HLF
Hey, traders!
I will try to brighten up our boring Friday and tell you an interesting story, which I remembered thanks to one of my subscribers.
Go through yesterday's posts, you will definitely come across our conversation with him.
I decided to share this interesting story with you, and at the same time, to draw some conclusions.
So, it happened in the far 2012.
The main character: Bill Ackman, manager of the Pershing Square Capital Management hedge fund.
You know different people have different kinds of fun: who jumps with a parachute, who enters the cage with the lions, talk, the Russians, for example, warm themselves up with the nuclear reactor and drink vodka.
But Bill decided to have fun in a different way. Either Bill was bored and had nothing to do, or wanted to get a share of extra adrenaline, but he took and said that:
He studied Herbalife's business for a long time and had concluded that it was "the most effective pyramid in history".
I don't know what made him angry about this company, but Bill promised to bring it to the "edge of the earth".
In my opinion, it is very strange to openly announce to the whole market that you are going on a crusade against the company, because your plans are becoming obvious.
Let's move on. It'll be interesting.
Well, it's said it's done.
As you can see, in order to bury the company, you have to lower its shares to a minimum.
1. And our hero opens a $1 billion short position. You can clearly see it on the chart. Take a look at this.
The $1 billion short was gigantic, given that the market capitalization of the company was then $4.3 billion.
It was also equal to 9% of the assets managed by Pershing Square Capital Management
2. Moreover, for a noble funeral, as you understand, shorts were not enough for him and he urged regulators and congresses to close the company. He was attracted to the stars too, so Cristiano Ronaldo was there, actively opposing the company and then supporting it.
The struggle around Herbalife became a favorite show on Wall Street. Our "Billions" is a child's play compared to the fight Ackman started.
In December 2012. He said that the primary goal of a company that sells directly through a tiered or network marketing system is not to sell to consumers, but to recruit distributors into its distribution network.
He called this the key feature of the pyramid. The fight against Herbalife has become a kind of crusade for our hero.
He made many hours of investor presentations, detailing Herbalife's operations, his performances lasted so long that he went to the bathroom several times.
After his statements, the Securities and Exchange Commission and the FTC started reviewing the company.
3. Ackman's activity was both commendable and irritating to other investors.
Some also opened short positions, but many deliberately began to play against Akman, especially since a $1 billion short made him a hostage of the situation.
Well-known funds also joined the game.
In January 2013, the hedge fund Third Point formed a package of 8.2% of Herbalife shares worth about $350 million, allocating about 3% of its assets.
And here it is - the first light ringing of the funeral bell.
Next is even more interesting...
We're getting new actors.
4. In the same month, billionaire Karl Icahn buys Herbalife.
Carl said Bill Akman was wrong and bought Herbalife shares promising to teach him a lesson, but Akman stayed in shorts!
Think about it: Bill is opposed by a strong figure, and he persistently continues to sit in shorts. Someone obviously hasn't read Sun Tzu's treatise.
Let's move on.
Soros comes into play.
5. George Soros is great at exchange fights: since the founding of his Quantum Fund Management in 1969, the billionaire has repeatedly proved his ability to make the right decisions in time: in 1992, at the fall of the pound, he earned more than $1 billion a day.
So the "battle for Herbalife" for him was just another great opportunity to buy cheap stocks and earn on their growth.
What do you think Bill Ackman is doing in return? NOTHING! He still doesn't close his shorts and he's going through a loss that is currently over $800 million.
So here's the cherry on the cake:
Soros is taking his money from the Bill Akman fund of about $250 million! The idea was that in order to give back the money to George you have to close some positions. That is to start buying back some of the Herbalife shares which have already gone up in price.
6. In fact, two billionaires Soros and Icahn are cornering the third billionaire Akman. And it's all happening more publicly and openly than ever.
A small reference for those who do not know what corner is: Control or monopoly on a commodity or security in order to ensure control or ability to dictate prices. Many articles have been written about it.
The corner is explained quite well in Edwin Lefewre book "Reminiscences of a Stock Operator". By the way, this book is about one great trader Jesse Livermore.
Read it at your leisure, it is quite interesting. In the history of the markets there were not few corners, here are the most famous: `Corner Hutchinson` (1888), `Corner Leiter` (1898) and `Corner Patten` (1909).
So what's the bottom line?
In the end, as it should be, Ackman loses money.
So, friends, where I'm going with all this writing.
There's a lot of rules in trading.
I have my own personal set of rules, and here are some of them:
1. Don't "fall in love" with the paper. It may seem strange, but I select tickers and sometimes I don't even know the name of the company I trade.
2. The market's always right. Don't go brown.
3. Use SL
4. ALWAYS USE SL
Trade wisely!