Monday, January 6, 2014

Bad Argument: The Wall Street Legitimacy Myth

One of the favorite arguments by proponents of network marketing is "Look at how big Amway is! And Herbalife! And Mary Kay! And Avon! And ______! Their stock prices keep going up! If they were a scam Wall Street would have never invested in them!"

A more recent version would cite Herbalife as an example, such as "Herbalife a pyramid scheme? Wall Street don't see it that way! Herbalife stock has MORE THAN DOUBLED in price since Ackman's accusation!"

While it is true that price for Herbalife stock (HLF) has indeed rose from 25's to 60's in 2013 (Ackman's accusation was in late 2012) one must question... Are the two even related to each other...  i.e. "price of stock" vs. "morality / criminality"?

Perhaps John Hempton of Bronte Capital put it best when reacting to Ackman's accusation in January 2013:
I agreed with Bill Ackman that Herbalife is mostly about ripping off distributors and people at the end of the chain. The product is more than twice as expensive as competitor shakes. I called Herbalife "scumbags". 
But they are highly cash flow positive scumbags and they will use the cash flow to buy back shares. Over the past five years the share count has gone from 140 million to 108 million and will fall further. 
They are scumbags then - but they are scumbags working for stock market investors.
In other words, as long as the stock prices keep going up, Wall Street wouldn't give a f*** about the company being scumbags.

You need more proof that Wall Street don't care of the company's a scumbag as long as it's profitable? Look no further than tobacco companies. (example given by Mr. Hempton)... Tobacco products give bazillion people cancer and other diseases, but tobacco company profits and stock prices keep going up... Phillip Morris has DOUBLED their dividends compared to 2009 dividends.

Remember the movie "Wall Street"? Gordon Gecko said "greed is good"?

Wall Street doesn't care who your company screw over as long as your company earn a profit to drive up the share prices.

Do you care who your company screw over?

Could your company be screwing YOU over?

Or are you going to stick a lampshade over your head and beat it with a slipper like Bart Simpson and claim that you can't hear the question?

Enhanced by Zemanta

1 comment:

  1. Good post. Many MLM advocates seem to think that because Herbalife hasn't been shut down, that it's some kind of validation that Herbalife is a good business opportunity. Fact is that Herbalife's distributors are losing their asses. I'm puzzled as to why the FTC won't investigate and either clear them or shut them down.