Seeking Alpha
Long/short equity, contrarian, special situations, wild cards
Profile| Send Message|
( followers)  

Make no mistake about it, I'm both a fan of Bill Ackman and a bear when it comes to Herbalife (NYSE:HLF). And, I'll admit it, like Ackman, I was smoked out of two short positions on Herbalife already. But, also like Ackman, I can be a man of serious resolve when I've done my research and am confident enough to back it.

So, Wednesday, I re-entered my short position through puts, as the stock pushed highs above $70. Call me crazy, but I just can't convince myself otherwise on Herbalife - it's so blatently, as Ackman would call it, a "money transfer scheme".

You see - to really understand Ackman's position, you have to understand a couple of fundamental things that Ackman himself has echoed in several talks and public speeches.

The very first thing is that shorting stock is not "evil". Just because someone positions short, doesn't make that person un-American or bad. Going short is simply one of many, many methods of backing your due diligence on a stock. Just like I've done here - I'm short, and I'm writing to back my position. Like Ackman, I've always disclosed properly, and I take my winning trades along with my knocks in front of everyone.

Yes, some shorts are manipulative the same way that some longs pump and overestimate the valuation behind stocks they're long on. You have to get past the fact that there's going to be sensationalist longs and shorts in the market.

From an ethics standpoint, I don't have an issue with shorting stock - and you shouldn't either. I think there's an argument for it making a market, and I also think it's a necessary tool for making money in certain situations. At the end of the day, the market has a very simple, Darwinian feel to it. Companies post great numbers, stock goes up. Company posts crap numbers, stock goes down. That's really the essence of the market and why shouldn't you be able to benefit from your research if its good enough to show you that something is headed down, instead of up?

Is Carl Icahn less of a shark because he's long Herbalife? Of course not - he's still a corporate raider.

Occasionally, I hear arguments from people that claim that going short, in and of itself, is unethical - and that they won't participate in it because they feel it's detrimental to companies and other investors. These people are, in my opinion, simply not cut out for investing at all. In every trade, you have a buyer and a seller. You have one person that thinks a stock is worth a certain price, and someone else content with selling at that same price - that's how trading works. Why should you not be able to responsibly and legally position yourself on the other end of a trade by going short if you want to?

Ackman is a perfect example of a guy trying to do the right thing. He calls Herbalife an "ethical short", not because he wishes harm on the people that are long the stock, but because he thinks the company's business model isn't good for the world. I tend to agree.

Catalyzing the stock Wednesday? Leveraged buyout "rumors" about Herbalife. Who in their right mind would even front the 10% equity necessary for a LBO is beyond my imagination. If somebody did, I'm not quite sure I could find a better debt to bet against than that. As I commented in a Tweet earlier today, (@QuoththeRavenSA) I wonder how much smart money exited on the highs today on rumors with absolutely zero substance.

Regardless, Ackman has remained on the offensive and extraordinarily cool, calm, and collected with his almost year-old prediction on Herbalife.

(Ackman at Oxford)

The latest reaffirmation was at a sitdown talk that Ackman had at Oxford, where he calmly and patiently explained to his audience, again, why he continues to remain short Herbalife - claiming that within 12 months, the company will have started its demise.

Benzinga.com reported:

In fact, Ackman told MBA students at Oxford's Saïd Business School last week that the company would eventually close.

In a wide-ranging talk, now posted on YouTube, Ackman said, "I'll make a prediction. This business will be shut down. This business will collapse. I can't give you the precise date, but we will have made progress in that direction within 12 months. That's my prediction for today."

Ackman has said the company was a "pyramid scheme" and has backed up that belief with a short position that includes a price target of $0, according to Business Insider. Ackman rarely takes a short position and has said that when he does he believes the world would be better off once that company is out of business.

If you use the above link, you can skip to about 30 minutes into the video. That will give you Ackman's account of his battle with MBIA (similar him against the world situation) and it'll segue into why he remains short Herbalife. I could waste everyone's time drawing similarities between the MBIA situation and his current Herbalife situation, but there's too many of them. If you're unfamiliar with the MBIA situation, watch the above video for 5 minutes, or read "Confidence Game", the book that describes it. Then, revisit what Ackman has said here.

Simply put, for someone to think that Ackman and his team do not have a full grasp over Herbalife's business model after watching his first presentation, you've got to be kidding yourself. I stated this in my last article on Herbalife:

Bill Ackman and his team have a seemingly unprecedented grasp on the Herbalife business model, which is almost impossible to decipher. I would bet heavily that Bill Ackman, who is famous for doing insane due diligence (he read through 140,000 pages while doing his MBIA research), knows more about the company and its operations than probably 95% of its own distributors and definitely a large portion of its stockholders. If you doubt this, you clearly haven't watched his first presentation.

Similarly, to think that Ackman is going to be coming to the Robin Hood conference on Friday and be giving a presentation that is any short of substance is insanity. Ackman will deliver on Friday - how the market will react? That's anyone's guess. But, like in the case of MBIA, the time when Ackman is taken the least serious and the stock is at its highs will likely be the time that Herbalife begins to unravel.

Think about this, since Ackman's original thesis, he's not only had a year to continue and further his research, but he's had a year of fielding interested parties who agree with him. He's had a year to gather additional information - and he's likely, under his calm exterior, kind of pissed.

It's already likely that his presentation will be chock full of former distributor testimonies - but, will there be more than that? I think so; the only question in my mind is to what magnitude is he going to blow away expectations.

Ackman presents at 9:10am Friday, just before market open.

Bill Ackman is insanely rich for a reason, ignore him this Friday at your own risk.

Best of luck to everyone, long and short.

Source: Bill Ackman Will Swiftly Drop The Firm Hammer Of Justice Against Herbalife On Friday