Why isn't Herbalife a pyramid scheme?

this has been in the news lately, but as a quick summary: a high-profile fund manager (Ackman) has been shorting Herbalife stocks claiming it as a pyramid scheme. powerful rivals (including Icahn) have argued otherwise, and with a recent positive audit, the stock has shot up.

intuition tells me that Ackman should be correct. Herbalife, while a long-standing company, is still an MLM. if the economy isn't doing so great (which it hasn't been for a while), how do all the distributor-buyers keep making the money for Herbalife to claim itself as a billion dollar company?

i've never tried any Herbalife products so maybe i'm missing something.

money laundering

I think it had something to do with their inventory system. The reps did not have to purchase product to sell it or something like that. Phone Post 3.0

Ttt Phone Post 3.0

They buy lawmakers.

according to today's article, Ackman has lost $700m shorting the stock -- but says he'll have more info that'll prove him right.

it's interesting. he's pretty much hellbent on proving what a scam Herbalife is, and i applaud him for that. MLM's like this just always seemed shady to me.

a part of me also wants to get in on the short sell. would make a killing if he's right.

http://finance.yahoo.com/news/ackman-sticks-herbalife-short-sale-promises-information-2014-204436095--sector.html

So far down a few g's on some hlf put positions I have.Think I'm gonna buy more when they expire though. This shit ain't sticking around long.

antifret - So far down a few g's on some hlf put positions I have.Think I'm gonna buy more when they expire though. This shit ain't sticking around long.

i've only dabbled in stocks (bought some, lost most), and i've never tried a short sale. don't know too much about it.

this one just seems like it'd be a good bet with a huge payoff. i'll have to read up.

Katsumoto - this has been in the news lately, but as a quick summary: a high-profile fund manager (Ackman) has been shorting Herbalife stocks claiming it as a pyramid scheme. powerful rivals (including Icahn) have argued otherwise, and with a recent positive audit, the stock has shot up.

intuition tells me that Ackman should be correct. Herbalife, while a long-standing company, is still an MLM. if the economy isn't doing so great (which it hasn't been for a while), how do all the distributor-buyers keep making the money for Herbalife to claim itself as a billion dollar company?

i've never tried any Herbalife products so maybe i'm missing something.

I read something by an analyst who says the product tastes disgusting but what they are really selling is moral support for fat women (and they are pretty good at that). Apparently it's pretty big in the hispanic community.

I met the owner of Herbalife on a golf course in Mexico. He's a crazy dude. Funny as Hell. Drove his Mexican caddy down a cliff after a tee shot said it was a short cut. Phone Post 3.0

It's not a pyramid scheme because you don't make money just from having people in your "downline". They need to sell products. Many MLMs (I don't know about herbalife) do other things like strong arm people into buying training materials like cd's books etc. to make money off them even if they're not selling products, but it's treated as separate income from the business.

cruedi - It's not a pyramid scheme because you don't make money just from having people in your "downline". They need to sell products. Many MLMs (I don't know about herbalife) do other things like strong arm people into buying training materials like cd's books etc. to make money off them even if they're not selling products, but it's treated as separate income from the business.

Correct. As you mentioned, it's multi level marketing--which I also consider a scam.
http://en.wikipedia.org/wiki/Multi-level_marketing

Any time someone tries to get me involved with something under the premise that I have to push it on friends and family, the answer is NO, quickly.

One of my friends was involved in Equinox.
http://en.wikipedia.org/wiki/Equinox_(MLM)

He never tried to scam me, but he used a deceptive recruiting tactic on another one of our friends. Told the guy his car was in the shop, and asked for a ride to work. The guy drove him down and he was like "why don't you come in." Once inside, he get the sales pitch.

It pretty much destroyed a friendship.

I'd never trust a guy who did shit like that again, either.

Looks like Ackman will have a fight on his hands to win his short battle.

So far Icahn, Soros and Loeb have taken the opposite side of his trade and are winning thus far (although Loeb has already sold).

Ackman has made quite a few enemies amongst the finance elite so most of these guys want to squeeze his short position.

Icahn is talking of taking Herbalife private. If that happens then Ackman cannot win with this position.

antifret - So far down a few g's on some hlf put positions I have.Think I'm gonna buy more when they expire though. This shit ain't sticking around long.
Some out of the money puts might not be a bad idea given the run up. Buy long dated puts to give yourself some time to be right Phone Post 3.0

Technofiend - Looks like Ackman will have a fight on his hands to win his short battle.

So far Icahn, Soros and Loeb have taken the opposite side of his trade and are winning thus far (although Loeb has already sold).

Ackman has made quite a few enemies amongst the finance elite so most of these guys want to squeeze his short position.

Icahn is talking of taking Herbalife private. If that happens then Ackman cannot win with this position.

I doubt Icahn will take it private, he is just talking to drive up the price before he gets out Phone Post 3.0

Gforce - 
cruedi - It's not a pyramid scheme because you don't make money just from having people in your "downline". They need to sell products. Many MLMs (I don't know about herbalife) do other things like strong arm people into buying training materials like cd's books etc. to make money off them even if they're not selling products, but it's treated as separate income from the business.

Correct. As you mentioned, it's multi level marketing--which I also consider a scam.
http://en.wikipedia.org/wiki/Multi-level_marketing

Any time someone tries to get me involved with something under the premise that I have to push it on friends and family, the answer is NO, quickly.



This.  My boss got into Amway and was trying to push it on me to do it too.  No matter what he said, the fact that I would become one of those annoying people that would push this shit on my family and friends was always the easiest reason for me to say no. Plus it almost seems like a cult.

checkuroil - I think it had something to do with their inventory system. The reps did not have to purchase product to sell it or something like that. Phone Post 3.0
The fuck they dont. Phone Post 3.0

Wes_Mantooth - 
antifret - So far down a few g's on some hlf put positions I have.Think I'm gonna buy more when they expire though. This shit ain't sticking around long.
Some out of the money puts might not be a bad idea given the run up. Buy long dated puts to give yourself some time to be right Phone Post 3.0

Yeah I buy far out of the money as far out as I can as a general rule. Unless I'm expecting an earnings surprise but that hasn't worked out the last few trades (RGR and Smith and Wesson after mass shootings last year) so probably gonna stop doing it.

I'm going to short hlf soon. Probably next week.

I think Ackman since they're nice numbers rely on people continuing to give it a shot but eventually they'll stop. Their sellers are like a revolving door.

I think the house of cards will fall but stocks are based on fact, they're based on sentiment and obviously Ackman's timing was way off.

I'll put in a stop at 20% and if it goes up that much then I'll take my losses.

In other news, so many stocks are at their 52 week high that come the next earnings, expectations will be high and I'm gonna short. Also when the market starts falling again it should be easy money.