzi scheme… and in my humble opinion he’s totally right again. So in theory it should be just a matter of time until the company collapses and his one billion dollar short position pays off. However in the real world things are a bit different.
After his first announcement in December 2012 that he is placing his huge short position against Herbalife the stock took a hit, but recovered quite fast. Today, almost five years later it still is worth around 72$ per share. How is this possible, considering that even the FTC and FBI launched investigations against the company and for a short term excluded the Herbalife stock from trading.
Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.
See the problem is, even though in theory there shouldn’t be enough people out there to keep a company like Herbalife going and people are getting more informed as the grow older about ponzi schemes and companies like Herbalife, every day millions of people reach their legal age who’ve never heard anything about those things, and therefore are possible victims.
Besides that simple fact the other problem is that Ackman took his fight against Herbalife to wallstreet, where nobody really cares how a company works, as long as the share price increases and there is a profit to be made. The best example for that is probably Carl Icahn who saw the opportunity to stick it to Ackman and turn a profit while doing it, by simply buying huge blocks of Herbalife stock, and therefore creating a certain demand for the stock itself.
Personally I really do believe that Herbalife is a ponzi scheme where only the top few percent earn huge sums and everybody else in this multi million members pyramid is just there to finance the whole scheme. That still doesn’t change the fact that there are enough people out there waiting for an easy way to get rich quick, willing to invest a few hundred or thousand dollars into that dream, causing the company to grow further every year.
Last but not least I’ve to say I don’t consider every MLM (multi level marketing) company a scheme, as long as it’s possible to achieve a decent monthly income without the need to recruit people. That said, I really would love to read your thoughts about MLM’s, Herbalife and Bill Ackman in the comments below.