Betting on Zero

[Mandala]

I jus saw the documentary about Bill Ackman’s hedge fund Pershing Square Capital Management short on Herbalife.

He lost 750 million.

He bet it would collapse as it was a MLM. It was not a pyramid scheme as they actually sold products but also sold distributorships as a way to make profit. 98% of the distributors lost money and that is why he felt it would collapse once he went short as holders would start selling.

While he was wrong, he did force action as laws were passed and Herbalife paid out millions.

Fascinating watch as it goes down in real time. Going short is stressful play as you have no idea when to get out. Ackman could of jumped out early and made a fortune

 

[KarlHungus]

Well it wasn't only that but Carl Icahn saw that Bill was over-leveraged in that trade and positioned long on Herbalife, threw up a charade even though he knew it was not a real productive company other than raking profits from holistic medicine. Icahn going long really screwed with Ackman's short position and butted with him in interviews. Bill is known for being a cry baby, but for Herbalife he was trying to short against a company that really had no societal value.

It also doesn't help that Ackman has also been picked on as an entitled investor. We're talking about a guy here, who bought his way into professional tennis.

 

[Mandala]

Well it wasn't only that but Carl Icahn saw that Bill was over-leveraged in that trade and positioned long on Herbalife, threw up a charade even though he knew it was not a real productive company other than raking profits from holistic medicine. Icahn going long really screwed with Ackman's short position and butted with him in interviews. Bill is known for being a cry baby, but for Herbalife he was trying to short against a company that really had no societal value.

It also doesn't help that Ackman has also been picked on as an entitled investor. We're talking about a guy here, who bought his way into professional tennis.

There is also a social benefit in going short. It corrects overpriced stock and makes it easier for buyers to purchase shares

Yes Icahn saved Herbalife by going long which, as you state, is a scum company with bad overpriced products

 

[Big Rig]

I doubt Aikman lost anything his hedge fund did. That is why I stay away from hedge funds. They are way too volatile and the stress is not worth it. His hedge fund Pershing Square Capital has bounced back and is doing just fine

Buffet famously bet a million $ that the S&P would beat a fund of Hedge funds over ten years. After 9 years his opponent conceded.

Going short is very difficult as even if you guess right you still have to sell before it bottoms and that is even harder to predict.

Herbalife was and is a crap multi level marketing company selling way overpriced food. I make my own stuff way cheaper than their crap. I buy quality protein and make quality shakes.

MLM is a fools game. Some distributers do make money but it takes a lot of hard work
and brains that are wasted. 98% of the distributers are losers.

By signing up distributers you created your own competition. The math of it states you very quickly need exponentially more customers than there are people in the world

 

[WyattEarp]

I doubt Aikman lost anything his hedge fund did. That is why I stay away from hedge funds. They are way too volatile and the stress is not worth it. His hedge fund Pershing Square Capital has bounced back and is doing just fine

Buffet famously bet a million $ that the S&P would beat a fund of Hedge funds over ten years. After 9 years his opponent conceded.

Going short is very difficult as even if you guess right you still have to sell before it bottoms and that is even harder to predict.

Herbalife was and is a crap multi level marketing company selling way overpriced food. I make my own stuff way cheaper than their crap. I buy quality protein and make quality shakes.

MLM is a fools game. Some distributers do make money but it takes a lot of hard work
and brains that are wasted. 98% of the distributers are losers.

By signing up distributers you created your own competition. The math of it states you very quickly need exponentially more customers than there are people in the world

Herbalife stock did eventually tumble a lot. Shorting stock is a very risky bet. You not only need to be right, but you need the market to correct in a reasonable amount of time. Plus, a big name guy like Ackman can run into a big name dick like Icahn who is going to screw around with you.

I think there is a pyramid scheme to a large degree behind Herbalife and other MLM companies. As you note, most distributors lose money. They have to keep recruiting new money (distributors). I'm guessing many of the distributors who make decent money are really good at recruiting new distributors.

It reminds me of GameStop. I avoid these type of risky, short-term bets. I don't want to get caught in a short squeeze. Better to invest in solid companies with a good, sustainable business model.

 

[Big Rig]

Herbalife stock did eventually tumble a lot. Shorting stock is a very risky bet. You not only need to be right, but you need the market to correct in a reasonable amount of time. Plus, a big name guy like Ackman can run into a big name dick like Icahn who is going to screw around with you.

I think there is a pyramid scheme to a large degree behind Herbalife and other MLM companies. As you note, most distributors lose money. They have to keep recruiting new money (distributors). I'm guessing many of the distributors who make decent money are really good at recruiting new distributors.

Knowing when to get out is not a easy decision

Aikman could of got out as herbalife dropped as soon as the market knew he went short

Advertising his short was part of his plan but he stayed in and lost 750 million

As margin calls came in after herbalife rebounded the interest on his margin was over 20%

It is like a loan as someone else has the stock you "borrowed" that you pay insurance on
that is the 20% I mentioned

It is the risiest bet you can make

If you go long the most you can lose is it goes to zero

There is no limit to your loss if you go short as it can rise to infinity in principle

I don't want to get caught in a short squeeze. Better to invest in solid companies with a good, sustainable business model.

I disagree. Better to buy an index as buying any one company is a huge risk as 90% of all companies either stay flat or lose

It is 10% of companies that carry the market so your odds of picking one is 1 in 10 so buy them all in an index

 

[WyattEarp]

I disagree. Better to buy an index as buying any one company is a huge risk as 90% of all companies either stay flat or lose

It is 10% of companies that carry the market so your odds of picking one is 1 in 10 so buy them all in an index

That's good advice. I should have been more specific. I am not really much of a stockpicker. Most of my money is in broad-based funds.

I have a good knowledge of some industries so I might take an occasional stock position. Or sometimes I like to buy into overdone negative news.
I bought 3M in the 90s in 2024 and rode it up. 3M was hit with some costly lawsuits and they were putting the suits behind them. Certainly, there was still risk as lawyers look to sue big chemical companies.

Generally, company stocks have all the available news priced in. You have to be almost clairvoyant to out pick the market.
We all know people who pick stocks that think they are geniuses because a booming market merely lifted their portfolio with it.

 

[Big Rig]

That's good advice. I should have been more specific. I am not really much of a stockpicker. Most of my money is in broad-based funds.

I have a good knowledge of some industries so I might take an occasional stock position. Or sometimes I like to buy into overdone negative news.
I bought 3M in the 90s in 2024 and rode it up. 3M was hit with some costly lawsuits and they were putting the suits behind them. Certainly, there was still risk as lawyers look to sue big chemical companies.

Generally, company stocks have all the available news priced in. You have to be almost clairvoyant to out pick the market.
We all know people who pick stocks that think they are geniuses because a booming market merely lifted their portfolio with it.

100 %

Everything you know is old news and already priced in

I was thinking same thing when TD got caught laundering maifia $ as their stock dropped 10 %+. I thought good time to get in but then I thought wait for further drop which never came so now it is too late to get in

IT RECOVERED its share relative to other Canadian banks in a few months
after smoke settled

That says it all - you have to know when to get in and when to get out is the bigger problem than deciding whether to get in

Knowing TD will recover was never the issue for me knowing when to get in was.
That is called market timing and no one can do it so do so dont even try just buy and hold then go do something else