What Herbalife Apologists Are Ignoring (And You Shouldn't)

Warren Buffett, whose Berkshire Hathaway
owns Pampered Chef, a MLM. Is it comparable
to Herbalife though? (source:Wikipedia)

Hedge fund managers, being handlers of other people's money, tend to be very smart people, and usually very careful, but once decided, still do the Bush thing: "stay the course", based on their own analysis and their own criteria. And ever since Ackman started his "assault" on Herbalife at the end of 2012, the hedge fund managers have been divided on this issue, and roughly falls into three camps:

• Ackman-camp: I agree with Ackman and Herbalife is going down... eventually
• Icahn-camp: Ackman is wrong, Herbalife is NOT pyramid enough to be shut down!
• Spectator-camp: I'm not getting between those two gorillas... or Godzillas.

Most articles you find on Herbalife nowadays are about stock movements, rather than about the company itself. If Herbalife stock goes up, people publish some opinions about how Ackman's losing and Icahn is winning, even though they don't really know how the company works. One such title is "Carl Icahn is Squeezing Bill Ackman to Death", leaving aside the "merits" of Ackman's case.

Everybody is guilty of confirmation bias and automatic cherry picking. People see facts that support their own side, and unconsciously ignore facts that does not. Even hedge fund managers. One of which is Bronte Capital's John Hempton, who has a nice blog. Recently, he published a blogpost that repeated his view that Herbalife is just misunderstood and some MLMs are very good.

It's a pretty long post, and mentions multiple MLMs, so I will summarize here. I understand I'm as guilty as anyone I'm accusing of potential bias, so feel free to read it and check it for yourself. But basically, his premise is that "MLMs don't sell products, they sell the value AROUND the products". His primary example is Pampered Chef MLM (owned by Berkshire Hathaway, Warren Buffet's company).  He claims that while Pampered Chef's cookware is overpriced, what they sell is not cookware, but cooking lessons and the entire lifestyle change around adopting cooking for oneself (instead of eating out).

Then he claimed that Herbalife's value, unlike Ackman's claim that Herbalife products are commodities, is actually the diet clubs and the distributors' relationship with the participants, and Ackman is "missing the point" about the whole thing.

Frankly, Mr. John Hempton himself is missing a few things, and this wasn't the first time he did so.