
Bill Ackman Surrenders in His Five-Year War Against Herbalife - mudil
https://www.wsj.com/articles/bill-ackman-surrenders-his-in-five-year-war-against-herbalife-1519854456
======
fitzroy
For anyone interested, the documentary Betting On Zero is very good (on
Netflix). I'd be curious to hear how the film came together and got financed.
It certainly has an agenda and Bill Ackman comes out looking pretty good vs
Herbalife.

That said, Ackman looks a lot less good in episode 3 of "Dirty Money"
regarding Valeant (also on Netflix).

Obligitory "the market can remain irrational longer than you can remain
solvent" quote.

EDIT: Just noticed Herbalife owns bettingonzero.com. They put up a "FAQ"
saying Ackman secretly funded the doc and they're promoting the link with ads
on Google.

~~~
lobster_johnson
It's interesting that Ackman seems to have been doing against Herbalife
exactly what his opponents were doing when they were shorting Valeant. With
Valeant, Ackman seemed pretty naive and/or delusional about its value and
operations.

(That said, Valeant still exist today, despite its extremely immoral and shady
past doings. I was dismayed to find recently that one of my favourite brands,
CeraVe, is actually a Valeant company.)

~~~
JauntTrooper
No need to worry then, Valeant sold CeraVe to L'Oreal last year.

~~~
lobster_johnson
Interesting, thanks. Apparently the deal was completed in March. I guess it
takes a while to update the products.

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kurthr
I recommend reading Bronte Capital's take on this. He regularly evaluates
short opportunities mostly related to fraud.

He actually visited Herbalife clubs before making a decision on shorting. He's
not a fan of Ackerman.

[https://brontecapital.blogspot.com/search?q=herbalife](https://brontecapital.blogspot.com/search?q=herbalife)

~~~
CrackpotGonzo
Wow, thank you for sharing this. It was an illimunitaing read and made change
my opinion on Herbalife. Comparing it to AA makes a lot of sense.

~~~
bagels
AA = Alcoholics Anonymous in this context, in case you were wondering.

------
randomwalker6
"Baby Buffett" Bill went long on Valeant, a company so evil that it makes diet
smoothie MLM Herbalife look like the Salvation Army, yet people here
apparently still think he's a good guy because of his sympathetic portrayal in
_Betting on Zero_. Ackman not only is not a good guy, he's also, like most
hedge fund managers, completely incompetent:

> The losses in each of the past three years — of 4, 13.5 and 20.5 percent —
> come against gains in the S&P 500 of 19.4 and 9.5 plus a 0.7 percent dip,
> respectively. The ­Pershing losses took its net assets to $9.3 billion from
> $18.3 billion.

[https://nypost.com/2018/01/10/ackmans-pershing-square-
fund-t...](https://nypost.com/2018/01/10/ackmans-pershing-square-fund-to-
slash-management-fee/)

PSCM can't even consistently beat the S&P 500, and Ackman's already on his
second fund after having blown up his first (Gotham Partners)--why on earth
would anyone give this guy their money? Because he's handsome and a smooth-
talker, I suppose.

~~~
godzillabrennus
He sure deserves his lumps over Valeant but let’s not play pretend. There are
plenty of monsters on Wall Street who will gladly destroy great companies for
short term profits.

Eric Ries has the right idea with the long term stock exchange.

~~~
hidenotslide
What is the LTSE? From their website it doesn't really seem like they do
anything other than some apps for entrepreneurs?

Often the mechanism for destroying great companies is plundering one group of
stakeholders to pay off equity and management. E.g. firing long-time
employees, underfunding/changing pensions, over leveraging, or risky
regulatory strategies that they won't be around to face the consequences for.
I don't see how what stock exchange something is listed on has much effect on
any of those.

------
loeg
What a shame. Herbalife is clearly an MLM, a modern form of a ponzi scheme.
Their long term value is clearly zero, they just didn't manage to tank in the
period Ackman projected.

~~~
WheelsAtLarge
Yes, it's an MLM but unfortunately, they have a business model that works.
Amway is an MLM that survived a similar attack as Ackman vs Herbalife. Ackman
did not bring anything new to the fight. I wished he would have won since many
people lose money since they feel that Herbalife will sell itself. They're not
ready to put up with the low pay and long hours until they reach the upper
ranks. Most people just give up and lose their investment.

~~~
Retric
Most people can't reach the upper ranks of any MLM due to how they are
structured. It's like a consulting shop you need more leaf nodes than
managers.

~~~
jjeaff
You don't really climb or reach in an mlm. You just build lots of people under
you to make money.

In most mlm compensation schemes, you would receive the same amount of money
if you were at the very top of the pyramid or somewhere much lower, assuming
you have the same size team built below you.

~~~
kbutler
But the one at the top has a bigger pyramid than anyone below. The early
adopters have also cleared the pool of most of the easy catches, so your
chance of building the pyramid is reduced.

~~~
PeterisP
Sure, but that doesn't change the fact that you don't really "climb" or "reach
the top" \- if you aren't at the top, you can either fail or succeed by
building underneath you, but you're not going to get to the top and the one
above you will forever have a bigger pyramid than you do.

~~~
Retric
Leaf nodes quit, the specific people in the chain above you gain as you grow
but just because someone get in at stage 2 does not mean anyone is still under
them.

~~~
jjeaff
Yes, but the top nodes almost never quit. Once you have that sweet, sweet
residual income trickling in, you have no reason to quit.

That being said, as I mentioned above, the top nodes don't necessarily make
more money than those below them.

------
marojejian
“The market can stay irrational longer than you can stay solvent.” -John
Maynard Keynes

Looks like another case of this applying. Though it's sad, I am heartened to
know that giants can succumb to this too. Lord knows it's hit me enough.

~~~
stefan_
Why is it god given inevitable that this is somehow a bad investment? Plenty
of companies make their money deceiving the poor or defrauding their
customers, lots of the consulting joints come to mind..

~~~
pbhjpbhj
Surely it's a bad investment for anyone who has morals. People may assume that
others generally aren't evil and so will not support obvious (to them) scams.

------
Analemma_
While it feels icky to root for a billionaire hedge fund manager who probably
couldn't care less if I lived or died, I was kind of pulling for Ackman.
Herbalife _is_ a complete scam, and in a sane universe they wouldn't have any
valuation at all. But no one ever went broke underestimating the intelligence
of the American public. Sigh.

~~~
Reedx
It goes way beyond the American public, they're global - in at least 95
countries. I guess that's how they're managing to keep the scheme going as
long as they have.

Really does seem like a strong bet that they will go to zero.

~~~
glibgil
The lifecycle of an MLM company: Utah, then the rest of the US, then the world

~~~
defen
Why do you say Utah? Near as I can tell Herbalife came out of California.

~~~
sureshv
Orrin Hatch

See:
[http://www.nytimes.com/2011/06/21/us/politics/21hatch.html](http://www.nytimes.com/2011/06/21/us/politics/21hatch.html)

~~~
gowld
Orrin Hatch represents the herbal supplement industry, not the MLM industry.
Herbalife happens to be in both.

------
ada1981
I hate MLMs so very much.

There is a good book called False Profits by Robert Fitpatrick about the MLM
industry.

So much of our culture is some version of sucker capitalism.

~~~
panarky
_> So much of our culture is some version of sucker capitalism._

It's amazingly difficult to find examples of businesses considered
"successful" that aren't somewhat pyramid-shaped.

And as soon as I find one, it turns out it relies on a larger ecosystem that
itself is pyramid-shaped.

None of these enterprises can survive for the long run, but since in the long
run we're all dead, maybe it only matters if you can ride the wave in the
short run??

~~~
hueving
How is In-N-Out pyramid-shaped?

~~~
perl4ever
According to a cursory Google search, In-N-Out has stated it will never go
public or issue franchises. So they are less "pyramid-shaped" than a lot of
businesses.

However, nothing is forever and philosophies can change. Look at the saga of
Chipotle, they were so very full of themselves, and now they have someone from
Taco Bell to pick up the pieces of their shattered reputation.

Any "family business" undergoes instability as generations hand off to new
ones.

Interestingly, someone has been selling _fake_ In-N-Out franchises in
California. So you could say that even if you don't want to be pyramid-shaped,
the pyramid sellers will find _you_.

~~~
hueving
They are not pyramid-shaped at all. Running a successful franchise does not
depend on your ability to recruit other franchise owners and then collect rent
from them.

~~~
perl4ever
You can interpret "pyramid-shaped" how you please. The way I interpreted it,
was that businesses that are not pyramid schemes per se, nevertheless pay off
early investors with later investors' money.

Having a successful public company involves recruiting investors, and being
successful in franchising involves recruiting investors.

And, if you have a successful business that is just a family business, maybe
you want to sell it at some point...

As I wrote, you can define "pyramid shaped" as you please, but if nothing can
be "pyramid shaped" without literally being a "pyramid scheme", then the term
"pyramid shaped" has no reason to exist - that violates normal assumptions
about reasonable discourse.

~~~
hueving
Pyramid shaped refers to crap like HLF where the only way to actually be
successful is to get more people to do the exact same thing you did.

You can have a successful In-N-Out and your success absolutely does not depend
on someone then buying a franchise on your referral that you skim off of.

~~~
perl4ever
_You_ are not the one who initially used the phrase "pyramid shaped", so I
don't see why you would expect others to defer to your authority on what it
means.

Given the cooperative* nature of normal conversation, one must assume (at
least initially) that there is a reason for saying "pyramid shaped" rather
than "pyramid scheme". The obvious interpretation (to me) is that there is a
continuum between pyramid schemes and non-pyramid schemes.

Objecting to the placement of In-N-Out _near_ the "non-pyramid scheme" end of
things, on the basis that it is _not at all_ a pyramid scheme seems like an
aesthetic preference for binary categories - that's all right for you, but
other people may generalize.

*[https://en.wikipedia.org/wiki/Cooperative_principle](https://en.wikipedia.org/wiki/Cooperative_principle)

------
rajacombinator
The real untold story of guys like Ackman and most of Silicon Valley is their
sales and fund raising ability. Because he sure as hell ain’t a good investor.
Yet he still manages billions of dollars of investor funds. At this point he’s
like a bizarro world Gartman.

~~~
adventured
Ackman's fund got to where it did, because he actually produced a string of
great returns across a decade and a few monster hits (such as Canadian
Pacific). Investors would have never given him that level of capital
otherwise.

The fact is, Pershing stomped the S&P 500 across a decade, from Q1 2004 to Q1
2014 (without anything from Valeant contributing). Which very few fund
managers ever manage to do. Most are lucky to beat the S&P 500 at any point.
You can call it luck, which it could be obviously, across a decade that's
quite an unusual string of luck.

2004: 42.6% return; 2005: 39.9% return; 2006: 22.5% return; 2007: 22% return;
2008: -13% return; 2009: 40.6% return; 2010: 29.7% return; 2011: -1.1% return;
2012: 13.3% return; 2013: 9.7% return; 2014: 36.9% return; 2015: down the ship
goes with VRX

More likely, based on his actual track record over time (including spotting
the mess with MBIA years before anybody else), Ackman is a decent investor.
His seeming arrogance and stubbornness appears to be the culprit more than
lack of skill. He refused to throw in his cards early when losing hands came
up. It's what separates decent investors from great investors like a Buffett,
who will typically cut an investment the moment he realizes the business is a
dog (that his instigation thesis was wrong), rather than stubbornly fight the
tide. Ackman likes to fight, and has an immense ego, that's what got him on
VRX and Herbalife. Can he learn from those mistakes and become a better
investor? He'll have to, or most of the money he'll be managing will be his
own.

~~~
perl4ever
I think that's not exactly wrong, to refer to "a few monster hits", but you
didn't mention his single best investment, which overshadows all others.
General Growth Properties turned a few million into almost $2 billion.

My impression is that Ackman is simply a gambler who got really lucky once and
that has allowed him to raise money and squander it on a scale that
compensates for his successes.

Certain famous investors have talked about how it's not so hard to run across
some big winners over time; what's really hard is to avoid big mistakes.

There's something particularly perverse about calling a fund that owns a small
number of risky stocks a "hedge fund", I might add.

------
diiaann
This makes me sad. I don't care about Bill Ackman being right or wrong about
Herbalife's business.

What I care about is that I truly believe that the world would be better off
without MLM. If you have ever read sites like Pink Truth, it is gut wrenching
how these business prey on people.

I had hoped that this would be a turning point...

------
sgw928
Imagine someone super rich shorts Herbalife like Ackman did, lobbies congress
to make Herbalife's business model illegal, and then profits from the short
position. Would this be conflict of interest legally, or is this just how
crony capitalism works in the US nowadays?

~~~
starpilot
Imagine someone invents something currently illegal then lobbies to make it
legal, in order to sell it. This is just capitalism and liberalism, and it's a
good thing.

~~~
BLKNSLVR
How is this a good thing?

What if it's illegal for a good societal reason, and lobbying is just throwing
enough money at enough of the right people until they succumb and legalise it?

It's never going to be cut and dried 'a good thing'. In some instances it will
be and some it won't.

~~~
MrLeap
It might be a good thing if you think the natural progression of a
governmental system is one where entropy increases til' things can't change,
and you think that governmental systems trend negative in aggregate.

I'm not yet convinced of the above, but my trajectory points that way.

------
WheelsAtLarge
Read Amway vs (the world?) and you'll understand why Ackman lost.

[https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusatio...](https://en.wikipedia.org/wiki/Amway#Pyramid_scheme_accusations)

~~~
fwdpropaganda
Come on, tell us more.

------
tchen
unpaywalled: [https://outline.com/YPct](https://outline.com/YPct)

------
xref
I have some family pretty deeply trapped in Lularoe's "MLM", the fact
Herbalife is still legal and solvent doesn't give me a lot of hope for a rosy
outcome for my fam

~~~
phamilton
Anecdata is not proof, but plenty of people actually make money in LuLaRoe
from sales rather than the pyramid structure.

------
daxorid
Similarly, David Einhorn and Greenlight continue to get squeezed by the price-
insensitive investors of NFLX, AMZN, and TSLA.

He has yet to capitulate positions, but very well may do so soon, as he was
forced to apologize to Greenlight investors for recent serious
underperformance.

~~~
testfoobar
I have no opinion on the future price/direction of these stocks.

From end of 2017 to today:

NFLX: 192 to 291 51% gain in two months AMZN: 1169 to 1512 29% gain in two
months TSLA: 311 to 343 10% gain in two months

------
bob_theslob646
I still do not understand why these people choose to reveal their positions.
In ackman's case, it actually made people a lot of money because other people
who didn't like Ackman got together and said 'hey what if we take the other
side of this because we think that there's another puff left to this cigar."

~~~
cryptozeus
May be at that level they hope to play the market by revealing...more people
could get behind the call

~~~
bob_theslob646
If anything, reading about it from the 13f attracts more attention. ( i.e
Buffet), but for Bill and Mr.Dalio, does not seem to be working out.

------
ISL
Ackman has purchased put options, which, in my understanding, is not
surrender.

~~~
anilshanbhag
That was a while ago. Today he said he closed all positions in Herbalife
(stock and options).

------
simula67
> Mr. Ackman first alleged in December 2012 that Herbalife, which sells
> through a network of distributors, was an illegal pyramid scheme and would
> be shut down by the government. He had personally pledged to take his
> campaign “to the end of the earth,” though he added that Pershing Square
> would abandon the bet if it got too risky.

Who surrendered ? Bill Ackman or Pershing Square ? Both ?

------
known
Ackman pays about $100 million annually to maintain his short position
[https://en.wikipedia.org/wiki/Bill_Ackman](https://en.wikipedia.org/wiki/Bill_Ackman)

------
jeffbarg
I can't view the article behind paywall, but there was a recent documentary
about this short position.

Worth a watch:
[http://bettingonzeromovie.com/](http://bettingonzeromovie.com/)

~~~
royjacobs
While I agree that Herbalife doesn't seem like a very kosher company, it's
probably also good to realize that that documentary was probably heavily
skewed towards the viewpoint of (and probably somehow co-financed by) Ackman.

------
jdoliner
Mods, the title please. It hurts.

~~~
dang
Should be fixed now. Submitted title was "Bill Ackman Surrenders His in Five-
Year War Against Herbalife".

------
AlexCoventry
Probably means it's a good time for a short-term short.

