Saturday, August 9, 2014

Bill Ackman's new best friend: Vladimir Putin

People with better knowledge of the details of Russia's sanctions seem to think that most Herbalife product will still get through - so Herbalife is not going to miss because of Russian sanctions. Further comment on the moral point of this post in the post-script.

The news of the day is that Vladimir Putin has banned the import of Western food into Russia.

Whilst nobody has said it yet this is almost certainly negative for Herbalife. Herbalife has a business in Russia and to the best of my knowledge has no manufacturing in Russia. Its not huge - Europe, Middle East and Africa is less than a sixth of Herbalife globally - and Russia is likely a very small part of that.

However I would be surprised if the EMEA segment did not shrink next quarter.

There are of course in Russia a bunch of distributors who have built businesses in Russia distributing protein shakes, running clubs and fitness businesses and the like. Their businesses will now fail - and it will not be the fault of Herbalife.

The miss will be of great benefit to Bill Ackman who is short this non-pyramid scheme and - at least on this trade - needs all the help he can get.

Bill Ackman will get some cheer from his new best friend Vladimir.

Sometimes the cards land right for a fund manager.


There are big problems closing a successful and honest direct selling organization. Many people have built legitimate businesses selling the product. Vladimir has no moral scruples but Herbalife (despite their reputation) do.

Herbalife has distributors in Venezuela who have built successful businesses there. There are now very strict currency controls in place - Herbalife sells product into Venezuela but can't get the money out. The currency they do have devalues fast. If they buy any property with the money its likely to get nationalized.

As a shareholder I wish that Herbalife would simply stop sending their product to Venezuela. Anything they send there is frankly lost.

However Herbalife feels integrated with their distributors - and responsible for them. To abandon a country is (morally) hard for a direct selling organization and Herbalife has a hard time doing it.

Vladimir Putin not so much.


What Bill Ackman wants the FTC to do in America is destroy the business of tens of thousands of people.

I will let you judge the morality of that.


Post script. When I started on Herbalife I believed every word Bill Ackman said - and I told the world so. But I was happy to own Herbalife for the bounce.

I have since become convinced that Bill Ackman is wrong on every substantive point. This is not a pyramid scheme - instead there are millions (maybe tens of millions) of genuine consumers - and tens of thousands (maybe hundreds of thousands) of people who have built legitimate businesses.

I believe the short case is aiming to destroy these businesses to meet the fantasy of a narcissistic hedge fund manager and the shorts in this case are deeply immoral.

Over time I have noticed the company being moral to a fault - most notably in Venezuela where they support the existing distributor base at substantial financial cost. 

It is about time the Herbalife longs spelled out what is happening here. People whose evidence is incomplete to the point of fabrication have grabbed the moral high-ground whilst they take an immoral argument. 

It will be okay in the end - the longs will make a fortune and the shorts will have their finances redistributed. However I am getting a little frustrated at people suggesting that I have the moral low ground.



gv said...

Poor comment, drenched in ignorance and prejudice.
What's wrong with you lately.

John Hempton said...

After careful consideration I have determined that the Herbalife short case is not just wrong but it is immoral.

I am allowed to say that.

Игры рынка said...

Vlad and Vladimir are actually 2 very different names in Russian. Vlad is short for Vladislav, while short for Vladimir is Vova. Different shorts but ok...

Tom Adshead said...

Greetings from one of your loyal Russian readers.

My understanding here on the ground is that Herbalife is not banned - the food ban is selective, and if something can't be sourced from Russia, or a non-sanctioning state, then it's not banned. So, for instance, Spanish food is banned, but we can still get nice Spanish ham and olive oil. Is Herbalife solely produced in the US? If you can source it in Latin America, it can be exported. But I have heard nothing about food supplements being banned, and I'd be quite surprised if they were.

Herbalife must be doing OK here - they sponsor football teams and so on, although I don't know anyone who does it. My wife says she last heard of it ten years ago. I reckon that if they can afford to sponsor a team, they can probably find a local factory to cook up the supplements for them.

Alex said...

Hi John,

I've read and enjoyed your blog for years. However, I don't understand your moral Herbalife arguments.

1. Your moral arguments are clear and I'm just not getting it.
2. Your moral arguments are correct but poorly explained, or
3. Your moral arguments are incomplete/ incorrect.

I don't know which it is. Normally, I understand your analysis and comments. This, I don't.

Of course you're allowed to say what you like, but I'd always thought the purpose of your blog was to explain your position to others in a way your readers understand.

And why link Bill Ackman and Putin in such a tabloid fashion?

Anonymous said...

This is getting a little odd; usually Hempton has a cheeky quip for things regardless of whether he's the bull or the bear.

This one seems to be cutting a little close to the bone, though, for some reason. I don't particularly think Ackman's a great guy or anything, but it's all in the game...

Anonymous said...

John, i've been a follower of yours for quite some time. For the most part you provide interesting insights. However, of late i "feel" as though you have lost your objectivity, and therefore becoming increasingly irrelevant. Maybe time for a holiday? or quit your HLF position...its clearly affecting your psyche!

Anonymous said...

Jim Cramer made a similar point on TV when he said it was one thing for Ackman to short a stock and another to try to destroy a company and put thousands of people out of work and hurt their families.

Anonymous said...

I _think_ Tom Adshead (above) is right but for the wrong reasons - it's not because diet drinks or HL can only be sourced from sanctioned countries that it should not be affected, but because many prepared foods have not been included in the sanctions list. Most pasta and wheat products are not.

You would need to check against the government decree announcing the sanctions, the Russian customs code (which I think uses the same harmonized codes used worldwide), and know the specific numbers for the herbalife product.

The Russian government decree is here:

The HSCodes listed in the decree can be looked up here:
Or in Russian in more detail here:

I believe the prepared foods that have mostly been banned are those with milk products and/or milk substitutes, although those with more fluency in customs codes and knowledge of what HL's products are made of should check.

Anonymous said...

Note: this source seems to suggest that HS would indeed fall under the banned products category (assuming made in one of the countries subject to the ban).

I have no idea which of these sources is accurate.

Anonymous said...

I, like many others, have a moral problem with Herbalife selling placebos, mostly to under-educated people, at super-high prices.

If JNJ launched a 'diet drug' that did the same thing, you'd be outraged. And rightfully so!

It seems clear to this neutral observer [no position, also went long for the bounce only] that you have lost your objectivity on this one. Good luck with your long. [sincerely!]

Kev_sherry1 said...


You seem to have exposed the emotional bias that has led your surprising HLF analysis. I'm sure I'm not your only fan who has wondered why you've been bullish this one.

Perhaps I have a unique window into HLF given that my wife is Venezuelan and many of her friends have been duped by HLF: they buy into it, try to recruit you, create all sorts of lies about the product to try pretend to be an entrepreneur and hide the fact that they are being scummy, and then eventually fail. And then, of course, you hear about how they never really did it for the biz opportunity because in reality they are ashamed of failure and the social stigma that comes with it in many cultures. They do this with all sorts of products too (e.g., your own travel "agency" is the new hot one taking off).

The arguments you have put forth seem to be based on the the notion that the nutrition club or similar models elsewhere are legitimate. First, that begs the question: What about the first 30 years of HLF's existence before these models made up a material component of sales? The evidence that HLF management was complicit in the pyramid scheme(as defined in burn lounge ruling) pre-club model is beyond a reasonable doubt in my opinion.

Regarding the nutrition clubs: if they are legitimate, why wouldn't the rest of the dietary supplement industry have followed suit by now? The reason is because support groups are not a profitable business and, certainly, no economic profit (i.e., abnormal) exists in them despite what HLF's historical performance seems to suggest. HLF clubs need complicated compensation schemes, people who buy in to the business opportunity, teach them the importance of duplication over selling (official HLF documents prove this), and force wannabe entrepreneurs to buy the product. Yes, they bring their friends and family who are willing to support them in their venture and yes, that should be considered legitimate consumption. That makes up ~2/3 of consumption in the nutrition clubs which accounts for ~1/3 of total consumption... hardly a case for legitimacy. Even if the club model were HLF's sole model, it's a system that is designed to incentive bold faced lying in order to recruit people given that there are no decision control measures in place (and how can there be?). Based on pure economic incentives, such a model will create lots of bad apples, not just a few. Without decision control measures in place, it is a business that depends on deceptive marketing tactics to survive. With them in place (i.e., monitoring and enforcement), the model dies.

Lastly, technically and legally, all of that legitimate consumption is being given away for free: they pay a door fee to enter the club, not the product. I could give away tons of any placebo product for free too and make it look like there's real demand. In fact, lets go in on our own club. Really. Pick any dietary supplement and lets start a support group. We can really test the model out... because if HLF's business model is left intact, then we should all be starting our own HLF-like nutrition clubs since apparently it is such a profitable and legitimate business.

All that said, whether or not the FTC has a slam dunk case in the eyes of the law is another story.

Dmitry said...

Wow, John, you seem to have quite an amount of readers from Russia.

And I must say I got to agree to some saying you are probably getting a bit not yourself we know with this case. I witnessed Herbalife's "business" in Russia about 15 years ago firsthand, as they "got" my mother. It was a pyramid/"financial sect" 90%, anything legit no more then 105. As a matter of fact, while I do not know how they are doing here presently, in common Russian language "herbalife" is presently used as a brandsynonym for scammy mlm much like many people use "xerox" interchangeably (and probably more often) to copy machine.

My guess that financial effect of "russian coming" for Herbalife of those 15 years ago should have been good, but brand-wise, not so much, in a sense, they wound down their operations about the same time their brand got common meaning in common russian speech, and I, too, hadn't heard of them here in 10 years.

granted, I can see how company could pivot a big deal in 15 years, and herbalife of today might be much more legit then the one I remember literally brainwashing my mother on "business presentations" with such an effect that neither my father nor myself, both business specialists who obviously see such tricks from a mile away, were able to effectively counter it before mother successfully wasted a couple of grands.
Heck, as a matter of fact, I still have several cans of their shakes around for "legit consumption" (which were bought by my mother as a business opportunity, e.g. exactly the scam Ackman talks about).

What I think however is that the existence of legitimate business and legitimate consumption does not prove non-existence of a scam. And much like Kev_Sherry above, I must ask if you believe the legit business of dietary clubs to be capable of generating Herbalife's level of business and profits without the "pyramid" element?

Ackman might be wrong and immoral to demand destruction of all Herbalife, including legitimate businesses there. But it does not make defending all of Herbalife, with it's scammy elements, any morally better.

(The fact that Ackman's scrutiny basically forces Herbalife away from less legit elements of their business is a pure good tho, no matter his motivation or personal morals).


Anonymous said...

this thread is amazing. mr hempton, in these comments you are being confronted with people's real stories about their real families. this is evidence. 'herbalife' is synonymous with 'scam' in Russia; a mans wife is duped in Venezuela; a mother loses several grand despite protestations of a loving family. SPEAK UP JOHN. what do you say to these people? are they lying? are they fabricating these first person accounts of deception and pain? your silence speaks volumes. I have no position in HLF.

John Hempton said...

These people are probably not lying. But they are in a minority. A sharp minority.

There are hundreds of thousands of legitimate customers and many legitimate businesses.

This will not get closed.

Moreover closing it would close those legitimate businesses and would be immoral.


Anonymous said...

you are wrong. they are in the majority. I've read your blog and all your evidence of hundreds of thousands of happy customers and business comes from propaganda videos.

you've picked a strange fight here. anyone with a moral compass and no stake in it can immediately tell that something's fishy about herbalife. or, knows someone personally who was taken by the scam, and seen up-close it's depressing results.

ackman is on the side of truth, but that's irrelevant. obviously his main interest is in making a billion dollars. but trading and money are one thing, objective truth is another. you are being willfully blind to the truth here - and it's frightening.

your loyal readers have reached out to you in these comments - concerned for you. yet you maintain a prideful, headstrong position.

the ironic thing a that you appear to have been duped by herbalife - just like the millions of distributers who lose money and generate hlf profits. you have been hoodwinked by the testimonials, nutrition club false fronts, ra-ra hype-session videos, and buzzwords like 'community.'
you are also defending herbalife the same way that someone who is deeply entrenched in the scam does: with religious-like high ground, ear-plugs to the truth, don't-listen-to-the-haters rhetoric.

People here want you to take a step back - forget your position, maybe take a loss on it, and reexamine the facts. have some compassion for the people on your own site who have told their stories of the darkness of herbalife and MLMs.

Anonymous said...

I have no position in HLF. I agree that you have been duped by HLF, Mr Hempton. My advice - close your trade and re-examine things - that way you will not suffer from commitment bias any longer.

Unknown said...


I understand your arguement that closing HLF could cause many people to lose their businesses, however, youre likely wrong on that point.

Couldnt any nutrition club simply find some other nutritional products to sell and continue with their business of helping people lose weight? If these businesses are indeed profitable, it isnt because they rely on the herbalife name (which they cant even display).

Yes, many low level nutrition clubs would be shuttered if HLF went away, but most of those clubs are nearly unprofitable anyway (according to Ackmans analysis)

So shutting down HLF doesnt actually mean many people will lose their businesses, so I just dont see any validation to your "immoral" arguement.

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