Applying Sociocultural Perspective and Geopolitical Analysis to Investment Strategies Sell Herbalife @ $66.01 per share. Do not invest in companies that exploit the poor.
I watched it live. Although I am largely in agreement with him, I think he's been overstating his case and mishandling the whole thing. I agree that MLM is a shaky business model at best, and it's obvious Herbalife is a company that engages in shady practices. I believe they are a house of cards that will eventually fall quite hard, even if they are not shut down at some point. But he's been saying for nearly 2 years that they are going to zero, and he's bet a billion on it. It appears that it could take perhaps a very long time for that to happen, if it ever does. His best hope is that the US and other governments find some reason(s) to shut them down. That may not happen, so it could take many years before the stock might become virtually worthless. I first bought puts on this one when David Einhorn first called them out on their distribution system on a conference call several years ago, and the stock quickly fell and continued to fall hard for some time. I again bought puts when Ackman came out against it. I had known for many years that they were MLM, and I was quite surprised that the Street apparently did not know up to that point. I still have a small pretty longrange put position on this one, but it's not something I bet a huge amount against - particularly with Icahn and Soros still being on the other side of the trade. My guess is that super rich like Icahn and Soros aren't particularly familiar with the bottom-feeding MLM business model. A poor schmuck like me has been approached countless times by MLM hucksters over the last 20 years or so... I can spot them a mile away - they're almost like panhandlers.
"I agree that MLM is a shaky business model at best..." I think you're half right. MLM as a model is kaput and should have been buried alongside the brick and mortar Travel Agency in your local strip mall back when the internet first blew up in the late 90's. How it has survived this long is a mystery to me. The whole allure of MLM was to provide an alternative distribution model to the long standing de facto standard of mfg->wholesaler>retailer. The idea of cutting out the middleman and sharing those profits (in the form of royalties) with your friends has sort of a romantic appeal that drew in countless participants and generated $Billions in revenue. So, it did have it's day in the sun. But, the internet is a different distribution model as well. And, a far superior one to MLM. The fact that MLM'ers thought the internet was going to help accelerate their commercial enterprise is not only one of the greatest miscalculations in business history, it's also laughably ironic. Did they also think that the invention of the automobile would make it faster to ship their buggy whips? I think Herbalife is a special case that's sort of been grandfathered in because of it's longevity. But, I am still looking forward to seeing that last shovel of dirt heaped upon a once great, but no longer needed phenomena - multi-level marketing!
"Sell Herbalife @ $66.01 per share. Do not invest in companies that exploit the poor." Nothing personal, but that is a flat out lousy business strategy. Most people who think along those lines also think MCD, WMT and others in that space "exploit the poor." Care to look at their 52 week charts and see how you would have fared had you shorted those bourgeois companies last summer?
It is a multi-level marketing scheme. The difference is kind of vague, but since Amway and Herbalife actually deliver a product, it's not a pyramid scheme. Ackman has made too many enemies and people want to see him fail, more than taking down a bad company. I bet that HLF will collapse, but only after his options expire and he exits his position. Ackman is all bark and no bite.
MLM is an unethical business model for sure, but in a few cases the companies do show long term success. For instance in the case of Amway they are still growing strong after existing for decades. I wish Ackman the best from an ethical point of view, these companies really don't provide much and end up in many cases forcing people to pay to work. However I am not about to short HLF or buy any puts as the timeline for when those will payoff is too much of an unknown and I don't want to tie up my capital in it during the meantime.
I don't have any money in Herbalife, but I can't stand the company. It's basically a scam, even if it's technically a legal business. For me, I find that the people who sell Herbalife's products are often a little on the crazy side. They supposedly live and breathe the company's products, and it always seems so fake to me. I'm sure you can earn some money investing in this company or a similar one, but I won't go near them...or the people that sell their products.
It really is hard to see how HLF will survive in the long term. Eventually, they will just run out of people willing to sign up as distributors. Personally though, I'm not willing to pay for the privilege of profiting when that day comes. It's just too expensive. There are easier and less stressful ways to make money than shorting HLF.
They've been falling hard recently. The earnings report was not good. They're now below $50. Down nearly 40% YTD, nearly 15% in the last week or so. I wouldn't be shocked to read soon that the big boys who've been long are perhaps lightening up or even exiting completely on it.
