**If you are allergic to reading, scroll straight to the video. Thank you.
Watched it in the morning, fantastic stuff.
This documentary focuses on billionaire investor Bill Ackman’s very public brawl with Herbalife International, an American company known for selling health care products like nutrition supplements. Bill Ackman calls it the longest running and most successful pyramid scheme in the world. He believes so much that Herbalife is a pyramid scheme, that in 2012 he took a one billion dollar short on Herbalife stock.
So, what the fuck is a short?
In simple terms, one borrows stock (at 100 shs valuation for example), with a promise to return it to the owner at a certain date. One then sells that stock, in the hope that it will drop in value. If everything goes according to plan and the stock does drop in value (to, say, 60 bob), one then buys back the stock he sold and returns it to the owner, therefore making a profit (40 bob per share, in this case). Maybe stock traders in the village can give us a more detailed explanation, but as you might have guessed, for a short to work, one needs to be really sure the stock will go down.
So why does Bill Ackman believe Herbalife stock is worthless?
Because he believes Herbalife is a pyramid scheme masquerading as a multi-level marketing organization.
What makes him think Herbalife is a pyramid scheme?
Herbalife operates suspiciously like a pyramid scheme. They don’t depend on a dedicated sales team to move their product. Rather, they recruit distributors. These distributors are then actively encouraged to recruit 6 people (called the downline). Each person in your downline also recruits 6 people, ad infinitum. The more people you recruit, the more commissions you earn from your downline. Herbalife advertisements are similar to those “my-grandpa-makes-5000-dollars-a-day-while-seated-at-home-nursing-his-arthritis” ads you come across on the internet. The first thing they show you is just how well off their distributors are doing. Some are pictured holding thousands of dollars of cash, next to million dollar sports cars, next to mansions, on expensive vacations etc. And you’re promised that good life too, if you work hard enough and manage to move products worth x thousand dollars, recruit x number of distributors, for x number of months. GNLD anyone?
The result is that these distributors end up buying more stuff than they can sell, in the hope that they will sell enough to start earning thousands of dollars in commission. By the time most realize what’s happening, they’ve lost their life savings. Bill Ackman initially made his short so he could profit from Herbalife’s collapse. He later described his mission to destroy Herbalife as a holy war, a crusade against a company that has wrecked thousands of lives. He now claims he will donate 100% of any profit he makes from the short to charity. He seems to be alone in his crusade. Wall street and regulators have been slow to investigate claims against Herbalife. The company has also spent millions of dollars on lawyers, sleek media campaigns
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and lobbyists. Even former US Secretary of state Madeleine Albright has publicly praised Herbalife. The company’s seminars also resemble church retreats, with a few distributors being called up on stage to narrate to the rest how their lives have changed for the better since joining Herbalife. To make matters worse for Ackman, activist investor Carl Icahn, who absolutely hates Bill, bought a stake in Herbalife soon after Ackman announced his short, with the intention of driving up the stock price and, therefore, making Ackman lose his billion dollar bet.
So, who will come out on top?
Like I said, fantastic stuff!!