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Tales From The Future. I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and somehow pick the winners. I don't. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big... More
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  • 2014 Short Idea: Bill Ackman's High-Profile Trade, One Year Later (Play Money Only!) 4 comments
    Dec 17, 2013 10:33 AM | about stocks: HLF

    Before you call me crazy (some TSLA longs already assume I am crazy, so I don't take offense), please read my earlier Instablog entry where I discussed two long investments over several years in the sensor space.

    That long idea (SWIR, INVN) is likely more sensible as a small addition for (tech-sector) retail portfolios. Small is even important for this idea:

    When shorting (in general, not just the following stock), make sure you only trade small positions or use (put) options so you limit your risks - directly short-selling a stock in theory bears unlimited risks*.

    With that said, my 2014 short-trade is HLF in case it trades up to near $100 or even crosses that psychological price barrier.

    Yes, HLF. It's currently trading near $80 after a string of good news for the company: Legal news from Belgium, a successful re-audit from newly appointed PWC and many hedge fund managers (some of them having a personal feud history with Ackman) piling on the long side.

    In addition, there are two specific risks for shorting HLF in the future:

    1. A stock buy-back in 2014 (with likely more upside for the stock price), this is now much easier to accomplish following a re-audit with "no material changes" according to the company.

    2. A complete going private (HLF already did this in the past before listing once again the NYSE)

    Especially in scenario two, retail investors would lose money at once since they can't easily construct over-the-counter instruments (e.g. a default premium on the company debt or similar) once HLF is private.

    My contrarian idea (again, only with a small position and play money) nevertheless is:

    Short HLF in the $75-100 area and again with a second chunk if HLF crosses $100 substantially - and you still believe the pyramid scheme scenario is intact (i.e. HLF doesn't change its business/payment model).

    Why? I think Ackman's pyramid scheme thesis remains valid long-term and the stock already prices in most good news at $85 to $125**.

    To sum up my short idea with a recent tweet from Herb Greenberg (one of the few CNBC people I like to listen to):

    Reminder! The $HLF auditors are NOT auditing whether the business model is suspect, just whether the #s are in accordance w/GAAP.

    twitter.com/herbgreenberg/status/412682534913208321

    I like contrarian plays from time to time. Shorting HLF one year after Ackman's presentation may be such a trade since it's at all-time highs.

    PS: Again, use play money only on this trade! Or options to limit risks.

    _______

    * "Unlimited upside" is of course quite unrealistic - but there have been cases, most notably the botched merger/take-over between Volkswagen and Porsche a few years ago where a short squeeze led to spikes in stock prices of publicly traded companies with huge market caps.

    ** Ackman's long PDF presentations (the first in late 2012, the second in late 2013 which basically re-iterated the first with more details and real-life examples) can be found at a special HLF website he has set up:

    factsaboutherbalife.com/

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I may go short HLF using options or other instruments over the coming weeks and months should the stock stay above $75 or rise further.

    Themes: mlm, bill ackman Stocks: HLF
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Comments (4)
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  • Tales From The Future
    , contributor
    Comments (5045) | Send Message
     
    Author’s reply » Here's (unsurprisingly) what Bill Ackman had to say after PWC re-audited HLF's numbers and gave a green light yesterday:

     

    "“It is not the role of Herbalife’s auditor to determine if the company is a pyramid scheme,” Pershing Square said in a statement yesterday. “Rather, that determination depends on whether distributors earn more from recruiting new distributors than from retail sales to consumers who are not distributors.”

     

    “Remember, Enron also had audited financial statements,” Ackman also said in an e-mail, almost a month after saying he’d take his bet against Herbalife “to the end of the earth.” Herbalife declined to respond to an e-mail seeking comment on the Enron statement. "

     

    http://bloom.bg/1bNZryN
    17 Dec 2013, 12:48 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5045) | Send Message
     
    Author’s reply » A New Investor Letter by Pershing Square (Dec 23, 2013) was published and talks about HLF extensively:

     

    http://bit.ly/1d4b7ii

     

    Apparentl Ackman is still confident in his short position and will discuss new angles in 2014 at future presentations:

     

    " Our next presentation, among other issues, will include an analysis of the three principal sources of revenue growth for the Company:

     

    Internet-based Lead Generation, nutrition clubs , and the Company’s China operation.

     

    We will show that the Company’s decade-old Lead Generation recruiting methods promoted by
    Herbalife’s top distributors, which were ostensibly prohibited by Herbalife beginning on June 30th – several months after we shared the details of this business method with the FTC, SEC and several State Attorneys General
    – continue to this day. We will show that nutrition clubs, which the Company has suggested demonstrate “daily consumption” for products principally from the Latino community, are in fact recruiting venues to attract low-income distributors who do not have the $3,000 required to become an Herbalife supervisor.

     

    We will show how Herbalife’s Chinese operation likely violates the multi -level marketing restrictions in that market. We will share data that will enable investors to understand the extremely high distributor failure rates in countries around the world, providing additional evidence of the deceptive nature of what Herbalife
    management calls “The Best Business Opportunity in the World .”

     

    Finally, we will focus on the plight of the Herbalife victims and share their stories in their own words. We continue to believe that our Herbalife short position offers an extremely compelling, and, as now structured, even greater asymmetric payoff than before because of the stock price’s substantial rise."

     

    Source: http://bit.ly/1d4b7ii
    23 Dec 2013, 03:06 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5045) | Send Message
     
    Author’s reply » Some regulators are starting to take a closer look at HLF in 2014:

     

    - USA:
    http://bloom.bg/1k229nN

     

    - Canada:
    http://bit.ly/1k1Hcta
    Meanwhile, HLF longs continue to hope that an LBO may come one day: http://cnb.cx/1k229nT
    28 Jan, 01:11 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5045) | Send Message
     
    Author’s reply » The FTC is now looking into HLF:

     

    FTC's Herbalife investigation, which Herbalife disclosed Wednesday. It's the first probe of a major, multi-level marketer in more than 30 years.

     

    http://bit.ly/1o4zDEh
    15 Mar, 12:23 AM Reply Like
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