Betting on Zero Page #4

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And then you wait for them

to drop in value,

And you turned out to be right

and the coins

dropped in value to $500.

You go back into the market,

you buy them back for $500.

You've sold them for $1,000,

you've repurchased them

for $500,

You've made $500 on each coin,

And then you return the coins

to your friend.

Your friend is in

the same place he was

when he started

And he has the same coins

that he started with.

You might have to actually

pay him something

for borrowing the coins,

'cause he loaned them to you,

so you might pay him

an interest rate.

So he's happy

because he's made interest

lending you the coins,

You've made money profiting

from the decline of

the value of the coins,

And that's short selling.

That's when it works.

But if you sell it

at a high price

and it goes higher,

And it can go

infinitely higher,

Because the stock can go

infinitely higher,

Then you're on the hook

for that.

So, this is why it takes

big cojones to short stocks.

Especially something as public

and as big as herbalife.

Narrator:
At the end of 2012,

ackman took to the stage

For the first time

to reveal his secret,

Good-for-america short.

Just want to point out

a few things.

We are short

the stock of herbalife.

Herbalife stock goes down,

we make money.

Herbalife stock goes up,

we lose money.

Cohan:
The December, 2012

300-page presentation

was incredibly detailed.

It's overwhelming.

Ackman:
One percent get 88%

of the rewards.

Cohan:
When he advocates

for an idea,

He could sell ice

to the eskimos.

Ackman:
Recruiting rewards are

substantially greater

Than the retail profit

that they generate.

You can lose a lot

of money being short.

So, in order to be short

a pyramid scheme

Like herbalife

and not get killed,

You have to be prepared to

share your thinking publicly.

Let's put it this way,

This is the best

managed pyramid scheme

in the history of the world.

Mr. Johnson should get

a lot of credit for that.

Male reporter:
There's

herbalife stock down 14.6%.

The news bill ackman...

Richard:
The reaction

was stunning.

I mean, it felt like,

"wow, people are getting out.

"they've seen something

that scares them."

Johnson:
These guys are

listening to a report

That was generated by

a research firm in new york

And we sent her

a legal letter.

This is

a ridiculous assertation

By people who are trying

to manipulate our stock.

Reporter:
What would you say

to those who say

That you are trying

to manipulate the success

of the company

-And therefore

the stock price?

-False.

We simply want

the truth to come out.

The moral argument that

he's making is

Closely aligned

with his financial interests,

And that's why he can seem

like he's holier than thou.

If you succeed, you're gonna

be donating the money,

By the way, to charity,

you said.

You called it "blood money."

-Yes.

-Because?

Everyone says,

"well, you can't believe

"what he says

because he short the stock

"and he's gonna profit

from this.

You can't trust him."

So,

by taking the economic part

out of my investment,

I.E., giving the money away,

It's harder for them

to make that argument.

You know, I am a moral person,

But we are, again,

managing capital for others,

And it's actually

in the best interests

of our investors

For us to bet

against the company

that's causing harm.

'cause those are

the kind of companies

That the government

and regulators

Will be more likely

to take action against.

Narrator:
Now,

two years after his first

herbalife presentation,

Ackman is set to make

more revelations

That he believes will

deliver a death blow

to the company.

All poor people

are being exploited.

The deception knows no bounds.

Yeah, it's incredible.

Four hours later,

we get done with it,

great presentation,

And some genius

in the audience

Looks at the stock

and it's gone up.

What's our response?

It's irrelevant.

It's not going up though.

It's okay.

Question's

whether it opens again.

Jon silvan:
What can we come

up with other than irrelevant?

Something.

Stock's not going up.

It's a certainty.

Stock's irrelevant,

but it's not going up.

Ackman:

we are gonna expose

an incredible fraud

In the way

they fundamentally operate.

These so-called

nutrition clubs

Where they talk about places

for people to get together

And learn about good nutrition

and lose weight,

That's not what's happening

at these venues.

Woman:

ladies and gentlemen,

please welcome...

Thank you.

...Founder and ceo of pershing

square capital management,

mr. Bill ackman.

Richard:

In the nutrition clubs,

herbalife has a story.

It's very eager

to tell that story

Once bill ackman

goes after the company.

Announcer:
Herbalife fitness

and nutrition clubs

Are at the heart of how

herbalife is helping people

change their lives.

At a time when so many people

in the United States are

obese and overweight,

And in the latino community,

Where those percentages

are even higher

Than the national average,

It's important that there's

a company like herbalife

To send the message

that we need to change

our eating habits,

That we need to change

our lifestyle.

Richard:
Initially I couldn't

understand how it worked.

How are lower-income people

finding the resources

to run these clubs?

And so I, several times,

went to go look at some

of these nutrition clubs.

I noticed in queens,

herbalife has a lot of them.

It's an immigrant population

from mexico and

guatemala and ecuador.

You have to search

to find them.

If you're standing

right in front of it,

you could almost miss it.

Tiny little stores

with a green curtain

covering the window.

There is no sign saying

this is an herbalife club,

Or hours of operation.

Hello.

They're supposed to be clubs,

they're not supposed to be

retail establishments.

Cost you $5,000 to $6,000,

sometimes something

greater than that,

To open one of these things,

in terms of the start-up cost.

The rules are

fairly interesting.

You're not allowed to display

the name of the company,

the logo,

Or the words

"nutrition club" or "shakes"

Or any implication that

it's an herbalife business,

outside.

You can't advertise

and you can't promote.

You're not allowed

to attract customers.

Richard:
Can I get a shake,

can I buy a shake?

Man:
Who are you?

Richard:
I'm doing research.

Man:
Research?

-Yeah, I'm not a member.

-Okay, take a seat.

Richard:
You go in

and pay $5 a day.

They would serve you

a protein shake,

the formula one...

You also drink an aloe water

and you drink an herbal tea.

So, we looked at the economics

of 10 nutrition clubs

And we had people sit outside,

Track traffic trends,

people coming in and out...

We knew what the rent was,

how big they were,

how often they were open,

Estimate the utility cost,

the start-up cost,

inventory cost for serving...

When you do the math,

you find out,

Your average club,

these are the 10

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