FREE KIC - NO. 88 DECEMBER 13
When I was a student a good friend of mine told me that he was thinking of becoming involved with a company called Amway and he suggested that I should also think about becoming involved. I had never heard of Amway so my friend told me that they were a company that sold lots of everyday products like washing powder. He also told me the reason I had not heard of them was because instead of selling through retail outlets they used a "direct marketing" approach.
Until a few weeks ago the name Bill Ackman and Pershing Square / Gotham Partners were names I had heard of but were not names I had researched to any extent. I knew Bill was a hedge fund manager and his company was Pershing Square. I also knew that he was known as a value manager with a reputation for activist investing.
I had come across him in the context of the Pershing Square Challenge, a competition he sponsors for students at Columbia University, where the students present investment ideas and the winners receive prize money
(Details on the Pershing Square Challenge can be found at: Link)
I had also heard of him because of his high profile involvement with Procter Gamble where he agitated for management change.
It was only when another member of the Value Investment Institute brought my attention to an interview with him on YouTube that I realised that he was a particularly interesting individual.
In the original interview Bill mentioned that Carl Icahn had been appearing on TV promoting Herbalife but it was only on further investigation that I discovered that Carl had become a major shareholder.
Unfortunately I am not in a position to say whether Bill is getting good or bad legal advice. All I know is that I felt ethically uncomfortable with Amway and I get the sense that there is an ethical dimension to Bill's stance on Herbalife.
As part of my research into Bill and Herbalife I also discovered that this was not the first time Bill had taken what I would describe as an ethical position on an investment. Back in 2003 Bill had researched a company called MBIA and he had reached the conclusion that it was trying to pretend that it was financially strong but in reality it was weak and that weakness was a threat to the whole financial system.
When Bill talks about Herbalife he talks with passion about how he feels the majority of the people that become Herbalife distributors will be worse off rather than better off. He feels that poor, less well educated people are being sold a get rich quick dream but the only people getting rich are a small minority of distributors and the executives at the top of the organisation.
What I can gather from what Carl has said is that he seems to think that Herbalife distributors are being given a chance of setting up their own business and as the majority of small business start-ups fail well then Herbalife is no worse than any other business opportunity. I personally have a problem with this logic because of my experience with Amway. If I thought somebody could make a decent living from selling Herbalife products without recruiting other distributors I would not have a problem and I presume Bill Ackman would feel the same way.
In one of Bill's presentations he specifically referred to Ireland and so even though I have not personally been offered any Herbalife products and no one has tried to get me to be a distributor, I know that there must be people in my community that are in most likelihood going to end up losing money. I therefore hope Bill succeeds in his attempt to reform the direct marketing industry.
In conclusion I just want to say that I do not know how this is going to end because it really will come down to a legal argument rather than an ethical argument but I know where my sympathies lie.