Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

This Is How You Win a Billionaires' Brawl - True Story

Companies / Corporate News Dec 17, 2013 - 03:17 PM GMT

By: Money_Morning

Companies

Shah Gilani writes: There's a lucrative new trading "set-up" a lot of investors are using now. But unlike classic approaches, like "don't fight the Fed," and "the trend is your friend," there are no rules on how to play this new game.

So let's change that today.

This is the true story about two billionaires' egos, their trading games, and what happens when they clash over the same stock.


It's a story you can profit from, too...

Herbalife: It's Time to Take Sides

Herbalife Ltd. (NYSE: HLF) is a 33-year-old, New York Stock Exchange-listed nutritional supplements manufacturer and distributor. With a $7 billion capitalization, it's currently trading near $74 a share.

The company distributes and sells its products as a multi-level marketer, or MLM. Other well-known MLM companies are Avon, Amway, and Tupperware.

Multi-level marketing has been very successful for several companies, notwithstanding the many others that have ended up as nothing more than Ponzi schemes. Chances are you know what I'm talking about.

Herbalife is no stranger to controversy. It's been accused of being a Ponzi scheme and saw trouble when its flamboyant founder Mark Hughes died unexpectedly, purportedly from using Herbalife's ephedrine-laced (since banned by the FDA) weight loss products.

Nothing ever came from early short-sellers trying to trounce the stock by claiming the company was a giant scheme... in fact, they got burned. After Mark Hughes died the company fell from grace and suffered from ephedrine-related lawsuits.

A couple of private equity companies took Herbalife private in 2002. They cleaned it up, amped it up, and made a $1.3 billion profit taking it public again in 2004. From 2005 to early 2012 the stock rose 1,000%.

Sometime in early 2012, an investment research boutique firm called The Indago Group, which sells its research for $10,000 a month to a handful of hedge funds, began pushing its latest work-up on Herbalife. The picture they painted wasn't pretty.

The Clash That Created Your Opportunity

Indago said, "Our research has shown that through manipulation and misrepresentation Herbalife conceals its true business model from distributors and the investing public, selling a financial investment in the pyramid scheme."

They pitched their research hard to client David Einhorn, the billionaire founder of hedge fund Greenlight Capital Re, Ltd (Nasdaq: GLRE). Shortly thereafter Einhorn started shorting the stock.

They also pitched billionaire hedge fund manager Bill Ackman, founder of Pershing Square Capital Management, a friend of Einhorn's. Ackman passed the idea along to his intern and a young Harvard grad on his team, but didn't act on the trade.

Then on a May 1, 2012, first-quarter earnings call with Herbalife executives, David Einhorn unexpectedly spoke up, asking the CEO what percent of distributors were also the final customers for Herbalife's products. The executive couldn't answer definitively.

Ackman's people were listening in on the call. Now they knew Einhorn was short and questioning the earnings and the company's business model. Ackman began shorting the stock while the call was ongoing. The stock plunged from $70 to $56 before the day was over.

Then things got messy, really messy. Egos and reputations and games came into play.

On May 16, 2012, at the Ira Sohn Conference in New York - a forum for hotshot hedgies and institutional managers to tell the investment community their best ideas - David Einhorn took the stage. Bill Ackman thought he was going to expound on making a fortune on waxing off the tarnished veneer of Herbalife. Einhorn's first slide simply read "MLM."

Everyone, especially Ackman, thought MLM stood for multi-level marketing and that Einhorn was going to bash Herbalife. Funnily enough, the forum, which isn't in any way illegal, is for "talking up your book," as the technique is known. It's a way to tell the world what position you are big into in the hope that your good idea will induce others into your position, which has the direct benefit of pushing your position further down the road of profitability.

Everyone knew Ackman was short, and he had begun his attack on the company. He expected others were following him, and with Einhorn leading the troops at the Sohn Conference, the piling on of more shorts would surely tank the stock.

Too bad Einhorn's next slide was Martin Marietta Materials Inc. (NYSE: MLM), whose stock symbol happens to be MLM...

Oops! The crowd, also expecting the idea to be shorting Herbalife, turned heel and sent out orders from the conference to cover their Herbalife shorts. The stock rose on the day.

Now Ackman was angry. He thought he was made to look like a fool. So what did he do? He added to his short position, eventually making a $1 billion bet with Pershing Square's money and, according to him, also bet his own money on the trade.

Ackman began shouting from any rooftop he was allowed on. He used the media to bash the company, calling it a Ponzi scheme and calling the FDA and SEC and anybody who'd take his calls, demanding they look into the company and shut it down. Of course he wanted the stock to go to zero, which is where he said it was heading and where he said he'd cover his giant short position.

You Can Exploit This Ongoing Conflict

Now, here's the thing about Bill Ackman and shorting. Bill isn't exactly a well-liked guy. He's got a large ego and more than a few people in the business I'm familiar with (I've never met Bill Ackman) say he's arrogant and worse. There's a problem with being disliked and telling the world you're short more than 20 million shares of a thinly traded stock. Your enemies and even your quasi-friends are more interested in making millions than considering your feelings or your pocketbook or the returns your investors expect. They are going to gang up on you, eventually, when the time is right.

Bill Ackman then went about setting himself up perfectly, for the kill that is.

Ackman arranged for a special session of the Sohn Conference on December 20, 2012. While it was extraordinarily odd to ask for a personal forum under the auspices of the Sohn Conference, Ackman drew 500 investors and another 1,300 followed him online.

Ackman produced 330 slides over a 3-hour stand-up, supposedly extemporaneous performance, which he titled Who Wants to Be a Millionaire.

The stock went from $42.50 on Dec. 18 to $26 on Christmas Eve.

A fine rundown indeed...

But, now the stock was at a very attractive level. And another one of Ackman's former friends, who had become disillusioned with him, saw his chance. Besides personality differences, Ackman's former friend was still smarting from a 90% loss he sustained when he gave Ackman $200 million of his fund's capital to invest. Unbeknownst to the friend, Ackman was putting all the money into an ill-timed trade on Target Corporation (NYSE: TGT).

Ackman's former friend, billionaire hedge fund manager Daniel S. Loeb, founder of Third Point LLC, began to acquire Herbalife, quietly at first.

Eventually Loeb let it be known he'd accumulated an 8.9% stake in Herbalife for the bargain basement price of only $300 million, thanks to Ackman's shorting efforts. Loeb said the stock was a value and he expected to see it back up above $70 and that he was counting on a 40% to 70% gain on his position.

As if that wasn't hard enough to swallow, another Bill Ackman basher, multi-multi billionaire investor par excellence Carl Icahn began to buy huge amounts of the stock, taking shares quickly to the $40 level.

Carl Icahn has a lot more money and friends than Bill Ackman, so what happened next shouldn't surprise anybody... though it did surprise Bill Ackman.

Other very well-heeled and legendary investors began buying Herbalife. They now include Stan Druckenmiller, the Soros Family Office, Richard Perry, Kyle Bass, Bill Stiritz, Robert Chapman, John Hampton, and Sahm Adrangi.

Herbalife is now trading just shy of $70 and Bill Ackman is sitting on at least $500 million in losses.

How You Can Gain from the Next Development

What's there to learn from this story - and could you have made money following this saga? What will likely happen next? And are there other trading scenarios like this out there?

The answers will surprise you. Check back later this week for your profit potential...

Source :http://moneymorning.com/2013/12/17/this-is-how-you-win-a-billionaires-brawl-true-story/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules