Herbalife Highlights Lazy Trader Nation

We’re a bunch of lazy ig’nant fools trading this market.   Not all of us, of course, just most of us.

Case in point here is The Market’s obsession with the question that has plagued man for thousands of years (or at least for the last two weeks) :

“Will David Einhorn mention $HLF as his next big short trade when he speaks at the Ira Sohn Conference on Wednesday?”

And ya know what?  That’s an asinine question.  Seriously.  I know what you’re thinking:

“Kid Dynamite – WTF are you talking about?  You already wrote a post about the signalling value of Einhorn’s questions about HLF, and we all know that Einhorn is influential.”

Yeah – of course he is.   My point is actually pretty simple:  instead of worrying  IF Einhorn is going to slam HLF, you should be trying to figure out WHY he might do so.  You know – do some actual R-E-S-E-A-R-C-H ???  My prior post was based on a instantaneous trading psychology reaction to the Einhorn-Herbalife story.  We’ve now had two weeks to figure out if there’s a real story there – and the way you figure that out is not by hoping that you can read Einhorn’s mind – it’s by actually looking into the details of the company’s business.

Let me rephrase:  if Einhorn puts forth a short thesis for HLF – and that’s a big IF – it will most likely be based on proprietary research he’s done: talking to Herbalife distributors.   He’s not going to stand up and say that he read someone else’s thesis on the internet (Yeah, Tilson, I’m taking another shot at you) and he’s not going to say that he’s short HLF because he heard some other smart investors were short it.  IF Einhorn has a short thesis for Herbalife, it will be based on bottoms up HLF distributor data that he went out and gathered on his own.  It will be because he did real research – because he went and talked to the people who are part of Herbalife’s distribution network.

It’s not just traders who are being lazy here – waiting to see what Emperor Einhorn says tomorrow.   I’ve never heard of Caris & Co. before, but their research report from last week downgrading $HLF epitomizes everything that’s wrong with research these days.  Quoting from StreetInsider.com:

“The Caris analyst based her call on a greater than 50 percent probability that famed short seller David Einhorn will announce Herbalife as a short at the Ira Sohn conference on May 16th….If Einhorn does not present on Herbalife at next week’s conference, the Caris analyst said the stock could “jump sharply and we may raise our rating and price target.”

Not a single mention of actually doing any RESEARCH to find out if HLF may or may not be a pyramid scheme (which seems to be Einhorn’s concern, given the nature of his questions).   Of course, this (MLMs as pyramid schemes) isn’t a revolutionary concern – it pops up over and over again when talking about multi-level-marketing companies like Herbalife.   Call me crazy, but I’d think that an analyst covering the company might want to do some actual research into their underlying business instead of just making markets on what David Einhorn may or may not say about the company she covers*.

What I’m trying to say here is that the future of Herbalife depends on the status of their business.  It depends on what David Einhorn FINDS, not what David Einhorn SAYS.   So stop sitting there waiting for Einhorn to tell you his opinion and go out and do some work on your own!    As Gordon Gecko says to Bud Fox in Wall Street:

“Stop sending me information and start getting me some”


disclosure: no positions in $HLF

* ZeroHedge has more on this “Research report.”  What some readers might not understand is that it’s not an equity analyst’s job to trade the stock – her job is to analyze the stock.   As the ZH piece notes, this analyst appears to have confidence in Herbalife, which makes her downgrade all the more preposterous.   She should be diagramming a counter to the possible “HLF is a pyramid scheme” thesis rather than pre-emptively bailing her subscribers out of a stock in which she has “high” confidence.

Kid Dynamite is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Kiddynamitesworld Blog