I don’t wish to talk about HLF, rather I look at Ackman’ moves that scream ‘wrong’ in general:

• Going Big (10% AUM is huge) instead of tip-toeing.
• Sheep-herding -As you learn that Ackman went after Herbalife following David Einhorn, you wonder if he didn’t know Einhorn is an able poker player. If this was that good, why didn’t Einhorn take a big bite to begin with.
• Herbalife was long lived MLM, has been around for decades. Whether for the right or the wrong reasons, a business that has survived for a long time / many lawsuits /economic cycles is not “garbage” or can be easily dismissed. If HLF was an easy target it would have fallen by then.
• If PSC has a L/S strategy that is in fact mainly L(Long) why commit so many resources to a short ? To add injury to the offense “Ackman pledged to donate his personal profits from the short to charity.” Not in the [realDT] world, not in any world !
• Ackman: “I am more interested in fighting evil.” If you need a government investigation, do you really think the government is going to favor a hedgie [profiting from the fall of it] ?
• Then came the CNBC Ackman-Icahn face-off that was of comic proportions, most of you watched it. I think Icahn was trying to irk Ackman.
• A stock drawn into a public battle almost never goes down (unless it’s an epic fraud something like Enron).
• Another moral of this story is not to fall for a a business that easily morphs forms. MLM “adjust their business models to remain in the zone of legality.” Ackman was vindicated as far as the government investigation that ensued and the settlement the company had to reach. Morally he won…yet lost the pocketbook score.

The F.T.C. settlement places some onerous conditions on the company: in order to continue giving full commissions to its salespeople, it must prove, through documented receipts, that eighty per cent of its revenue comes from actual retail demand for its products. To qualify for commissions, individual distributors must show that sixty-six per cent of their sales comes from retail customers.-the New Yorker If HLF reforms and complies with the fairly complex restructuring order, chances are the stock will not fall.

Food for thought:

The man walked around the room, asking the attendees one-on-one questions: “Are these knives going to sell themselves? Is the answer ‘Yes,’ because they’re so good, or ‘No,’ because they need a good salesman?” People started to become agitated.

           -HLF seminar in Las Cruces, N.M.

Well, what do YOU think ? Can you separate the knives or nutritional supplements or whatever) from the salesman ?

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