Bill Ackman’s $1 Billion Mistake

Dear Rundown Reader,

Bill Ackman is recovering in the level three burn ward. Why?

Because his five year fight against Herbalife officially cost him $1 billion. The headlines are roasting him for it.

Ackman’s day of reckoning came in November when he fully exited his shorts for a massive loss.

Now broaching $100 per share, it appears Herbalife is far from the “pyramid scheme” he claimed. Or, if it is just a scheme, it’s holding up really well. Today we look at what happened.

First, your letters from the week:

“Please send stock recommendations I can invest in so I can make some money.”

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Chances are good you’ll hear from Joshua again soon. And yes, we will be sure to include his research in transcript form.

Your Rundown for Friday, March 2, 2018…

Run, Don’t Walk, From Activist Investor Shenanigans

Bill Ackman’s bet against Herbalife was a $1 billion disaster.

It’ll go down as one of the worst moves in recent market history.

Now fully exited from his position, the hedge fund titan is nursing his wounds.

The story first broke back in December 2012.

Ackman called Herbalife a pyramid scheme and bet a billion dollars against the company.

It didn’t take long for the whole affair to reach Benny Hill Show-level absurdity.

As Ackman made his billion dollar short, equally prominent activist manager Carl Icahn was shouting buy.

Tensions came to a head live on TV. Two rich, headstrong guys throwing insults at each other.

A CNN Money report from January of that year notes, “it was like a scene from a kindergarten playground.”

It was good infotainment and even spawned a documentary in 2016.

But there was also big money at stake. And a company’s survival.

Ackman’s disdain for Herbalife seemed personal. He wanted to destroy Herbalife.

He dumped tons of money into PR campaigns railing against the company. He created so much noise the FTC eventually got involved.

Not much came about from their investigation.

Herbalife was required to restructure some operations and pay a fine. The impact of FTC action did little to slow the company down.

Yet Ackman used the findings as another rallying cry against the company, stating in a Chicago Tribune report:

“We expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business.”

So much for that opinion.

When Ackman first made his short Herbalife traded for roughly $45 dollars a share. The stock closed Thursday at $91.78.

Look, everyone makes mistakes. You can’t win on every trade.

But this was a bad situation that only got worse for Ackman because he was too headstrong to see the price was against him.

Don’t be like Ackman.

Don’t let ego rule your trades.

If you see two guys on TV yelling at each other about a stock, remember that egos, hubris, and self-congratulatory nonsense is why they’re on TV in the first place.

The stock they’re talking about is incidental.

Now, turning to the markets this morning…

Market Rundown for Fri., March 2

S&P 500 futures are down 12.00 this morning at 2,666.

Tough few days for the markets. Volatility. There it is again.

The headlines say it’s because of Trump’s tariff announcements.

Jonas Elmerraji told us yesterday the declines were because sellers had the upper hand.

Everyone wants to connect the markets to the news cycle.

Correlation vs. causation. Nothing is ever as clear as it may seem.

Except for oil.

Oil’s down $0.29 this morning at $60.70.

And gold.

Gold’s up $18.20 at $1,323.

You know what doesn’t lie?

Prices. Price action. The price is the price. It goes up and it goes down.

Did gold go up and oil down because of Trump’s tariff announcements?

Or was it because those markets function based on the interplay between buyers and sellers in open, non-coercive exchange where price rules?

Trump XYZ is a headline. The other idea doesn’t sell newspapers.

Bitcoin goes for $10,991 this morning, according to CoinDesk.

We’ll talk again on Monday. Have a great weekend and thanks for reading.

For the Rundown,

Aaron Gentzler

Aaron Gentzler

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Aaron Gentzler

Aaron Gentzler is the publisher of Seven Figure Publishing. He is also the editor of The Rundown and has been with Agora Financial / Seven Figure Publishing since 2005. He's been covering technology and markets for over a decade.

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