Value investing congress ackman presentation on herbalife

Ramirez: Again, I will leave it to you to draw that conclusion. New York Times: Did you review the language in their Herbalife press release that… they were not declared to be a pyramid scheme? Ramirez: I do not agree with that statement… And, again, I will leave to readers to draw their own conclusions. But they were not determined not to have been a pyramid.

That would be inaccurate. This inquiry included a special re-examination of the Ackman chapter of the saga. I came to recognize a force that accounted for Ackman's defeat that is arguably more influential than the hundreds of millions MLM pours into influence-buying and regulatory capture. This force is greater than high level advocates, e. The force I examined invalidated Ackman's extensive research and the documented experience of millions of Herbalife "losers.

This force overrides facts, logic and analysis and rewrites or discards history. It is un-economic. The force is a particular belief, a mass delusion. Herbalife has enjoyed and has promoted a pervasive, non-rational belief in its "business model" that was invented and propagated by the MLM lobby and PR machine.

Over the last 40 years, it captivated millions of souls and won the fealty of powerful institutions. But, over the last four years, a large-scale, grass roots heresy has emerged that is challenging the creed as delusional, destructive and cultic. The societal spread of Ponzinomics is necessarily accompanied by governmental collusion. The genesis of the Ponzinomics belief system, as I chronicle in my book, was not in think tanks or in business schools.

To these commercial values and doctrines, they grafted the hallmark chain-letter structure. Buy-sell transactions of products served to continuously transfer funds from later participants to earlier ones in a ponzi-like, closed market. With this aberrant modification, the pop psychology of sales morphed into an absurd pseudo-economics that claims to transcend laws of supply and demand, market limits and saturation.

Pseudo-Economics to American Dream Politics In the late 60s to mids, federal and state regulators moved to shut down the new Ponzinomics businesses which they called "pyramid selling schemes. What the regulators did not realize, however, was the schemes had evolved beyond bogus-economics into a totalistic ideology with a formidable political lobby.

The promoters assumed the authority and gained popular appeal of Prosperity Preachers. MLM promoters claimed the mystic power to produce "unlimited wealth" through faith and optimism. Leaders took on moral authority, playing the role, not of sales promoter, but god-like dispenser of Grace. With this power, they gained control over many recruits' entire lives and capacity for critical thinking. MLM's pyramid recruiting transformed into a religious-like crusade.

Ponzinomics proved explosively profitable for the investors and early adopters while millions of followers fell into the cursed status of "losers. As MLM was spreading, its magical claims to shape reality with belief gained a veneer of academic and popular acceptance in the early s' "human potential" movement. The largest MLMs of the time, as do all others ever since, delivered powerful "training programs" for recruits, not about products or selling, but indoctrination in unlimited expansion and the magical power of belief.

MLM professes to hold not only ultimate secrets to wealth but a specific business plan — a business in a box — for gaining the promised riches. With such amazing promises and a financial program to fulfill them, MLM promoters gain deified status.

In the s, MLM — Amway in particular — was embraced by the Reagan administration, declaring it the purest and highest form of American capitalism. Ponzinomics morphed into a political philosophy. As the paragon of this philosophy, MLM now claims to be the American Dream's greatest champion, the "last best hope" for millions of people who have otherwise lost faith. As it moves into other countries, MLM presents itself as American capitalism's ambassador. It even hired two former U.

Orwell in Business Ponzinomics affects many areas of modern life but only "multi-level marketing," a term invented by promoters in the mids packaged the belief into a financial product. It includes a binding contract, investment requirements and utopian promises of return. It has a hierarchical structure, dogmatic rules, a money-transfer formula based on the "endless chain" and a cultic training program that inhibits critical thinking. Sold as a "business opportunity," Ponzinomics has spread like a virus throughout Main Street USA and globally, stirring false hope and inciting mass manias.

The delusional aspects of Ponzinomics are laughably obvious. Empowering the "extraordinary" income promises is the "infinite" recruiting chain. Returns depend not on personal sales but on the enrollment and expenditures of future investors who must do the same, ad infinitum.

The absurdity of the MLM claim that millions are not buying access to the "unlimited income opportunity" but paying to become "salespeople" or to obtain "discounts" is farcically upheld at the FTC, as Orwellian "truth. Ackman is not known as a short seller. His fund is generally a long-biased fund. He achieved some notoriety for predicting that muni-bond insurer MBIA was undercapitalized, which eventually proved true during the financial crisis of All the while, however, his ego seems boundless.

He is somewhat unusual among usually media averse hedge fund managers in that his strategy involves publicly trumpeting the merits and genius of his investments, which he generally holds for a long time. He manages a concentrated portfolio comprised of very few, very large investments.

He also is considered an activist investor. He frequently badgers the board and management of the companies in which he invests with what start as suggestions and frequently escalate to demands as to how they should conduct their business, what their capital structure should be, and the composition of its board.

Though he will rarely, if ever, publicly concede, Ackman makes mistakes just like the rest of us, even catastrophic financial ones e. Indeed, Ackman closed down a previous hedge fund advisory entity called Gotham Partners after he reportedly marooned his investment funds in an illiquid and devastating combination of a closely held REIT First Union Real Estate and a portfolio of golf courses Gotham Golf for which no exit was possible.

So while Ackman is quite good at what he does for a living, his hubris makes him vulnerable to spectacular failure. He has a high financial IQ, but it may be the delusional and narcissistically 15 surplus IQ points he awards himself that have been, and may again be, his undoing. Short selling is a vital component of the markets. The ability of investors to sell short shares of overvalued companies keeps market valuations in check, and permits investors to hold hedged portfolios that are not dependent on constantly rising indices to make a positive return.

There are risks, however, of going short that do not exist on the long side. The potential loss on a short sale is unlimited. The lesson he drew was to keep individual shorts small relative to capital. Holders of stock give their broker the right to lend out their shares in exchange for the flexibility of keeping margin accounts, and to participate in a portion of the fees short sellers incur for access to those shares.

Short selling is conducted by the investor calling his broker, securing a borrow, and then executing the sale. Most companies have ample shares available to borrow, and this process yields little drama. If long holders sell shares brokers had out on loan to short sellers, the short seller must replace those borrowed shares he has lost access to with newly sourced shares.

This dynamic is what leads to short squeezes, where heavily shorted issues rapidly appreciate in the absence of any fundamental reason. Just look back to when the US government suddenly prohibited the shorting of financial stocks to see how painful that result can be for short sellers.

One effective defense for the short seller would be to have his broker contract on his behalf with a lender of shares to provide a quantity of shares for a specific term, at a negotiated payment. This insulates the short seller from buy-in risk for the duration of the contract. However, these contracts are individually negotiated, and somewhat rare. Also, they frequently permit the long holder to regain access to his shares if the company were to, for instance, conduct a self-tender offer for its shares.

It is not known if Ackman has such an arrangement. The company has hired an impressive team of advisors. Moelis went on to a successful career at DLJ and UBS, where he became the premier investment banker to the casino gaming world, before launching his own shop. I presume Boies was brought on to bring suit against Ackman for some combination of libel, slander, defamation, tortuous interference and other imaginative causes of action.

No matter how this turns out, the discovery, depositions and testimony should be highly enlightening and probably quite entertaining. In the absence of controversy, the market would typically accord a fast growing, capital efficient company such as HLF a premium multiple.

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Distributors may not encourage Distributors or prospective Distributors to obtain a loan or to borrow money for use in connection with their Herbalife business…Further, Distributors may not use in connection with their Herbalife activities money loaned or granted to them for educational or other specific purposes not related to the establishment of a business. The decentralized nature of Herbalife's distributorships calls into question the extent to which these rules will be enforced.

If the rules are not enforced, any continuation of lead generation or debt encouragement tactics should draw the attention of consumer protection policymakers and advocates. On the other hand, if the rules are enforced, senior distributors will have a tougher time recruiting new distributors.

We view the Company's rule changes as a tacit admission that past practices have been improper. The Company itself has advised its distributors that lead generation can lead to misrepresentations and other abuses, and we cannot see how using student loans or grants to fund an Herbalife distributorship can ever have been proper.

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