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Poll- Is HLF actually a pyramid


ragnarisapirate
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Is HLF A Pyramid Scheme  

184 members have voted

  1. 1. Is HLF A Pyramid Scheme

    • Yes, the FTC will shut them down
    • Yes, they will be fined by the FTC
    • Yes, though nothing will come from this
    • No, nothing will come from this
    • No, but they will be hurt by all the attention


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The question is not are they a pyramid scheme but rather will they be shut down as a result.  If the question is will they be shut down, I would vote a resounding no.  The US has a long history with MLM companies and this one is no different.  This represents poor judgement for Ackman, similar to his foray into golf courses at Gotham Capital that caused his fund to shut down.  Should be fun to watch...

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  • 1 month later...

Of all the people that actually claim to profess the ability to discern the pyramid schemes from legitimate enterprises, I reckon only a minute fraction actually have done the deep due diligence needed to separate the fact from fiction.

 

After passing the initial barrier of conducting a true litmus test, one then has to calculate the probability of whether anything will come out of the government to disrupt or shut down Herbalife.

Even if HLF does face a regulatory action, the scope of the action remains uncertain (slap on the wrist compared to a full scale freeze and eventual shutdown). And after that, one has to calculate the exactly effect a possible government action would have on the business of herbalife given that only 20% of revenue is based off of USA and that the company itself is incorporated in Cayman Islands.

 

The materialization of the negative outlook is contingent upon governmental action as the organic growth shows no signs of slowing.

 

I personally think LEAPS are a better bet if one has a bullish thesis on HLF since the existence of the company is in question (meaning the LEAPs would just be as worthless as common stock in the worst case scenario) but the upside would be magnified if Herbalife returns to its pre-contentious glory.

 

Being short the stock, in essence acts as an option because as time passes by without any word of regulatory action, the perception that HLF will survive - increases and the likelihood of it reaching its intrinsic value also increases.

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Of all the people that actually claim to profess the ability to discern the pyramid schemes from legitimate enterprises, I reckon only a minute fraction actually have done the deep due diligence needed to separate the fact from fiction.

 

After passing the initial barrier of conducting a true litmus test, one then has to calculate the probability of whether anything will come out of the government to disrupt or shut down Herbalife.

Even if HLF does face a regulatory action, the scope of the action remains uncertain (slap on the wrist compared to a full scale freeze and eventual shutdown). And after that, one has to calculate the exactly effect a possible government action would have on the business of herbalife given that only 20% of revenue is based off of USA and that the company itself is incorporated in Cayman Islands.

 

 

The materialization of the negative outlook is contingent upon governmental action as the organic growth shows no signs of slowing.

 

I have no dog in this fight (and am not going to buy/sell/or do anything with the stock), but simply talking about the organic growth showing no signs of slowing is kind of a bad way to look at this. By nature, pyramids are a lot like ponzi schemes in that once enough people get screwed, they move on to the next thing and there aren't people to come back. Bernie Madoff had no signs of bad returns until, well, he imploded. It is very possible that we will look back on this in a manner where the thing couldn't go to hell... It may not be that dissimilar to various RE shorts a few years ago.

 

Furthermore, if a company loses 20% of revenues- well, bad things generally happen.

 

Again, I have no position in this and can't see myself having one... I simply find the case fascinating.

 

 

 

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Of all the people that actually claim to profess the ability to discern the pyramid schemes from legitimate enterprises, I reckon only a minute fraction actually have done the deep due diligence needed to separate the fact from fiction.

 

After passing the initial barrier of conducting a true litmus test, one then has to calculate the probability of whether anything will come out of the government to disrupt or shut down Herbalife.

Even if HLF does face a regulatory action, the scope of the action remains uncertain (slap on the wrist compared to a full scale freeze and eventual shutdown). And after that, one has to calculate the exactly effect a possible government action would have on the business of herbalife given that only 20% of revenue is based off of USA and that the company itself is incorporated in Cayman Islands.

 

 

The materialization of the negative outlook is contingent upon governmental action as the organic growth shows no signs of slowing.

 

I have no dog in this fight (and am not going to buy/sell/or do anything with the stock), but simply talking about the organic growth showing no signs of slowing is kind of a bad way to look at this. By nature, pyramids are a lot like ponzi schemes in that once enough people get screwed, they move on to the next thing and there aren't people to come back. Bernie Madoff had no signs of bad returns until, well, he imploded. It is very possible that we will look back on this in a manner where the thing couldn't go to hell... It may not be that dissimilar to various RE shorts a few years ago.

 

Furthermore, if a company loses 20% of revenues- well, bad things generally happen.

 

Again, I have no position in this and can't see myself having one... I simply find the case fascinating.

 

Well you might be right.

 

If I understand correctly, Ackman's main argument is that either one or both of the following will happen:

1. His publicity will force a regulatory agency to inspect HLF OR

2. The "pyramid" will collapse as it will run out of countries

 

No one can possibly know if #1 will happen. Even if it happens, no one knows what kind of action will follow - slap on the wrist or change in business model or asset freeze/shutdown? The only fact we know is that for over 30 years, HLF has existed and even communicated with SEC/FTC and there has been not a single problem. (MLM industry's lobbying surely must've played some role here? I am just speculating here.)

 

Regarding #2, the rebuttal it is that HLF has been in USA market for 30+ years and still experiencing growth. Overall rev keep increasing by double digits. Surely if it was a pyramid scheme the distributors/end users would be complaining about losing money right? Yet FTC has received fewer complaints than most companies. The way things are, and the way things have been - for the past 30 years, has not led an outpour of complains as one would expect from a company whose supposed principle business model is to ripping off. There does seem to be a set of population that is attached to the Herbalife brand (either for making money, or for staying healthy via the products/events/nutritional clubs).

 

Just to be clear - I don't have any position in HLF either. I just feel like if it gets cheap enough, I might initiate a  position if it seems like an asymmetrical bet (a 4-5x upside vs 1-2x downside). In which case LEAPs might be a better idea.

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