During an informational conference call for investors hosted by Herbalife yesterday, Greenlight Capital’s David Einhorn — a noted short-seller — asked Herbalife executives a series of questions about their business. The transcript is available here. Shortly thereafter, Herbalife stock took a major dive.
But once you have obtained that track record, why not monetize it, in the lowest-risk way possible? On the long side, this has been Warren Buffett’s business model for years. It’s nice if you keep being right – certainly it prolongs your ability to monetize the reputation – but it’s not completely necessary. Warren Buffett’s investing in a company is to some extent self-fulfilling; so is David Einhorn’s shorting. If you sold Herbalife as soon as he was announced on the earnings call, you are probably grateful to him.
Fans of my alma mater‘s basketball team are familiar with the phenomenon. Once Coach K is said to be looking, the alleged recruiting experts decide that the being-looked-at player ought to go up in the recruit rankings. And if Duke offers, the player will almost surely become a McDonald’s All-American.
To think that people wonder why some of these players don’t turn out to be as good as advertised by the “experts”…?! The again, it makes perfect sense. There is no career risk in agreeing with Coach K.