The Herbalife saga shows that Bill Ackman thinks he's too good for short selling

Wall Street knows that short selling is a dangerous game. Because you’re borrowing a stock, not simply owning it, a short seller risks losing more than the money they put down.

Some great investors don’t even touch the stuff.

And on Friday Pershing Square’s Bill Ackman gave them another reason to hold their noses. He lost his three year campaign against multi-level marketing nutrition company Herbalife after the FTC and the company reached a deal in which the company avoided being called a pyramid scheme — a stock he told all of Wall Street in no uncertain terms was going to zero.

Telling everyone his belief was the problem.

That promise to ride the stock all the way down took away the only magic power a short seller has — the ability to manipulate time. Try asking a short seller why they decided to go public on a specific position at a certain time. They won’t tell you. They might tell you how to theoretically consider timing, but that’s like explaining to someone why planes can take off the ground. You get it, sure, but that doesn’t mean you’re going to build one and take off.

You can see that the structure of the campaign made it impossible for Ackman to manipulate timing. It was never his intention to allow people to forget that he was holding the position (the fickleness of memory is another one of the short seller’s greatest weapons).

Perhaps you recall this fun three-hour, live streamed Herbalife bashing party Ackman threw back in the summer of 2014, more than a year after he’d announced the position and gotten into a verbal altercation with Carl Icahn on live television.

“…everyone who showed up for Ackman’s Tuesday presentation — or tuned into the internet livestream — remembered what Icahn said on TV over a year before.

They remembered it as Ackman’s talk passed the hour mark, then the two-hour mark and the three-hour mark.

They remembered it as Ackman compared Herbalife’s top brass to everything from Nazis to Mafiosos and drug dealers. And they remembered it as they watched Herbalife’s stock rocket up 24% for the day, making a mockery of Ackman’s crusade.

They remembered it when Ackman — describing his family’s connection to the American Dream as the presentation (almost) neared its climax — actually cried.”

How’s anyone ever going to forget about that?

Eat my (activist) shorts

What’s funny about all of this is that Ackman went on CNBC on Thursday and criticised Citron Research’s Andrew Left for doing the very thing he was too righteous to do in this campaign — for manipulating time.

You’ll recall Left is the man whose questions about Valeant’s accounting back in October set off a serious events that brought the company, another Ackman position, to its knees. Earlier this week Left said that he had initiated a short position in the company once again after going long. Ackman scoffed at this.

“Look, I think Andrew Left is a charismatic guy. And he made one of the great short calls… ever. I give him enormous credit for that. and then he made a long call on Valeant, and then he made a short call on Valeant. What I find interesting is he never tells you what he does with his position. So obviously, he puts the trade on. He goes on CNBC says it’s a short, then he covers and then he puts the position — buys some calls or goes long the stock and then he goes on TV and says it’s a long, which he did, I don’t know, maybe a month or two ago. And then I guess yesterday it’s short again. I just feel like you guys are doing a very good job helping him make money on his portfolio.”

I’m just going to briefly touch on the fact that Ackman, a man who regularly holds press conferences in packed auditoriums to discuss his portfolio, is accusing someone else of show boating and then I’m going to let it go.

What’s really crazy here is that Ackman just described a principle of short selling as if it’s something he’s too good for. In discussions following the ruling, I mused with a friend on how quickly Left was in and out of positions. Neither of us were exactly sure how long he likes to hold. Maybe he’s in and out of there, we thought.

The fact that we even wondered that means he’s doing his job as a short seller, appearing and then disappearing from the market as he chooses.

Perhaps now Ackman will consider disappearance more carefully if he ever shorts a stock again.

But as I said, even some of the greatest investors in the world simply don’t do it all. Perhaps Ackman is one of the great investors who doesn’t know how to disappear.

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