Argumentum Ad Hominem. What does it mean? In short, it is a logical fallacy.
Person A articulates an argument supported by evidence. Person B retaliates not by attacking the evidence, but rather by attacking the credibility of the person making the argument.
The idea is simple. If you can discredit the person ad hominem, then perhaps people will ignore the evidence entirely.
Pershing Square has issued an investment thesis. The thesis is simple. Herbalife is a confidence game that operates an illegal pyramid scheme, while also violating laws in numerous jurisdictions.
On two websites: factsaboutherbalife.com and herbalifepyramidscheme.com, Pershing Square has released for public consumption reams of evidence in support of their thesis. There has been nothing opaque nor clandestine about the disclosure of this dossier. Investors also can easily cross-reference Mr. Ackman and his team's research against the company's own SEC filings. Accordingly, investors of all stripes have placed their bets as to which way the dominoes will fall.
Of late, the media seems to have become preoccupied with some of the personalities involved. I assume it makes for good eyeball counts on cable news channels when Mr. Icahn and others go all WWF on live TV. Frankly, I am not sure what that has to do with whether or not Herbalife is an illegal enterprise.
By now, I think most investors could agree with the following notion. Almost all of the principal investors on both sides of the trade in HLF common have gravitas. Mr. Stiritz and Mr. Icahn have long and successful track records as investors and businessmen. Mr. Ackman didn't build a Hedge Fund with over $12 billion in assets by being a total lemming either. Following either party into the trade solely on the basis of a tip or trust in their capability is, perhaps, dodging the issue completely.
As investors, we must conduct our own due diligence in order to arrive at our own conclusions regarding the fate of HLF common. Or, we can avoid the idea entirely.
I have been convinced from the outset that Herbalife is a pyramid scheme. De minimis, the company has a loose compliance regime that turns a blind eye to the outrageous conduct of its most senior distributors, who routinely exaggerate earnings claims and victimize junior recruits with SUPERVISOR orders and sales tools o'plenty, even as most end-markets for HLF distributorships are likely saturated.
The two data points that scream scam to me are:
- The fact that most distributors make very little money at all, and
- The fact that most distributors resign from the Marketing Plan in less than a year
These two data points tell me that Herbalife is selling a business opportunity that doesn't exist. Selling hopes and dreams may make for a solid P&L, but it certainly isn't ethical nor legal behavior.
Back to Mr. Ackman.
Today, investors will be able to tune in to the latest evidence that HLF operates outside of the law. Today, the jurisdiction is China. We'll see what the presentation has in store. Today's release is the latest in what has obviously been a relentless and clinical campaign by Pershing Square to expose the truth about this company all over the world.
Herbalife's response? Mr. Ackman is the Boogie Man. He is the "Dr. Evil" of the Hedge Fund world. Shane Dineen was his "Mini-Me". Muhahahahahhaha.
Candidly, is there a more pathetic argument that one could make?
I find it curious why the media doesn't zero in on why a company that makes a simple shake mix needs to spend $2 million-plus on lobbyists in DC.
I also find it obvious that Herbalife's PR strategy is to "wag the dog", so to speak. By trying to shift media focus to Mr. Ackman's evil persona, perhaps the glare of media scrutiny shifts away from the whereabouts of the company's retail sales results?
Fortunately for investors, we have responsible journalists like Michelle Celarier at the NY Post or CNBC Contributor, Herb Greenberg or members of the Fifth Estate like Quoth the Raven, who continue to ask the tough questions.
The question before the house remains simple. Is Herbalife a recruiting scam or not?
Through my lens, all evidence points to a resounding "Yes". The elements of the crime are straightforward.
- A sinister marketing plan that incentivizes recruiting and inventory loading
- A sales tale that relies upon lies and deception and exaggeration
- Group hysteria employed in opportunity meetings around the world, with "rags to riches" nonsense the plats du jour
- Saturated geographies, where distributorships are unprotected against territorial overlap
- Massive churn rates in the distributor base
- Off-book revenue streams for the most Senior members of the pyramid
- A corporate compliance regime that turns a blind eye to its salesforce constantly overreaching
- Monster gross margins and operating margins that could only be earned hiving losses off the back of the scam's victims and
- Nary a single receipt proving that retail sales actually exist outside of the sales force
These are the facts about Herbalife. This is the truth as it has been exposed by Pershing Square.
Nothing Mr. Johnson and his expensive PR firm can say about Mr. Ackman changes these facts.
My own thought du jour - beware the argumentum ad hominem flowing freely from the LA Headquarters of the good ship, Herbalife. It is all just another in a series of exaggerations designed to draw you attention from the following truth - a desperate ploy from a desperate management team.
Herbalife is a global confidence game that will be shut down by regulators, because it inflicts material harm upon millions upon millions of unsuspecting people around the world, many of whom are minorities. Zeroing in on that fact will take the shares lower over time.
Disclosure: I am short HLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.