Whitney Tilson Talks Herbalife, Trump And His Recent Colonoscopy

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From Whitney’s latest email to investors. Presented without comment.

1) On May 6th I will be attending my 19th consecutive Berkshire Hathaway annual meeting in Omaha. If you’re going to be there, I’d like to invite you to two events on Friday evening and Saturday afternoon, both at the Omaha Hilton (I’m not sure which rooms; there will be signs):

  1. a) My friend Chuck Gillman and I are hosting our annual cocktail party from 8pm-midnight on Friday, May 5th. No agenda, no speeches, no dress code – just come, enjoy the drinks and snacks, and meet other value investors.


  1. b) Chuck and I are also sponsoring a casual get-together immediately following the annual meeting (~3:30) on Saturday, May 6th – just walk across the street or take the skybridge to the Hilton. It will end around 6pm.

To RSVP for either of these events, please email Ram at [email protected] and include:

  • Which event(s) you plan to attend
  • Your name as you wish it to appear on your nametag
  • Your city as you wish it to appear on your nametag

I look forward to seeing you!

2) Speaking of Berkshire, following up on Charlie Munger’s Daily Journal meeting last month (full video here: www.youtube.com/watch?v=BLctqhNClqY&feature=youtu.be), Munger hung around for more than an hour after the meeting and took questions from the groupies (I say that affectionately, not pejoratively) who swarmed him. Alas, I didn’t know he’d do this so I missed it, but fortunately one of the groupies videoed it and posted links to 22 clips here: www.youtube.com/watch?v=5YR_5el2IuM&list=PL4vpPkFFra2tjDtIJ69Ju4SnwQyNvSmIG.

Once the official meeting was over, Munger stopped being so diplomatic. When asked about his supposed friendship with billionaire supermarket magnate Ron Burkle, he replies, “I have not seen Ron Burkle in 35 years. He always tells people what a good friend he is of mine. I liked Ron Burkle’s father – he was our last customer for Trading Stamps. I liked Ron when he was eager, but Ron, when he’s made a lot of money, is a bit insufferable. He’s my good friend if you listen to him. The one he really knows is Bill Clinton because he furnished him with girls!” [Munger is referring to this story: www.vanityfair.com/news/2008/07/clinton200807] He talks about Mike Pearson and Valeant here: https://www.youtube.com/watch?v=FOdHcziVbMo&feature=youtu.be.

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3) Speaking of slimy companies Munger has heaped scorn upon, the critically acclaimed (100% on Rotten Tomatoes and 8.8/10 on IMDb) documentary about Herbalife (which I remain short), Betting on Zero, opens in a handful of theaters nationwide tomorrow (here is a list of theaters). I’ve seen it and it’s outstanding! It makes it so clear what a pyramid scheme Herbalife is and the harm it’s doing to so many of its distributors. You can watch the 2-min trailer here: https://www.youtube.com/watch?v=epNmVLtpkZA

4) Michelle Celarier with a spot-on article (sadly) about Herbalife and its peers benefitting from the Trump administration, which is full of MLM scammers (starting at the top):

What this all adds up to, in the eyes of opponents and supporters, is a benign era for MLMs. Regulating these companies, with their legions of independent salespeople, is difficult for the toughest regulatory regimes. And the Trump era will be anything but that. “Anybody who would continue to expect or hope for law enforcement regarding financial schemes of this type would be living in a dream world,” said Robert FitzPatrick, the president of the watchdog Pyramid Scheme Alert. “[MLMs] are going to gain protection.”

FitzPatrick will get no quarrel from the industry’s biggest fans. “We think that with the new administration you can forget any aggressive action vs. MLMs,” industry analyst and Herbalife shareholder Tim Ramey wrote in a note to clients in January. “When Betsy DeVos was named to the Trump Cabinet we took that as a very strong signal that the Trump administration had no real issue with the MLM world. … You don’t put Betsy DeVos in your cabinet and then go out and try to put [Herbalife] out of business. We are in a post-regulatory world.”

5) Speaking of activist shorting: at one time only a handful of people were doing it (Chanos, Asensio, Rocker, Ackman, Einhorn, and yours truly), but in recent years it’s become so widespread that I can’t keep track of it, so I use a very useful service, Activist Insight, which follows, sends immediate alerts about, and maintains archives of every activist short campaign. For a free trial, please contact Jim Bilodeau at [email protected] and use my name for a 10% discount (I get a credit toward my subscription cost for each of my friends who signs up).

6) Here’s a link to a web site that has posted Q4/annual investor letters from ~100 funds, including Greenlight, Pershing Sq., Third Point and Baupost: https://www.reddit.com/r/SecurityAnalysis/comments/5nbic9/q4_2016_letters_and_reports/

Editor's note we have a better list here  2016 Hedge Fund Letters

7) My views on Trump are well known, but it’s possible that he could be good for the economy and/or stocks, at least for a while. Here’s an article (in the NYT no less!) that explains how:

The stock market reached yet another new high on Wednesday, the latest development to make a mockery of what savvy economic commentators thought they knew about the world.

Consider how things looked one year ago. The world economy seemed hopelessly trapped in a cycle of low growth and inflation. Markets recoiled at the mere possibility that the Federal Reserve would raise interest rates. Populist political insurgencies seemed to threaten yet more financial market chaos.

Now, interest rates and inflation forecasts have risen substantially from last winter’s lows; financial markets are shrugging off — or even rallying at the possibility of — imminent Fed rate increases; and it is all taking place during Donald J. Trump’s presidency.

An economy that seemed locked in some form of “secular stagnation” or “new normal” is at long last showing some signs of being in something closer to an “old normal.” The United States manufacturing sector is showing strength, and the broader mix of market and economic data from around the world in the last few months also points to a world where a vicious economic cycle isn’t looking quite as scary and may even be ending.

There can be no assurance that this pattern will continue, and there are some things to worry about on the horizon, not least that the Trump administration could follow through on some of its threats to disrupt global trade and diplomatic relations. Long-term interest rates remain low by historical standards across most of the world, suggesting that global bond investors aren’t fully buying into a return to stronger, more consistent growth.

But the pivot since Election Day is huge.

8) Here’s another article along the same lines, citing the rise in small business confidence:

“And now we have seen this huge spike in small-business confidence since the election,” Mr. Korzenik said, pointing to a chart. “So I have to ask you: Do you feel more confident now?”

There was a moment of silence, broken only by a howling northwestern Ohio wind that rattled the floor-to-ceiling windows in the bank’s boardroom.

Then, with rapid-fire speed, came the responses.

The president of a trucking company spoke of a “tremendous dark cloud” lifting when he realized he would no longer be feeling the burden of rules and regulations imposed by the Obama administration.

The owner of an automotive parts assembler gave thanks that he would not be receiving visits from pesky environmental and workplace overseers.

And the head of a seating manufacturer expressed hope that, finally, his health care costs would come down when the Affordable Care Act was repealed.

“My gut just feels better,” said Bob Fleisher, president of a local car dealership. “With Obama, you felt it was personal — like he just didn’t want you to make money. Now we have a guy who is cutting regulations and taxes. And when I see my taxes going down every quarter — well, that means I am going to start investing again.”

While much has been made about the stock market’s nearly 14 percent rally since the election, economists say that when it comes to assessing the genuine potential for the United States economy, confidence among small-business owners is a more grounded and forward-looking indicator.

9) On the other hand, insider buying is at the lowest level in three decades (as always, watch what corporate execs do, not what they say):

Corporate executives are buying their own firms’ shares at the slowest pace in at least 29 years, the latest sign of uncertainty as the bull market in U.S. stocks enters its ninth year.

Share purchases and sales by executives are parsed by investors searching for signals about what insiders expect from the market. Sales can show wariness about valuations, while purchases can signal confidence that more gains lie ahead.

Insider buyers have been scant. There were a total of 279 insider buyers in January, the lowest number going back to 1988, according to the Washington Service, a provider of insider-trading data and analytics.

Meanwhile, the number of sellers has been above average, pushing a ratio of buyers to sellers in February to its lowest since 1988.

Insider caution about buying stocks comes with the S&P 500 near a high and after the index has more than tripled since bottoming during the financial crisis on March 9, 2009.

10) Jason Zweig with a hilarious column on how much analysts grovel on conference calls:

The phrase “Great quarter, guys” has been uttered by analysts so often on earnings conference calls that it’s become a standing joke on Wall Street. There’s even a Twitter account, with a skeptical take on earnings news, called @greatquarter.

Jonathan Milian and Antoinette Smith, accounting professors at Florida International University, have just published a study of the language analysts use on conference calls. Because groveling to management seems to help analysts secure what’s called “corporate access,” or face time for clients with companies’ top executives, it’s no wonder that many analysts come across as bootlicking sycophants.

Analyzing more than 16,000 earnings conference calls from almost 500 companies between early 2003 and the middle of 2013, the researchers found that analysts spoke the phrase “great quarter” roughly 3,000 times. They said “good,” “great” or “strong” more than 215,000 times.

More than half of all calls included some sort of praise from analysts, ranging from “good,” “solid” or “nice” to “amazing,” “incredible,” “phenomenal,” “tremendous” and other craven flattery.

Analysts sucked up to management an average of 2.5 times per call, with the number of compliments going as high as 21 times per call in the most extreme case.

11) I had a colonoscopy last week and, while the prep wasn’t so fun, overall it was a perfectly tolerable experience and I’m glad I did it.

I share this with you not to gross you out, but in the hopes that, in doing so, I might inspire one of my friends to get this done – and just might save someone’s life!

A colonoscopy is the gold standard for detecting colon cancer, which is the second-leading U.S. cancer killer, as this chart shows (and if you’re a man who’s not a smoker, it’s by far the most dangerous form of cancer):

According to the Journal of the National Cancer Institute, colon cancer is “the most preventable, yet least prevented cancer.” The key is to catch it early. If detected in stage I and II, the five-year survival rate is 90%, but plunges to only 10% if it’s progressed to stage IV, as this chart shows:

Yet only 65% of people who should be screened are, a major reason why 60% of colon cancers detected are already in late stage.

The guidelines are very simple: you should have a colonoscopy done when you turn 50 (assuming you don’t have any family history or other risk factors) and then every 10 years thereafter (the doctor recommended that I have another one in only five years because she found (and removed) a small 5mm polyp, which fortunately was benign).

So what are you waiting for?! If you should have had a colonoscopy and haven’t had one yet, then call your doctor and schedule one!

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