I use to work in legislative affairs for the natural health industry. It's all one big scam. I try to explain it like this:
Company A sells natural remedies, etc.
Company B is a news organization which reports on natural health remedies, and also advertises for those companies, et.
Nonprofit C is a consumer watchdog organization that investigates and promotes natural health. They are supported by the natural health industry, and community.
Trade Association D is a group of natural health corporations that lobby the government, and fight bad press.
The trick is, A, B, C, and D are all working together, in collusion, with the same investors, same backers, and each supports the other. It's so pervasive it's astounding, and extremely difficult for consumers to see through to factual information.
I used to consult for a couple of mortgage brokers back in the go-go 2000s before the crash, and it wasn't too different. Companies A, B and C arrange mortgages. Company D is a trade organization closely associated with A, B and C which awards annual prizes for "excellence" in the mortgage broking industry. By strange coincidence companies A, B and C are awarded the prizes every year (usually with slightly different names each year, or rotated from last years winners).
It's impossible to determine which nonprofits are independent. So many nonprofits are industry backed, and depend on the industries they report on for most, if not all, of their funding. Your best bet are those that have been around along time, with clear 990's that show where money comes in, where it goes out, etc. There's an organization called Charity Navigator that tries to evaluate nonprofits, and score them based on transparency, etc. Another factor that I found in my experience is when a nonprofit goes after it's own industry. For example: Find a nonprofit that attacks MLM's and dietary supplements. Just because an organization says it's an independent nonprofit does not mean it is.
Seems like a sure thing to short the piss out of an enterprise like this and wage a comprehensive campaign of activism and consumer education against it. With rationality on your side, how could you lose?
> With rationality on your side, how could you lose?
You could lose because the rational choice model does not accurately model human behavior in the real world; people don't act based on perfect information, in part because even when presented with correct information, they are likely to reject it if it doesn't fit their pre-existing world view.
That has very little to do with the rational choice model. Rational choice agrees that people don't act on perfect information. It also agrees that even when given good information, individuals don't necessarily believe it. All RCT really boils down to is the fairly uncontroversial statement that people act in accordance with their actual preferences (even if their preferences should be different, the actions are not well-calculated to achieve their goals, or they say they have different preferences).
> Rational choice agrees that people don't act on perfect information
No, full rational choice theory posits that people do behave in a way which maximizes actual (not expected) net utility, or, in more detail, as if:
(1) They have a coherent “utility function” mapping each potential path through time that might be taken to a unidimensional, real-number utility value.
(2) They have perfect knowledge of the outcome (path through time), or at least resulting utility value, produced by every possible option with every decision they make,
(3) They consistently choose the option that maximizes utility.
There are more limited modifications of rational choice theory that attempt, with varying degrees of success, to close the predictive gap between full rational choice theory and actual behavior resulting from the fact that humans do not behave “rationally” in the sense of rational choice theory, but they aren't what is involved with the question “how can you lose when rationality is on your side?” asked upthread.
South Africa is hardly the only country where multivitamins are common. If rationality were the only metric for decision making, I would expect homeopathy to be far less common globally than it is today.
As for Aids denialism, South Africa suffers from a case of cultural antiestablishmentism, particularly in the context of Western medicine. Thankfully our government has stepped up in recent years, and actively promotes HIV/Aids education these days.
Homeopathy is the beloved little black sheep of natural health. I would say half of natural health industry people don't believe in it, know it doesn't work, but they have to go along with it. Otherwise, to admit (as countless studies, and the federal government have done) that homeopathy is completely without merit, would threaten the entire house of cards that natural health is built upon. I remember last year when the FTC announced their enforcement action on homeopathic OTC drugs, there was an unusual silence from the natural health community. Almost a shrug. From the inside it was laughable at the lack of concern for homeopathy's future.
Why? Both beliefs are held against current scientific consensus and have only a few supporting studies, while vast majority of studies support the contrary.
You could argue that technically "climate change scepticism" only means you don't know, but in practice climate change sceptics argue for political actions (or inaction) basing on their (lack of) beliefs.
Similarly I can be anti-vacc without claiming "vaccines cause autism". just claiming "I'm not sure what they cause, so just to be sure don't do it".
The science in favor of vaccination is very straightforward and well-understood. It's easy to run double-blind tests and determine the truth of the matter.
The science in favor of anthropogenic global warming includes two parts: well-understood physics and chemistry (which is quite trustworthy and is actually science), and a bunch of conflicting computer models of a chaotic and poorly understood system with a huge number of inputs and feedback loops (which I'm not sure why anyone trusts).
France? Maybe we've come full circle, and it's time for it to lead a second Enlightenment.
And to be accurate, I believe Trump's current position is "global warming is happening, caused by humans, but Paris unfairly advantages other nations over the US."
Which is how all climate agreements look when you're trying to get buy in from developing economies... but at least it's better than hoaxism.
>With rationality on your side, how could you lose?
Hahahhaha. Great joke. Sadly, there are and probably always will be a lot of ignorant/gullible people. As PT Barnum said, "there's a sucker born every minute."
Given the current birth rate of over 4 births per second, and considering that almost every newborn will consume nutrients by sucking milk, I'd say that we have reached that milestone a long time ago.
> Sounds exactly like every other industry. I don't see how it's any different.
You were likely downvoted because you were far too strong for how general your statement was and presented it without evidence. As stated, it doesn't really contribute much.
Worded as "sounds like many different industries. For example..." and followed with some examples would be interesting. As it is, it can be parsed as "business is corrupt."
The meta around voting is complex and rarely discussed. Kind of like Fight Club.
Generally though, think of "contributing substantively to the discussion" (e.g. providing facts, ideally sourced [1], relevant personal experience, or interesting and neutrally worded questions) as a high good. And tossing around memes, ad hoc attacks, argumentative language without facts, and "contentless" comments as the lowest bad.
And as parent mentioned, the stronger the claim, the more it behooves you to cite a source.
In general, try and write the kind of comments you want to read & treat everyone with respect. :) And hopefully others will do the same!
Here's what I know:
The products are of dubious quality, and can be bought for much cheaper elsewhere.
The majority of people who end up being distributors absorb a net loss, and given that many already come from financially unstable backgrounds, that loss is particularly painful.
The largest sellers in the chain either got in super early, or make more money off of ancillary products (seminars, etc.) than actual sales.
That sounds shady as hell as best, downright predatory at worst, and all of the "Yeah, it might be bad, but so is X" arguments in the world don't absolve it.
I guess where the real decision fork is to what extent you feel the Government is responsible for making it harder for people to make dumb decisions by shutting down the companies that prey upon them.
People also tend to lean heavily on their personal social network, which often alienates them from their personal friend base. And has limited supply before the success you do get from that runs out.
And don't forget that you're often not the first one in your network to start peddling this garbage.
My parents did it for awhile, after being turned onto it by another woman in the small town we lived in. But guess what? That same woman was already selling to 90% of our potential customers. Everyone who was going to buy a case of Glister toothpaste already had one sitting in their garage; who were we supposed to sell to?
The answer to the rhetorical question is, nobody. We brushed our teeth with our shitty investment for about a year, then wrote the whole thing off as a failed experiment that luckily didn't bankrupt us.
All MLMs are scams. I hate using the term pyramid schemes, because if you use that term all of the MLM apologists will start cranking out very long-winded philosophical definitions of pyramid schemes that obscure the true point.
The MLM "model" can be summarized thusly:
- 1. Give people pretty good business advice from a host of good business books
- 2. Give people a very positive exciting environment
- 3. Give people literally the WORST job ever created with a product that cannot exist on its own in the marketplace if it wasn't being artificially propped up by hundreds of thousands of distributors
MLMs are scams. And no matter how much they try to attack other industries by saying how unethical they are, or how much they lie about their products, that can never and will never absolve them for the damage they have done to so many lives.
ALSO: something else you'll notice is that people who've been involved with MLMs might recall them fondly. This is just a defense mechanism (an extremely understandable one) to prevent having to view oneself as being duped. I think it's a shame though because we'll all be duped or scammed to some degree in our life, no need to change the past. Anyway reading "The Big Con" by David Maurer right now, a book by a sociologist about con-men in the 1940s. It's the basis for the movie "The Sting", and its remarkable how many people in the book are conned but refuse to believe it, and even years later still think their guy is out there, about to return their money at any time with 20x the profit or whatever.
EDIT: Also it is nearly impossible to look this stuff up on Google. MLM people have so carpet bombed the search sites the first 30 or so links will be links to Youtube videos with titles like "Is XYZ company a scam??" that find of course it's not. Occasionally a random legitimate news article will leak through. Otherwise they've literally walled the world off from anti-MLM information.
To me you're kind of misusing the term scam. To me it's no more of a scam than buying a stock at the wrong time or working for a startup with options or any affiliate program. A lot of the time the products are really good at first they're usually hard to sell in retail and then usually the market catches up at the retail level and the product becomes a commodity. And at the same time the market saturates with reps and it becomes a bad opportunity.
Often with MLMs you have to buy the product yourself first and then sell it. So people end up buying $1000 worth of energy drinks they can never sell, because their "employers" fed them so much bullshit about it being easy money. I would call that a scam
MLM sell their products at retail prices to their 'distributors' who then have to mark it up yet again, making the actual distributors the customer base (since normal consumers won't tolerate that level of markup).
If you're buying wholesale stock at retail prices, you are being scammed.
tupperware, avon, Amway's cleaners were all great products in their day(expensive but some consumers aren't cheap, Think Coach purses - retail example of that kind of product).
I'm of the opinion that John Oliver is not really a good source for changing people's minds. I agree with a lot of his points and he cites sources, but I find him difficult to watch. A lot of his show appears to endorse an echo chamber: he frequently criticizes the subjects by making them appear ridiculous.
That's a very pervasive problem in political satire. It's often pandering. You have hosts taking clips of someone doing or saying something the demographic audience is going to clearly disagree with, then acting absolutely gobsmacked at how stupid/malicious/unaware they are. That's not persuasive to anyone and doesn't complement changing someone's mind, it's just ridiculing the people they currently agree with.
Ostensibly the show is supposed to be informative, because he does appeal to the other side's rationality to try and persuade them. I think the usual argument for the format is that a sobering account doesn't capture enough attention, which is why jokes are interspersed. But those jokes are heavy handed enough that opponents probably will be put off. If the goal is actually convincing someone that MLMs don't really work for most people, I think there are probably better sources of information if they're willing to be proven wrong in the first place. And if they're not willing, they may take someone who is as abrasive as John Oliver as ridicule.
His interview with Snowden is fantastic. He's clearly very sympathetic, but very strict.
Whenever Snowden starts techno-babbling, Oliver brings him back to "normal people level" with "how does this enable the NSA to see my private information?"
Clearly, Snowden is annoyed at first, because he's always taken back to "how can they see my dick pics", but I feel he realizes as the interview progresses that he's being given a much-needed lesson in public communication.
John Oliver's style is more akin to pointing a finger and laughing at someone than actually deconstructing why they are wrong. And even when he does deconstruct things, I think many of his arguments hinge on emotion and non-sequitur (e.g. It's 201X). I am an anti-fan of him, personally. He's basically the young peoples' version of a right-wing talk radio host or TV personality, yet people do not at all seem to realize this.
>John Oliver's style is more akin to pointing a finger and laughing at someone
Again, as Oliver himself says repeatedly, he is a comedian, not a journalist. That's what comedians do. It's confusing to some people, because he talks about real things and sometimes manages to slip in more actual information than some actual journalists--esp the mock-journalists on TV--do.
He's a comedian in the same way that Alex Jones in an entertainer. You can call yourself whatever you want, but if you are functionally behaving as a political pundit, you should be held to similar standards as the rest of them (which are essentially nonexistent anyway)
I think one of the elevations to the form that occurred as Jon Stewart and the writers evolved The Daily Show was that the coverage was more fair.
The clips were still humorous, but they were generally contextually and fairly presented so as to be an accurate statement of the target's beliefs. The subversion usually came in choosing clips where the true beliefs were exposed, rather than the PR whitewashed version.
Oliver tends to overdo the histrionics in reaction to the topic, whereas one of Stewart's most effective rhetorical devices was "... But maybe they {good reason for doing the thing that was done}" -> segue into next clip where target explicitly rejects {good reason} as motivation.
Sure, and I'm not disagreeing that his opponents can be ridiculous. But they can also be very intelligent, and the audience will never see that side of them. The audience will see isolated clips that exaggerate their seeming incompetence.
More importantly, if that's his job description than it's not all that conducive to qualified political discussion. If someone really sides with Bernie Sanders, providing an elevated rebuttal to his economic policies is better than making fun of his hair, or the fact that he has a (to some) funny Brooklyn accent.
Likewise, critiquing Trump's policies is good. Making him appear ridiculous and starting every single show with, "President Trump, two words that...{funny joke}" while joking about his hair and fake tan are not conducive to educated discourse. It just further entrenches the demographics into two isolated camps. Sure he cites specific sources, but you begin to wonder how much of the audience really tunes in for that material, since a lot of it just appears to be a reaffirmation of unchallenged beliefs.
Where I do give John Oliver credit is for showcasing problems in society than many people are unaware of. I do frequently give the show a watch, I just make it part of a very diversified set of news and I don't particularly enjoy it all that much when, as another commenter mentioned, he goes heavy into histrionics. It becomes circular.
I guess to put my point more succinctly: John Oliver is not necessarily wrong in his conclusions, and he makes attempts to cite sources. But he arrives at his conclusions in a way that intrinsically encourages the same tribalism he often criticizes, and that tribalism is harder to identify because of the (real or apparent) intellectualism about it.
Well, I know people that made a living and brought up two children with the help of Herbalife, so it is not THAT bad. It is not easy, and not a good job, on those points I do agree though.
What's with all the survivorship bias in these responses? For every person you know that's made money in an MLM, that mathematically means there were 1,000 people AT MINIMUM below them who were scammed somewhere around $300 to usually $20,000 (when you're poor that can be 3 months worth of savings and the difference between taking multiple overdraft hits + a title loan) to live a hijacked version of the American Dream. The burned relationships are even more significant, again especially with people in poverty where family is everything. Look at "A Framework for Understanding to Poverty" by Ruby Payne for more on this.
Btw of course a scam will make some people successful, that's what scams do, take people's money. If someone isn't getting rich, it isn't a scam in the end.
That being said, MLMs are weird and quite honestly conceptually bizarre to reason through. They thrive on this and they operate in the gaps and blindspots of human reasoning.
Here's another way to describe MLMs:
-1). They get you hyped up on success and by borrowing the best of innovations that were mastered by Evangelical churches and various performing arts over the last 200 years (see Aimee Mcpherson, the amazing female preacher from LA and the inspiration for the male preacher in "There Will Be Blood" with Daniel Day Lewis).
-2). By pretending to have a business they can sell you a $500 or so "gold" level business kit to launch your business.
-3). They then get you so hyped up you talk to all of your friends, reluctantly 2 or 3 of them buy. Now the MLM has made $500 + $1000 or so from your friends. That means you as a "mark" has been taken for $1500.
-4). Rinse and repeat with your other friends, burning social circles and harvesting the ashes as you go.
If products don't get sold to actual consumers in sufficient numbers to pay everyone, then the money has to come from somewhere. It generally comes from "lower" distributors that one signs up. Those who are successful and see a profit by doing this talk about it; those who lose money do not.
Ergo, no social good, the majority of people talking about it are successful, and it ruins lives.
kind like the whole venture/startup industry. promote lottery mentality. pay below market rates for the effort and time put into to startups. only a few get rewarded. Only difference they seduce you with your own ideas.
Hard to beat the hedge fund compensation model of fee on the way up, fee on the way down.
Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum."
So his first fund killed it, he made a name for himself, raised a ton of money, and has literally cost his investors 75% of their returns to date in the market.
He's personally worth $1,400,000,000 now as a result.
Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's.
> Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's.
No, it's because of the simple fact that you can't predict the future. That sleazeballs can make it even worse by making funds that pretend that they had yields before they even existed (or were active only in a theoretical sense with a few bucks in it as a fig leaf and the other 999 that got axed you'll never hear about) is taken as a given.
That's just the 1024 envelope trick at a higher level.
I believe that the regulation that requires that disclosure comes from the 1933 law establishing the SEC.
A specific concern was how advertising past returns fed into getting people excited about bubbles like the one which popped in 1929.
Therefore the regulation was meant to address a systemic problem rather than individual malfeasance.
> Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum."
But why should the S&P 500 be the benchmark for what Ackman does? If he was advertising that he's betting on broad market risk it would make sense, but he's not. He's long/short high concentration, which you could argue he's also not done fantastic at, but with a small number of positions you'd expect a wide potential spread of returns.
The "market average" like S&P is the expected return of passive investment - doing nothing, so that's why it's a reasonable benchmark. This (not 0%) is the straightforward default alternative investment, the one against you can measure an opportunity cost.
The point of hedge funds is that they can do better than that, but charge a fee. However, if you get worse results than doing nothing, then the fee seems unjustified.
The commenter you're responding to is aware of all of that, as he works in the industry. With regard to "the point" of hedge funds, what you're saying is not actually correct - the S&P500 is not necessarily an appropriate benchmark for comparison because it doesn't share the same risk profile. Concordantly it is not necessarily a failure if a hedge fund achieves a lower return than the S&P500 depending on its beta exposure.
In general, the S&P500 presents the most cursory comparison metric for hedge funds, but not necessarily the most accurate. This is specifically why we have the term, "risk-adjusted returns."
And hedge funds are only allowed to take money from rather wealthy or "sophisticated" investors that should know better. Herbalife preys on the poor and down trodden.
I live and work in Utah, which, for not completely clear to me reasons, is home to a lot of MLMs. Nu Skin, Usana, Xango, doTerra, Young Living, Jamberry (and those are the ones I can just name off the top of my head) are all headquartered here.
For an area that in many ways is punching above its weight class in terms of tech companies, I occasionally have nagging (possibly unfounded?) concerns in the back of my head that one day a lot of these companies will be a hindrance on the continued growth here. I know some people already view Utah mostly as the home of MLMs and I don't know if that does much for attracting forward looking tech investment. That said, these companies have brought a ton of jobs and has certainly helped fund the growth in the area and I have worked with and met a lot of people who seem pretty decent.
While many of these companies aren't "evil", I think the MLM is probably one of the most insidious dark design patterns around. I think the best way of how these companies primarily operate is like the Cassette/CD clubs of a few years past. A small fee gets you a decent amount of "up front value" (Join the club for $30 and get 30% off your first order!) with the expectation that you won't order anything else or forget to cancel the yearly membership fee. This is, of course, all made worse by the fact that is often friends and family who are peddling the high margin health and dietary products with questionable efficacy. Like I said, I don't know if I can call it an outright scam (I know a few people who really like there shakes and supplements and swear by them), but it does drive strange incentives...
The reason I had heard is because Mormon's make great door-to-door salesmen. Many of the men have spent a year or two of door-to-door proselyting (attempting to convert). So they're used to selling to strangers and also being rejected. I'm not sure how true this is, but it seems plausible.
I see a lot of those Mormon young men here in Germany on their mission. There are usually two of them, dresses well and behaving very politely. Although they directly contact people on the street, I never have the feeling that anyone is annoyed by them. Therefore I could well imagine that they are great sales men.
Honestly, being stopped on the street and talked to isn't so bad if they're not trying to sell you something. The only reason I ever go out is to talk to people and almost everyone (myself included) is afraid to do it. I've come to enjoy the short conversations with the Jehovah's witnesses, the Hindus and so on even though I'll probably never believe most of what they're saying.
Nah, they aren't driving the mlm. Their skills are leveraged more for the door to door giants like Vivent and most every other door to door sales company you can think of. And on the darker side, Utah also houses a great deal of very legally dubious boiler room sales floors. You will find that almost every single "I make $900 at home" that originated from the US will lead you to a high pressure sales floor in Utah.
The mlm seems to be the stay at home moms and maybe a mix of others that are able to leverage their church network.
Another likely factor related to the high Mormon population is the correspondingly high stay-at-home mother population, for whom MLM looks like a good opportunity to have a career while still being at home for their families most of the time.
To really make the case they aren't evil you have to pretend that those running these businesses are unaware of their own business plan and buy into their own marketing, while they carefully craft the marketing and contracts to break the law only so much as to remain profitable while paying settlements and fines.
It's a ridiculous idea. No one accidentally tunes a dark pattern so perfectly.
There was a documentary about this on Netflix. Interesting viewing, but it did feel like a vehicle for parties involved in shorting the stock to get more momentum.
They are expanding rapidly in international markets. In India, Herbalife has over 40 distribution centers now and over 0.5 million distributors ! They even got a famous sports personalities to advertise for them (http://www.herbalproductkart.com/herbalife-brand-ambassdors).
To do my bit in preventing people from falling for such scams, I asked my friends and mother to share it on their whatsapp groups so that people don't fall prey to such pyramid schemes.
I think you meant to say it's not necessarily
illegal. It's a scam in any case because the products don't do what the people buying them are lead to believe they do and the distributor opportunities aren't the oppotunity the people buying into them are lead to believe.
Yes. Don't understand the airquotes. The blog has over a dozen of extremely well thought out articles, detailed analysis of Herbalife, including the author attending multiple events, getting to know the distributors, etc. in an effort to understand what is going on.
It's unfortunate that you are being downvoted - especially since you are citing John Hempton's excellent work on the topic. It's really worth a read and an interesting counterpoint to Ackman's analysis.
The second link, which is far briefer, highlights that Hempton has finally found an example of inventory loading by millennial members of the Mormon church. But he regards that as an edge case. So I don't read that as making the point that you seem to be criticizing.
More important though is the first link which is extensive and addresses many of Ackman's claims and includes Hempton's own front line documentation. None of that has to do with defending Herbalife on the grounds of "Mormon end of the world hoarding".
Did you read the link that they posted immediately after that statement?
> Among the biggest accusations facing the company is that it targets low-income members of minority communities, including Latinos, by making unachievable promises of vast wealth from selling its line of protein powders, vitamins, supplements and beauty products.
> This concept has taken off among Latinos, who are taught at an early age that natural remedies such as herbs and juices are a better option than U.S.-style medicine, said Alexandro Jose Gradilla, chair of the Chicano Studies Department at Cal State Fullerton. That makes Herbalife products popular among immigrants.
Theres a recent follow-up from fortune on this, worth reading.. according to the article the stock price has grown back to roughly where it was before Ackman's campaign. However they're in the middle of a lot of changes in response to the FTC settlement so material changes in the future are also possible.
Herbalife was too rich for the FTC to find it an illegal financial scheme, subsequently and simultaneously Bill Ackman got squeezed pretty hard on that and several of his other bets.
He still has a group of followers because he's rich and has a nice pedigree, but he has fallen from glory pretty hard and his calls don't matter anymore.
One of the best short sells these days is to short everything in his portfolio when you think he is about to get a margin call. Because that will force him to liquidate several large positions in different stocks.
The fund's holdings are known, and the fund manager's dispositions are easily inferred by how much they talk about something. ie. How married they are to a position.
So for example, when Valeant Pharmaceauticals was tanking from its highs of $220, all the way to $16, after Bill Ackman defended it, doubled down, joined the board, and bought calls, and then admitted to not having more funds available. You just short other things in his portfolio, or at least short them on the expectation that other people are going to short.
Its fun. I do "proxy trades" a lot, where I trade a temporarily correlated asset, while the market focuses on a different asset.
His fund didn't go insolvent, many investors did redeem their stake in his funds when their lockup periods were up, and he has enough interest and clout to continue?
I'm not sure what you are asking. Its worded like you thought there would be police or broken kneecaps involved
Most likely there won't be any developments until the fall when the effects of the FTC settlement are reported in Herbalife's earnings. But that will only show how well they evaded the judgment since the FTC has been lacking on the enforcement front for a long time.
I have built software for a number of MLMs in the past 20 years. I can tear down a compensation plan and tell you where the money will go and what the likelihood of success will be for "the little guy" as well as the upper management reward for the "hitter".
The #1 factor in deciding if an MLM is legit is the product. Many, many MLMs have products that have no real value to any market, existing only to attempt to legitimize a money game.
However, MLM is a pretty good marketing approach for products that:
1 - are new or difficult to understand, and where having a human explain or demonstrate in person helps the potential consumer decide if it's something for them
2 - depend on customer testimonials to express their effectiveness, particularly regarding consumables that are not or cannot be judged and regulated by the FDA or similar body
3 - are consumable, such that the buyers and _consumers_ of the product naturally evangelize the product, and then get rewards for bringing new customers
Let's be honest - there are a lot of BS products that are legally marketed through traditional, accepted, and even respected channels. And there are a ton of BS products marketing via MLM. The difference is that some MLMs have lured members with the unrealistic prospect of huge incomes and then guided the new members to buy a ton of product ("front-loading") so as to ascend more rapidly to the higher earning potentials. That's how you end up with people with a garage full of junk they'll never manage to sell.
I don't know if Herbalife does this. I rather doubt it. But really, if a new employee in a company could choose to pay $25k up front with the promise that they would be more quickly promoted to higher management levels, I think a lot of people would do it - even if they had no skills or motivation to work to earn a promotion. In some MLMs, that option exists.
Regarding compensation, every company that markets products takes some percent of product sales and directs that toward marketing efforts. What makes MLM unique is that it directs that marketing money to individuals (presumably based on the amount of sales they drive). And just as Division Managers of large companies may receive bonuses based on the success of their divisions, MLM leaders often receive some compensation based on the sales (success) of representatives they have personally recruited or who have been recruited by their recruits.
I could go on, but it's boring now. Point is, MLM isn't inherently evil, just as capitalism isn't inherently evil. But everywhere, there are some people who will do anything for a dollar. Some become hedge fund managers, and some become MLM lead marketers.
Whether or not Ackman is right, his method is what's questionable. Let alone what seems like insanity to me: he's making a very public short bet against a company. He's _borrowing_ shares of stock to prove the management is wrong and publicly announcing that fact. So everybody can pile into the short squeeze, irrespective of the facts or morality of the situation. This is one reason why the quote "The market can stay irrational longer than you can stay solvent.” applies. The market is irrational because it's in the participants' short term interest for it to be irrational.
> Conventional activists like Carl Icahn and Nelson Peltz buy shares and then “try to fix the company,” observes one hedge fund investor. Ackman, by contrast, is trying to annihilate a company. “I’ve never heard of short-selling activism in my life,” this investor says. “Are we comfortable that a private individual named Bill can try to put somebody out of business?”
Shorting a company as a method of activism just seems like a terrible strategy on the face of it. A short is a really risky strategy for investing, for activism it just seems even worse. If you want to change a company using its stock, the effective way is to be rich enough to buy enough stock to influence the board.
Seems like it could be the other way around- legal/social action against a company as a strategy for shorting.
Of course, they (the allegedly misled class) deserved to at least get a trial and a ruling, which at that scale require money and press coverage. But Ackman turned it into spectacle, which probably is what motivated Carl Icahn to btchslap his short.
It's not just Herbalife. There are so many MLMs out there, it's madness. One former friend is a former friend because he fell victim to some German MLM, believe it was about a website where you could do conference calls.
Back when I was younger, I was a stagehand at a venue where a huge MLM, also named in the Fortune article, had thrown a yuuuge party. They rented two entire conference halls for thousands of people and had a giant stage for a musical set up, complete with pyrotechnics and everything.
Utter madness, all financed by poor people who were screwed over by their relatives or close friends...
It just depends on how you do it. Just because you have more money than the liquidity of the market doesn't mean your buy and sells are market manipulation.
I have bought things on the open market 100% above the prior market price, when I wanted them. Moving the asset's price 100% and sure enough many out of the loop people started FOMOing and buying more. Its the same principle for bearish positions too.
In the securities market you can talk about your bullish or bearish rationale, and avoid sanctioning from regulators or private persons by disclosing your position. Ackman doubled down on that logic and did it very publicly. Although this is more a problem for bearish positions, the statements can't be lies or "intentionally misleading".
In the past there were many naked shorts, where fake shares were sold into the public market causing impossible selling pressure. That is illegal now, for the most part, and as long as you aren't doing that it helps make sure you aren't manipulating the market, by the legal standard.
Again, just because you can have an outsize affect on the price of the market and the mere presence of creating an advantageous circumstance, doesn't make it market manipulation or securities fraud.
When you are such a big name in finance, your public statements can be judged as attempts to influence the market. And if you furthermore pay lobbyists, do advertising, and give many presentations, it is clearly going to have an impact.
We live in a free society that values free speech. We should be cautious when limiting it. In the case of market influence, it should be fine as long as there is full disclosure. In fact insider trading is perfectly legal as long as it's done with disclosure statements.
Fortunately, the legal system does sometimes consider intent. While the letter of the law may be followed, if the intent is obviously against the spirit of the law, the courts have some leeway to judge accordingly.
Activist shorting is a cottage industry and has its fair share of participants on both sides of the bet. People like Ackman or Cohen or Left are far from being followed and blindly copied, like Warren Buffett or even Jim Cramer.
The followers realize that the shorts act first and go public second, therefore any potential upside is likely to be already priced in, leaving very slim pickings for a tag-along investor.
The opponents at the same time will try to orchestrate a short squeeze, and they are in somewhat more beneficial position. Not only the short squeezers act on public information (the size of the short interest), they need to find just one factual error in short's thesis and then play that up. The activist short, once public, has to be 100% right with each and every statement - any sign of weakness is just an open invitation to join a short squeeze.
I've got the feeling this thread is full of people that drank the BS koolaid of herbalife.
They either sell snake oil products, or protein shakes that are 10x cheaper at Costco.
I've known people desperate enough to start selling that crap (as well as others-their friends-that have to buy it just due to friendship), so please stop spreading MLM scams.
>I've known people desperate enough to start selling that crap (as well as others-their friends-that have to buy it just due to friendship), so please stop spreading MLM scams.
They offer 100% buyback for distributors for unopened products and they stopped lead generation completely 4 years ago. So, their distributors are no different from what cell phone carriers are to Apple.
>They either sell snake oil products, or protein shakes that are 10x cheaper at Costco.
Kinda like Apple then?
>I've got the feeling this thread is full of people that drank the BS koolaid of herbalife.
I think the main difference is that there is a chain of people who profit from selling to their 'downlines', not when a product is sold to an actual customer.
The analogy to apple is poor. Apple sell a product that the majority of people like and they are actively trying to sell directly to the customer. They use networks as it is their only option in many markets and once a phone is sold to the network it is then sold to the customer, there isn't a series of transactions with each level profiting of the previous level.
>I think the main difference is that there is a chain of people who profit from selling to their 'downlines'
How is it different from 3rd party Apple resellers?
>Apple sell a product that the majority of people like
As does Herbalife.
>they are actively trying to sell directly to the customer
Herbalife lets distributors handle sales, not very different from Apple's resellers.
>They use networks as it is their only option in many markets and once a phone is sold to the network it is then sold to the customer, there isn't a series of transactions with each level profiting of the previous level.
Apple -> Authorised Resellers -> Stores. While this is not Apple's only channel (because they have their own stores plus online shop), it is one of them... and there is multiple transactions with each level profiting.
It is different because there is only one level of re sellers, these re sellers are not the only path to market for the product, and that path to market when sold through a re seller is pretty clear, ie you know Apple make the phone, you know Apple have sold it to the carrier and the carrier is now selling it to you. There are literally multiple layers but the layers are clear and none shady (with the reseller layer adding value in the form of a network connection).
Herbalife's model would be Herbalife -> tier 1 -> tier 2 -> ..... -> tier n-1 -> t n, with no real clarity on how many tiers there are.
If Herbalife's product is as good as they claim why not sell it direct to customers either online or in supermarkets? They sell through 'distrubutors' because it allows them to make a profit without having to actually sell their product to a customer, because if they were reliant on direct customer based sales no one would buy there garbage product, and they wouldn't make a profit.
The litmus test for me for a system like this is if it seems like the best way to actually make money from something is not to actually sell the product to consumers but to recruit people into your downlines then its probably some kind of pyramid scheme. I can't see a single product or market where the best product would be the most profitable when sold through a MLM network.
>If Herbalife's product is as good as they claim why not sell it direct to customers either online or in supermarkets?
For the same reason Apple made iPhone exclusive to a carrier when it launched for the first time... and for the same reason many phone companies still do it with their phones.
Apple and these phones companies do it because they make anti-competitive deals... which have seem some backlash. However, Herbalife doesn't have that because they provide additional value. Products like fitness supplements are only good if you use it in an intended way, which is what a lot of these health clubs try to do. You can buy any other food supplement, but you will not get the results. People choose Herbalife because it just works.
Apple had to make the iPhone exclusive to the launch network in the US as part of their negotiations to not have any carrier branding and for Apple to retain full control of the software. Nothing to do with downlines or shifting inventory.
Apple would clearly rather you bought the phone directly from them, their entire philosophy is based on continuous integration, from controlling the sale of their devices through to producing their own hardware and software, they are probably the least MLM like consumer electronics company going.
Do you distribute Herbalife products or do you just use them? I'm genuinely interested as no one I know who's tried them thinks they are superior product, and anyone I know who's got into anything remotely MLMy has lost money and regretted it.
I don't buy Herbalife products for the same reason I don't buy most Apple products. They are overpriced for what they are and I am capable enough to make whatever cheaper alternative "just work" for me without additional help from Herbalife and Apple. But I do understand the value they provide for many people willing to pay for it and willing to buy everything tech related and everything supplement related respectively from them.
The Apple retail price, the one paid by the ultimate, sales-tax-paying consumer, is unaffected by these levels in their channels. This model cannot tolerate more than two or three levels. There is no version of the Apple sales channel where more levels means more profits. With some MLMs it appears that the more levels the better, at least in theory.
Next to the other guys argument why apple is a poor argument. As much as I dislike Apple they are actually in the middle price range of laptop's with that kind of specs and quality.
Same for the phones. Apple ain't expensive if you assume it is a quality product.
I am torn, on one hand Herbalife does smell of one gigantic pyramid scheme. Howerver, they have completely revamped the company and structure havent they? On the other hand, while Ackman is savvy and smart, his activist investor style rubs me the wrong way. He has unlimited capital, and thus that affords him the right to manipulate companies for his own gain? I don't like it. Also, let's not forget... If Herbalife eventually goes out of business, he stands to make a boatload of money. Ackman is not being altruistic.
You do realize that traditional business is a form of pyramid scheme. Your boss probably gets more compensation than you do. He/she may have subordinate managers who themselves have subordinate managers who have non-manager employees.
The CEO makes bonuses based on performance of the company. The division managers makes bonuses based on their divisions' performance. The lowest people in the company probably make zero bonuses. And in many companies, the lowest paid workers were promised good future opportunities for growth in the company.
For every bad MLM (and there are many), I could probably identify 10 bad traditional companies.
Having a hierarchy that gets narrower at the top, with people earning more, is not what makes something a pyramid scheme.
Having the earnings of the higher tier directly funded by financial contributions from the lower tiers is.
I lot of MLMs have a particular 'hiding in plain site deception'. The retail margins on the consumer goods aren't where the bulk of the top tier earnings are coming from. The conferences, training materials, tapes, courses and a raft of support systems for the distributors... all produced at very little cost are the true source. This is where the generous subsidies come from.
Actually, you're describing a corporate pyramid structure, not a "Pyramid Scheme" which is: "a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones."
"I'm telling you he's like a crybaby in the schoolyard. I went to a tough school in Queens, you know, and they used to beat up the little Jewish boys. He was like one of the little Jewish boys crying ..."
ON ACKMAN AS A FRIEND:
"He's the quintessential example of 'if you want a friend on Wall Street, get a dog.'"
ON HAVING DINNER WITH ACKMAN:
"As far as I'm concerned, he wanted to have dinner with me. I couldn't figure out if he was the most sanctimonious guy I met in my life or just arrogant and that's Ackman."
ON ACKMAN DONATING ANY HLF PROFITS TO CHARITY:
"He talks about charity. That's complete bullshit!"
ON ACKMAN SAYING ICAHN IS A GOOD INVESTOR:
"I appreciate you, Bill, calling me a 'great investor', but unfortunately I cannot say the same for you."
BONUS: ON WHEN SCOTT WAPNER ASKED HIM IF HE'S LONG HLF:
"I want to say what I want to say and I'm not going to talk about my Herbalife position because you want to bully me ... I don't give a damn about what you want to know. I want to talk about what I want to talk about ... You can say what the hell you want. I'm going to talk about what Ackman just said about me, not about Herbalife ... I'll talk about Herbalife when I goddamn want to ... I'm never going on a show with you again, that's for damn sure, OK."
Company A sells natural remedies, etc. Company B is a news organization which reports on natural health remedies, and also advertises for those companies, et. Nonprofit C is a consumer watchdog organization that investigates and promotes natural health. They are supported by the natural health industry, and community. Trade Association D is a group of natural health corporations that lobby the government, and fight bad press.
The trick is, A, B, C, and D are all working together, in collusion, with the same investors, same backers, and each supports the other. It's so pervasive it's astounding, and extremely difficult for consumers to see through to factual information.