Greedy's Vault Volume 10 - Herbalife, Short Squeeze

LevWedge Studios Presents

VOL.10

SUNDAY DECEMBER 17, 2023

WHAT'S INSIDE: Herbalife - Icahn v. Ackman Market Watch - Bulls & Bears Magnificent 7 - Tech Titans

Puppets | Perspective | Finance

The Prelude - Icahn vs. Ackman & the herbalife (HLF) Saga Welcome back, vault-dwellers! This week on Greedy's Vault, we're taking a deep dive into one of the most thrilling episodes of my investment career - the Herbalife showdown, a prelude to the Mother of All Short Squeezes (MOASS). **HLF: More Than Just Stocks, It's a Battlefield** - The clash between two titans, Carl Icahn and Bill Ackman, over Herbalife wasn't just about numbers; it was a personal vendetta, a gladiator battle in the modern financial arena.

- I cut my teeth in the investment world during this saga, gaining crucial knowledge and experience that would later prime me for the GameStop frenzy. **The Herbalife Standoff: A Learning Curve** - My journey with Herbalife was more than just an investment. It was a masterclass in understanding market dynamics, investor psychology, and the art of strategic betting.

- While HLF never hit the peak of a full-fledged short squeeze, it was a battleground that taught me invaluable lessons about patience, timing, and resilience in the stock market. **The Outcome: A Billion-Dollar Lesson** - In the end, it was a clash of financial titans, with Bill Ackman losing a staggering $1 billion and Carl Icahn coming out on top, pocketing the same amount.

- But the real story was beneath the surface – the intricate dance of a company's valuation, investor belief systems, and the ruthless nature of Wall Street. **Looking Back, Charging Forward** - This episode was more than just a financial duel; it was a precursor to the massive short squeeze phenomena we see today.

- The Herbalife experience was integral in preparing me for the chaos and euphoria of GameStop – a true testament to the adage that in the stock market, history doesn't repeat itself, but it often rhymes.

Join me in this week's episode as we unravel the intricate saga of Herbalife, where fortunes were made and lost, and where I forged my path towards understanding the sheer power of market forces.

www.greedyshow.com

www.greedyshow.com

VOL.10

SUNDAY, DECEMBER 17, 2023

PAGE 2

We're exploring the riveting saga of Carl Icahn versus Bill Ackman – a rivalry rooted in a personal vendetta that set the stage for one of the most talked-about short squeezes in Wall Street history. **The Spark of Rivalry: A $4M Lawsuit** - Our story starts with a seemingly small but significant event: Ackman sues Icahn over a $4 million disagreement in a deal, scoring a minor win but igniting a deep-seated animosity in the process. **Ackman's Bold Move and Icahn's Counterplay** - Fast forward to late 2012: Ackman publicly attacks Herbalife on CNBC, initiating a massive short selling campaign against the company. However, this move left him vulnerable to counterattacks.

- Enter Carl Icahn, the Wall Street titan, lying in wait, seizing the perfect moment to strike back. **Understanding Short Selling & The Risks Involved:** - Short selling is a high-stakes game where traders borrow and sell shares, betting that they can buy them back cheaper in the future. It's a play based on the expectation of a stock's price drop.

- However, it's a risky strategy. If the stock price climbs instead of falling, short sellers are forced to buy back the shares at higher prices, leading to substantial losses. **The Herbalife Drama: A Short Squeeze Masterclass** - In the Herbalife saga, Ackman's aggressive short-selling stance left him exposed to a market phenomenon known as a short squeeze.

- A short squeeze occurs when a stock's price suddenly jumps, compelling short sellers to buy back their positions urgently to avoid even bigger losses, further driving the price up. **Lessons from Wall Street's Titans** - The Herbalife short squeeze wasn't just about market mechanics; it was a testament to how personal vendettas, egos, and strategic maneuvers play out in the financial arena.

- For investors and market enthusiasts, this episode is a masterclass in understanding market dynamics, the psychological aspects of trading, and the consequences of high-risk strategies.

Stay tuned as we dissect these crucial lessons and delve deeper into the world of high-stakes trading, where fortunes are made and lost, and where every move could be a potential gamechanger. #HLFShortSqueeze #WallStreetRivalries #TradingStrategies

📉🔥🤝

www.greedyshow.com

VOL.10 PAGE 3

First understanding the concepts of "bid" and "ask" prices, as well as how a modified Dutch auction works, is essential in the context of the Herbalife Saga **Bid and Ask Prices:** 1. **Bid Price**: This is the highest price that a buyer is willing to pay for a stock. When you are selling a stock, the bid price is the relevant figure to consider, as it indicates the highest current market price you can sell your shares for.

2. **Ask Price**: Also known as the "offer" price, this is the lowest price at which a seller is willing to sell their stock. If you're looking to buy a stock, the ask price is what you'll need to pay. It's typically higher than the bid price.

The difference between the bid and ask price is known as the "spread." The spread can be a measure of the liquidity of the market; a smaller spread often indicates a more liquid market. **Modified Dutch Auction:** In a modified Dutch auction, a company looking to repurchase its own shares announces a range of prices at which it is willing to buy back shares from shareholders. This process includes the following steps: 1. **Price Range Announcement**: The company specifies a range of prices it is willing to pay for its shares.

2. **Shareholders Tender Shares**: Shareholders decide how many shares they are willing to sell and at what price within the range. They can choose a price that they believe is fair for their shares.

3. **Determination of Final Price**: After the tender offers are received, the company determines the single price within the provided range that will allow it to buy back the number of shares it wants.

This price is typically the lowest cost to the company that allows it to purchase the desired amount of shares.

4. **Purchase of Shares**: All shares tendered at or below the final set price are bought back by the company at this same price. If a shareholder has tendered shares at a higher price than the final set price, their shares are not purchased.

The modified Dutch auction allows shareholders to have a say in the price at which they are willing to sell back their shares, and it enables the company to efficiently repurchase shares within a defined budget.

www.greedyshow.com

VOL.10 PAGE 4

In the high-stakes world of Wall Street, billionaire investors like Carl Icahn and Bill Ackman often engage in battles that can shape the fate of companies. The Herbalife saga is a prime example of Gather ‘round Mutants, this, where two investment titans pursued contrasting strategies with the goal of moving the stock class is in session price in opposite directions. **Bill Ackman's Strategy Against Herbalife:** Ackman's approach was multi-faceted and aggressive. He publicly declared Herbalife (HLF) a pyramid scheme and bet heavily against the company by short selling its stock. His strategy was to drive the stock price down to zero, profiting massively from his short positions. To support his claims, Ackman used a combination of legal, political, and media channels. This included lobbying regulators, employing the FBI and politicians, and producing a documentary titled "Betting on Zero," which portrayed Herbalife as a predatory company exploiting its members. **Carl Icahn's Counterstrategy:** On the other side of the ring, Carl Icahn took a different approach, using financial engineering to support Herbalife. One of his key tactics was implementing a modified Dutch auction, a strategy to repurchase company shares within a specific price range, effectively reducing the number of shares available in the market. This move was aimed at increasing the stock's price, directly countering Ackman's short-selling strategy. **The Mechanics of a Short Squeeze:** In this battle, Icahn aimed to trigger a short squeeze—a situation where short sellers are forced to buy back shares to close their losing positions, leading to a rapid increase in the stock price. When a stock like Herbalife starts to rise unexpectedly, short sellers (like Ackman in this case) are pressured to buy back shares at higher prices to limit their losses, further driving up the stock price. This scenario is similar to a crowded theater where someone yells "fire," causing a rush to the exits (i.e., buying shares) that only a few can access promptly. **Outcome:** Ackman's strategy depended on a continuous negative news cycle and regulatory actions to devalue Herbalife, while Icahn's approach was to leverage financial maneuvers to push the stock price up. In the end, Ackman's bet against Herbalife resulted in significant losses, and he eventually exited his short position. Conversely, Icahn's bullish stance on Herbalife proved profitable.

This epic clash between Ackman and Icahn over Herbalife is a classic example of the power plays that occur in the financial markets, where immense fortunes can be made or lost based on the strategic moves of influential investors.

Carl Icahn's strategy in the Herbalife saga extended beyond financial maneuvers like the modified Dutch auction. He also took decisive steps to strengthen the company's board and management teams, asserting his influence as a major shareholder. **Consolidating Control:** Icahn's approach involved acquiring a substantial stake in Herbalife, making him one of the largest, if not the largest, shareholders in the company. This significant ownership gave him considerable sway over the company's strategic decisions. **Board and Management Influence:** With his substantial stake, Icahn was in a position to shape the composition of Herbalife's board and influence its management decisions. By installing allies and experienced executives who shared his vision for the company, Icahn ensured that Herbalife had a robust defense against Ackman's attacks and a solid foundation for future growth and stability. **Directing the Ship:** Icahn's involvement at the board level wasn't just a defensive move against Ackman's shortselling strategy; it also reflected his commitment to the long-term success of Herbalife. By having a say in key decisions, Icahn could steer the company in a direction that he believed would enhance its value and, consequently, increase the value of his investment. **Conclusion:** In the high-stakes game of Wall Street, Icahn's multifaceted strategy against Ackman's short position in Herbalife showcased the power of active, strategic investment. It wasn't just about financial tactics; it also involved taking a hands-on approach in guiding the company's governance and strategy. This comprehensive approach was crucial in turning the tide in favor of Icahn, ultimately leading to a favorable outcome for him and a costly defeat for Ackman.

www.greedyshow.com

VOL.10 PAGE 6

The conclusion of the Herbalife saga marked a significant turn of events, especially for Bill Ackman, who had bet heavily against the company. Here's a summary of the key elements of the settlement between Herbalife and the U.S. Government: **Herbalife's Settlement with the FTC:** - **Restructuring**: Herbalife agreed to fundamentally restructure their U.S. business operations.

- **Consumer Compensation**: They were required to pay $200 million to compensate consumers. This payment was part of the Federal Trade Commission's (FTC) charges that Herbalife misled consumers with promises of significant earnings from selling its products.

- **Misrepresentation Prohibition**: The settlement strictly barred Herbalife from making misleading representations about the potential earnings of its distributors.

- **Lifestyle Claims**: Herbalife was specifically prohibited from suggesting that members could quit their jobs or lead luxurious lifestyles as a result of their involvement with the company.

- **Consumer Redress**: A $200 million judgment was imposed against Herbalife for consumer redress, aimed at compensating those who purchased large quantities of products and incurred losses, including many Nutrition Club owners. **Impact on Ackman's Position:** - **Exposure**: With this settlement, Bill Ackman's short position against Herbalife was left exposed. His bet on the company's downfall did not materialize as he had anticipated.

- **Financial Loss**: Ackman's Pershing Square Capital Management had invested heavily in shorting Herbalife's stock, expecting a significant decline in its value. However, the settlement and the subsequent restructuring of Herbalife meant that his fund faced considerable losses. **Conclusion:** The FTC’s intervention and the subsequent settlement with Herbalife marked a turning point, undermining Ackman's aggressive short-selling campaign against the company. The case remains a landmark in the history of financial markets, illustrating the complex interplay of investment strategies, corporate governance, and regulatory oversight.

www.greedyshow.com

VOL.10 PAGE 7

The Herbalife saga involving Bill Ackman and Carl Icahn culminated in a dramatic conclusion, with Ackman finally conceding defeat in his long-standing battle against the company. Here's a summary of how events unfolded: **The End of Ackman's Herbalife Bet:** - **Ackman's Hedge Fund Exit**: Bill Ackman's Pershing Square Capital Management exited its position in Herbalife (HLF), marking the end of a high-profile five-year, $1 billion bet that the company’s stock would plummet to zero.

- **Stock Reaction**: Upon the news of Ackman's exit, Herbalife's stock experienced a significant surge, climbing 6.3% to $92.10 per share on exceptionally high trading volume, far exceeding the average daily volume. **The Battle Against Herbalife:** - **Ackman’s Initial Move**: Ackman's crusade against Herbalife began in 2012 when he made a massive bet against the company, labeling it a pyramid scheme. His move initially caused Herbalife's stock to drop by 20% in just three days.

- **Icahn’s Involvement**: Carl Icahn, Ackman's rival, took a contrary position by investing heavily in Herbalife, eventually owning up to 26% of the company.

- **Herbalife’s Resilience**: Despite Ackman's efforts, Herbalife's stock not only recovered but also soared, climbing 51% in 2017. **Change of Strategy and Final Exit:** - **Strategy Shift**: In response to Herbalife's stock performance, Ackman was forced to modify his strategy. He closed his short position and transitioned to a put position in November 2017.

- **Acknowledging Defeat**: By early 2018, Ackman and Pershing Square completely exited their position in Herbalife, acknowledging the need to cut losses after a prolonged and unsuccessful campaign against the company. **Conclusion:** This development marked a significant victory for Carl Icahn and a substantial defeat for Bill Ackman.

The high-stakes battle between these two financial titans highlighted the unpredictable nature of the stock market and the risks involved in short selling, particularly when betting against a company's entire business model. The Herbalife case remains a quintessential example of a complex financial feud, underscoring the influence of major investors and their impact on stock prices.

Bulls Unleashed and A Look Ahead

SUNDAY, DECEMBER 17, 2023

Welcome to this week’s edition of Greedy's Market Watch, where we're witnessing a bullish stampede that’s breaking records. **Market Performance Recap:** - **S&P 500 (SPX):** Surged 2.49%, marking seven weeks of relentless ascent.

- **Dow Jones Industrial Average:** Soared 2.92%, showcasing robust growth.

- **Nasdaq Composite:** Climbed 2.85%, keeping pace with the broader market rally. **Bullish Trend Thermometer:** - **Bull Trends:** An unprecedented 1767 bullish trends have been detected, a temperature check indicating the market is sizzling—rarely do we see it venture beyond the 1200-1500 range.

- **Bear Trends:** In stark contrast, only 78 bearish blips appeared on our radar, a minuscule count that underscores the market's current ferocity. **Market Breadth and Dynamics:** - We're observing a broad market movement with a tilt towards mid and small-cap stocks.

- Interestingly, larger-cap names like Uber, Charles Schwab, Snap, and Roblox are making bullish waves, while the usual heavyweights – the 'Magnificent 7' – are not leading the pack this time.

- **VIX Index:** Sitting at 12.28, indicating that market anxiety is subdued, for now. **Holiday Season Surge:** - The market feels primed for a rally into the holiday season. The path of least resistance seems to point upwards.

- Watch out for resistance around the 4850 mark on the SPX. The market's current momentum might just have the strength to push through in the short term. **A Note of Caution:** - Remember, when the market runs this hot (PPO at 1.6), it's primed for a cooldown. Stay alert for any signs of a reset. **2024 Market Foresight:** - As we turn our gaze to 2024, the journey might not be as smooth. Keep a keen eye on the evolving trends.

- On a personal note, I'm contemplating my significant position in Meta. With over $8M invested, I'm evaluating whether to carry this momentum into 2024. The trend seems mature, and it might be time to strategize for the next phase. **Final Thoughts:** As we ride this exhilarating wave, remember to balance exuberance with strategy. While the current trend leans heavily bullish, wise investors always prepare for tomorrow's shifts. Stay tuned, as I'll be sharing my investment plans and insights for navigating 2024. Until next time, keep investing intelligently, and let's continue to stay Greedy for success!

Rate Cuts and the Rebalancing Act Welcome back to Greedy's Market Outlook, where the buzz is all about the Federal Reserve and their hinted hat-trick of rate cuts for the upcoming year. Fund managers are now doing the financial equivalent of musical chairs, shifting their bets from the 'Magnificent 7' to a broader array of assets.

Here’s the lowdown: **Fed’s Signals Stir the Pot:** - **Rate Cut Fiesta:** The Fed's indication of three potential rate cuts has lit up the markets. It's akin to parents leaving for the weekend in 'House Party'—the market is ready to let loose.

- **Portfolio Shuffle:** Investment managers are diversifying, turning their attention to smaller large caps, mid caps, and small caps. It's a race to reposition and capture the anticipated growth outside the behemoths of the market. **The Market’s Mood:** - **Less Concentration:** There’s a noticeable shift from heavy reliance on the market giants to a more inclusive approach. This pivot suggests a search for growth opportunities that smaller companies may provide in a changing economic environment.

- **Celebration with Caution:** While the market throws its 'parents are out' party, savvy investors should stay prepared. The celebration hinges on the timing and extent of the Fed's rate cuts. **2024: A Fiscal Focal Point:** - **Key Topic Alert:** The hows and whens of the Fed's rate decisions will be a focal point as we navigate through 2024.

- **Market Sentiment:** Currently, there's a wave of optimism about what lies six months ahead, with market movements reflecting confidence in future policy easing. **Greedy’s Wisdom:** - **Enjoy the Party, But Know the Exit:** It's fine to revel in the bullish sentiment, but always have an exit strategy. Market parties don't last forever, and the Fed's next moves will be critical.

- **Stay Informed on the Cuts:** The market might be feeling sprightly about the future, but we need to stay tuned to the Fed's narrative. Timing is everything. **Final Take:** For now, the market party is in full swing, but remember to keep one eye on the door. The Fed's rate cut plans are the DJ controlling the market's rhythm, and we need to dance accordingly. Until next time, keep your portfolios diversified, your strategies dynamic, and as always, stay Greedy for growth!

In this special feature of Greedy's Vault, we're spotlighting the extraordinary rally of the 'Magnificent Seven'—the tech titans whose market clout has left the rest of the S&P 500 trailing. **The Titans of Tech:** - **Apple (AAPL),** **Microsoft (MSFT),** **Alphabet (GOOGL),** **Amazon.com (AMZN),** **Nvidia (NVDA),** **Tesla (TSLA),** and **Meta Platforms (META)** have surged a collective 75% this year.

They're not just participating in the market—they're leading the charge, shaping it to their beat. **Market Impact:** - This septet's stellar performance is more than just impressive numbers; it reflects the concentrated power within the S&P 500. As they soar, they pull the market indices up with them, their gravitational pull undeniable. **Behind the Scenes:** - These companies represent innovation, growth, and resilience in the face of economic uncertainty. Their gains underscore the market's belief in technology as a driving force for future prosperity. **What About the Other 493?** - While the 'Magnificent Seven' bask in the limelight, the other constituents of the index may seem overshadowed. However, it's worth remembering that a diversified market is a healthy market. These other companies, across various sectors, offer stability and the potential for growth beyond the tech sphere. **Greedy's Insight:** - **The Current Landscape:** It may seem like a lopsided market, but it's not unusual for a handful of companies to lead during phases of growth, especially when they're industry innovators.

- **Looking Ahead:** Keep an eye on the broader market dynamics. The 'Magnificent Seven' might be the current market darlings, but sectors rotate, and today's underdogs could be tomorrow's leaders.

- **Diversification Is Key:** Don't be swayed entirely by the siren songs of these tech giants. A wellrounded portfolio can help navigate the ebbs and flows of market concentration. **Closing Thoughts:** As we watch the 'Magnificent Seven' redefine market expectations, it's crucial to remain both appreciative of their impact and mindful of the market's vast landscape. Stay informed, stay balanced, and stay Greedy for a well-rounded portfolio.