What do you get when you take a super successful, multi-level marketing company that is traded on the public stock exchange and pit it against an equally successful hedge fund manager?
A good story.
In fact, it’s the story of how Bill Ackman, founder of Pershing Square Capital Management, made a billion-dollar bet by shorting Herbalife’s stock. When you short a stock, you are betting that the stock will go down in price instead of up. Ackman was so certain that Herbalife’s stock price would decrease that he put down one billion dollars.
He put down all this money based on his claim that Herbalife was a pyramid scheme. Basically, each “salesperson” pays to sell Herbalife’s product with the promise that they will be extremely successful. However, like most multi-level marketing businesses, Herbalife requires you to recruit people through your downline. This is a system of people you recruit to sell Herbalife, and for each salesperson recruited and added to your downline, you receive a cut of their sales. Why? Because most sales are to the people signing up to become Herbalife distributors and/or retailers. Sure, you can sell the product to people outside of Herbalife, but, just like any other business, it is tough out there because you need to have a product that is in demand. That is not how you make your money in a business like this. To really make money, you bring in others to work your downline, each of which will earn money for you and then recruit more people, who will then recruit more people… I think you get the picture.
The details of this story are all spelled out in a documentary called Betting On Zero, or, as some like to call it, an infomercial for Bill Ackman to make more money. Regardless of the real reason behind the film, there are fascinating twists and turns to this saga that make a good story. At one point, Carl Icahn, one of America’s most influential investors, enters the picture in a big way when he has a public feud with Ackman.
Now, if you don’t know the rest of the story, I am not going to spoil it. If you want to know more, here is what you need to do: watch the show on Netflix or wherever you can find it (remember the days we had only 3 channels?). However, keep in mind that you will need to look up the final outcome online to see if Ackman’s short paid off. The show was done in 2016, and since then, the outcome is now known.