Here's What I Actually Said

 | Nov 26, 2013 | 7:15 AM EST  | Comments
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Perhaps I misspoke. Or perhaps Herb Greenberg misheard me. But I have never in my life believed you should "forget the fundamentals" when it comes to Herbalife (HLF) or Green Mountain (GMCR).

Because what I meant to say, or did say, frankly, is that all that matters is the fundamentals and they simply aren't as bad as the short sellers think they are.

That's my premise and I defend it this way:

1 - Herbalife is a company that sells a product that you may or may not care for, in a way that you may or may not care for, with a point system you may or may not care for. You may think that the direct-selling model is totally flawed and that all the company does is recruit others to sell a product that -- if it were just sold in stores -- wouldn't do that well and the company would make far less money if it would make money at all. You know what? That's probably true. But it doesn't matter because that's not the company's business.

My point was that Bill Stiritz -- a very smart investor who knows the business, a man I have admired since he was at Ralston, a man who is to food as John Malone is to cable -- has taken a very big stake in the company and who am I to say that he's wrong. I do not believe Stiritz is buying Herbalife to bash the shorts, including Bill Ackman. I think he is buying it because he believes the fundamentals are undervalued and when the company gets a clean audit—which is not their fault, but the fault of the auditors-it can go higher.

And that direct model business? We can wait and wait for the government, some part of the government, to step in to close the company, and maybe some entity will. That's a risk you have to take to own it. I think that there's not much more value added to talking about Herbalife than that. You want to own it? You know the risks. You want to short it? You know the risks. There. That's my rap on Herbalife.

2 - Green Mountain? Same deal. A short seller did a major number on Green Mountain last year, just like Ackman did on Herbalife. It worked. It knocked the stock down, just like Herbalife. But, like Herbalife, Green Mountain then delivered a quarter that showed good profit growth and added a buyback and a dividend. What I was saying about Green Mountain was pretty simple. In the end it is about the fundamentals, not the shorts or the longs, and those are signs of positive fundamentals, not negative fundamentals.

Now Herb has a rap about what the company's doing and how the earnings are low quality and the new system is a closed system. I don't want to characterize it. You can read it yourself.

My issue is, again, you now know the risks. They have been traced out for ages. The fact that the stock went higher, not lower, is a fact of life and it is NOT irrational.

You see, that's the point. It isn't irrational that either Herbalife or Green Mountain went higher. They delivered decent numbers, more buyers surfaced then sellers and the stocks went higher.

I did not mean to insinuate that this was about Herb. I didn't mean it about Ackman or David Einhorn, who apparently doesn't care for Green Mountain still. What I am saying is that we should be JUST AS SUSPICIOUS of the motivations and timing of the shorts as the longs. When a long hypes a stock he owns, you should question it. When a short bashes a stock he's short, you should question it. Neither's gospel.

But give me this, Herb. These stories both long and short are well known. The debate over these two is like the lesson we learned in law school about the house that's built next to the quarry. If you buy that house you have "come to the nuisance." You should have no expectation otherwise.

The odd thing? How is that even controversial? The fundamentals do control and in these two cases, well-vetted, well-versed situations, there are more buyers -- no matter how wrong you think they are -- than sellers. I do not know how to sum it up other than to say, that's all there is to it.

No offense meant, none given.

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