If you’re not familiar with what’s going on with Herbalife stock these days you’re missing out. I don’t generally pay too much attention to individual stock stuff, but this is shaping up to be one of the great modern investment battles.
In one corner, you’ve got Bill Ackman who runs Pershing Square Capital, a $11B fund that is involved in primarily activist investing. Ackman very publicly attacked Herbalife in recent weeks stating the company was a pyramid scheme and worth $0. Yes, zero. Ackman’s fund has reportedly taken a 9% stake in the company on the short side.
Enter Dan Loeb. Loeb is the founder of Third Point, a $10B fund specializing in…activist investing (among other strategies). Loeb has reportedly taken a 8.2% position in the stock citing a $60 price target. In other words, Loeb is essentially taking the other side of Ackman’s bet.
What’s so interesting about this battle is not only that these are two of the most high profile hedge fund managers in America, but that they both like to put on a show. Loeb is well known for publicly lashing out at executives who don’t perform in-line with Loeb’s expectations. Ackman is a bit less public, but put on quite the spectacle with the recent Herbalife presentation.
I have to admit that I think the public attack on Herbalife felt all wrong from the start. Not that I think Ackman’s position is wrong. I have no idea – micro is not my expertise. Herbalife could be a pyramid scheme as he claims. But I just didn’t like the very public assassination of the company and the big show that was put on. It all appeared very odd. Particularly when one considers the huge options trades that were made right before the presentations (which are now the subject of an SEC investigation). It just felt all wrong to me. The timing was odd, the presentation appeared intentionally malicious, etc. It just felt like hedge funds contributing to society in a way that was largely void of value….That’s just my personal feeling around the whole thing. I could be totally wrong.
But now we’ve got the sharks eating the sharks. We’re talking about one of the great investment battles that will ever play out in real-time. Someone’s fund is going to take a huge hit due to this one position. It’s extremely unusual to know who is shorting a stock. It’s even more unusual to know that one high profile investor is directly taking the other side of the trade. I don’t know who is going to be right. But it will certainly be fun to watch.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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