Herbalife Plunges

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(Note from Tim: this was submitted to Slope earlier today, when HLF was geting killed) It shouldn’t be
this easy to make money…

When Herbalife
first plunged in January, I raced Speed Retirement Trader readers into the
position as fast as I could.

Srs-12-20-2012


We’d walk away
with between 31% and 130% on the position in just days after saying this:

When I saw a
situation as laughable as this massive plunge in shares of Herbalife (HLF), I
have to question the participants’ sense of reality.

About seven to
eight months ago, Bill Ackman shorted shares of Herbalife, according to the Los
Angeles Times.

So let’s assume
Ackman sold shares short around $45 a share in May 2012.

“Ackman has
sold the shares short for about seven to eight months and will present details
of his thesis at the Sohn Investment Conference tomorrow in New York, CNBC said.”

The move
brought out the herd – the weak hands – that sold the stock on the Ackman news.

Apparently,
“sources leaked” to CNBC that Ackman would be calling Herbalife a “pyramid
scheme.”

But hold on a
second.

If Herbalife
were really a pyramid scheme, as Ackman claims, how would it still be in
business after three decades?

This isn’t the
first time Herbalife has had a scare.

Herbalife
plunged when David Einhorn questioned the company’s accounting and distributor
incentives back in May 2012.

Einhorn was inadvertently
involved with that sell off just because he questioned disclosure. Even though
this was cleared up, Herbalife investors sold the stock on fears that Einhorn
was short.

The herd simply
got ahead of itself without questioning anything.

The same thing
happened again…

No one
questioned anything. Investors were spooked again following the “Einhorn
incident” and sold everything.

Again, if this
were a pyramid scheme it wouldn’t still be around after three decades.

Insiders bought
$3 million worth of stock in November 2012.

The company
approved a five-year $1 billion stock buyback plan in July.

The company has
beat earnings for 12 quarters.

Plus, according
to the Wall Street Journal:

On CNBC
Wednesday, Chief Executive Michael Johnson called Mr. Ackman’s comment “blatant
market manipulation.”

“We’re not a
pyramid scheme. That’s a bogus accusation,” said Mr. Johnson, adding he
believed Mr. Ackman’s statement appeared to be part of an attempt by a group of
short-sellers to push share prices lower before a group of “put” options–or
contracts that give the holders the right to sell shares at a predetermined
price–expire Friday.

Mr. Ackman said
his firm owns no put or other options on Herbalife and said his position wasn’t
an attempt to manipulate the market. “We have done our homework here and would
never have said what we said unless we believed [it]. We simply want the world
to understand the truth about HLF.”

It’s funny how
news just happened to “leak” to CNBC about a short’s bearish intentions at a
major conference.  CNBC is the
last place I’d expect honesty. But that’s a whole other story.

But
of course, the bulls got much too bullish after everything was "cleared up"… and sent the stock screaming higher
much too fast, much too soon.

Taking
full advantage of the naïve herd mentality, we raced back into the position,
buying up puts.  In days, we just walked
with gains as high as 125%.

Srs2013-02-04_0809
We’re
about to go long again, though.  The
bears have gotten far too bearish again on news that the company is the subject
of an FTC investigation.

Apparently,
the FTC has disclosed a list of about 192 complaints about the company from the
last seven years.  I don’t expect
anything to come of it.

Once
this news passes over, we’ll go long before the herd can catch up to us.  Stay tuned to Speed Retirement for buy
instructions.

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