Herbalife Ltd. is a global nutrition company that has helped people pursue a healthy, active life since 1980. Their mission is to change people’s lives by providing the best business opportunity in direct selling and the best nutrition and weight-management products in the world.
Do you know what this sounds like? This sounds like multi level marketing (MLM), AKA a pyramid scheme. Let’s not confuse the facts, Herbalife Ltd (NYSE:HLF) is a MLM example and is NOT a Ponzi scheme.

Today’s installment from the series, Trading Lessons From A Hedge Fund Trader will focus on at Herbalife Ltd (NYSE:HLF) as per our reader’s request for research, available here on BehindWallStreet.com.

Wow, where do we start, Herbalife Ltd (NYSE:HLF) is full of lessons on all fronts.

If you own Herbalife Ltd (NYSE:HLF), make sure you take a look at this interesting article, that was compiled by Pershing Square Capital and its CEO Bill Ackman.

Bill Ackman is heavily SHORT of this stock and he makes a powerful argument to support his SHORT position.

Trading Lesson #1: If you believe that  you made the perfect analysis (take your pick, fundamental, technical or quantitative analysis) on any stock and that stock moves heavily against you then your perfect analysis has a big fat hole in it.

It doesn’t matter how perfectly you see the company, this is an auction style market where the majority rules. Remember, we are humans and we have the potential to talk ourselves into believing anything even if it seems logical or illogical.

Fundamental, technical and quantitative analysis are merely tools you can use to value a company. Companies are traded on the open markets and we are dealing with probabilities and the current stock market price of the stock is the truth. So stop ignoring the price when it is not in your favor, the price is the most important thing because it’s the number you use to determine your P&L.

Investing is all about making money, it’s not about having the best analysis.

Bill Ackman is a smart guy who wants the stock to go down. Carl Icahn is a smart guy, Icahn Associates Corp has a long position of 16,966,485 as of June 30, 2013 and he thinks it is going up.

One of these guys is right and the other is wrong. Both are smart guys, both have a different investment thesis, both are looking at the same data and one guy will be right and the other one will be wrong.

The short position in Herbalife Ltd (NYSE:HLF) has been growing steadily since December 2011 and sits at 25,631,648 shares short as of August 30, 2013.
That’s a lot of selling pressure and the stock is up about 200% since December 2012.

Trading Lesson #2: If the stock is up on heavy selling pressure (as seen by an increase in the short float) then the stock is stronger than it is weaker. Seems rather simple doesn’t it. Someone tell that to Bill Ackman, he is still stuck on Trading Lesson #1.

I’ve worked with a lot of PHD level, high IQ, smart guys and they have 1 fatal flaw: They believe that the answer is always in the numbers and that math never lies.

Most of the money managers out there stick to 1 camp, they are with the fundamental, technical or quantitative camp and most believe the other camp is illogical.

It’s similar to eastern and western medicine. The western drug based system believes that the eastern, trial and error through the centuries techniques lack scientific evidence. Both systems have their merits but try finding a doctor who practices both eastern and western philosophies and techniques is next to impossible.

hlf 1 month

Technical Situation

Herbalife Ltd (NYSE:HLF) has gone from a high of $70 in May 2012, to low of $25 in December 2012 and is back around the $70 range. This is a double top in technical terms and the double top provides many trading opportunities to the upside and the downside.

Herbalife Ltd (NYSE:HLF) is riding higher on its 50day MA since May 2013.
The volume on the move is rather pedestrian and the momentum is losing steam according to the RSI. This is not the case of a powerful stock move, we might be witnessing a possible short covering move.


The battle between Bill Ackman and Carl Icahn is the real story. Forget about the technicals and fundamentals of the company, ignore your personal opinion on Herbalife Ltd (NYSE:HLF) and simply go long as it goes up and/or go short as it goes down. Both guys have huge positions and they will move the market as their position weakens/strengthens.

Think like a mercenary and join the side of the victors. The question you have to ask yourself is this: Is it more important to have the perfect analysis or would you rather just make money?

When we put our egos aside, you will come to the realization that this is all about the game of market dynamics/making monkey and that fundamental, technical and quantitative analysis are merely diagnostic tools and the that the current market price is the truth.

If you would like to see our specific trading levels for Entries, Stops and Targets Herbalife Ltd (NYSE:HLF)  then click here to see how we Profit Behind The Chart.

This is a cursory look at Herbalife Ltd (NYSE:HLF) and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the company, the market sector as well as their own financial situation and risk parameters.

Originally published – BehindWallStreet.com