The New York Times put up a well written piece covertly criticizing Ackmann for lobbying and revealing the million of bucks spent by HLF on counter-lobbying : The Herbalife War
Both sides are hiring people who are connected in an attempt to influence the regulators.
Ackmann scored a big win when the FTC opened an investigation, yet HLF's allies say the result of this FTC action will not be very expensive to HLF.
Here is the chart showing the surprise hit, the eventual comeback to higher prices that caused Ackmann to take a huge loss, and the recent hit when the FTC investigation is announced.
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| HLF -- Chart courtesy of Stockcharts.com |
Missing the Point
I maintain that both sides are missing the point.
The idea is not to expend massive resources for huge battles. These resources are expensive. Expensive advisers, even though they may be people of great reputation and integrity, have a built in interest in keeping the battle going, do they not?
Huge battles between two well financed adversaries are seldom conclusive; they just wound both sides.
Continuing the battle is expensive for the company as it continues to be under a cloud, stifling its survival.
Continuing the battle is expensive for the short as he has to pay interest on the money to carry his position,, has to pay to borrow stock, and still has to make a return for its investors. This all adds up.
The trick is to find that one point that causes the enemy to lose power and collapse like a balloon stuck with a pin.
This is why you look for air bubble stocks to short, they are easy prey. Chinese companies have been fun shorts as they do not know how to defend themselves and there has been a number of scams that inflict the reputation of the whole sector. One wonders if anyone is enthusiastic about protecting Chinese companies trading in the U.S. given these past scandals.
This is why you do not short stocks that have many millions in cash flow. While you may get a fast win that feels good, like the attack on Pearl Harbor, the enemy becomes enraged and comes after you with all their resources, like bombing two cities with nukes. See the chart above. Notice that Ackmann had his fast drop from his surprise attack, and then HLF came back and caused him huge losses.
Now if you are locked in one of these battles, you still need to find that one point that will deflate the enemy instantly.
You will know you have found it when the enemy runs away so fast you cannot folllow him.
Then it is not a war any more than stepping on a cockroach in your kitchen is a war.
Yet you had better find this attack point fast or you will be slowly losing energy while you expend big bucks holding your position while the enemy gains strength.
I am not going to tell you any more valuable trade secrets in public. If there are those expending many millions to fight these battles, hiring the smartest and most powerful people out there, and they still have not found it, it must be rare and valuable information, yes?
This may give you food for thought -- what type of thing could this be, how do I find it, how do I exploit it?
