• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

What Investors Can Learn From Ackman's Herbalife Debacle and Trump's Election

An objective individual insulates their investment decisions from their personal feelings.
By ED PONSI
Mar 01, 2018 | 12:00 PM EST
Stocks quotes in this article: HLF

It's finally over. Bill Ackman's quest to ride a short position in nutritional supplement company Herbalife (HLF) into the ground has officially ended, as the stock exploded to an all-time high Wednesday.

There are lessons here for all of us. I'm not going to indulge in schadenfreude as so many others are doing at Ackman's expense, because we're all vulnerable. Any of us could make the same mistakes that Bill Ackman made. What can we learn from this event, and how can we avoid making the same mistakes in the future? Here are the takeaways:

Lesson One: The Price Is Always Right

Ackman weaved a convincing story about Herbalife and its legitimacy. He gathered significant and compelling evidence, and I'm certain that he believed every word of it. After all, he put his money, and the money of his investors, on the line.

However, none of us is smarter than the market. When the price began to move against Ackman, he should've cut his losses. That's a common rule followed by disciplined investors, and Ackman broke that rule.

What if Ackman had just walked away from Herbalife years ago? In December 2012, when he initiated his short positon, Herbalife reached a low of $24. By December 2013, the stock had climbed above $80.

I don't care if you think you're right, in fact, I don't care if you're sure of it. If you're short at $24 and the stock goes to $80, you're wrong, end of story. The price dictates who is wrong and who is right, and only fools argue with the price. Ackman's Herbalife trade should've ended years ago.

Lesson Two: Maintain Objectivity

When investing becomes intertwined with personal issues, we become distracted, and our decision-making process suffers. A good recent example of this is the 2016 U.S. presidential election.

Some investors, having a strong distaste for President Trump, sold everything after the election. That was an emotional decision, one that likely resulted in regret. An objective individual insulates their investment decisions from their personal feelings.

Did Ackman maintain objectivity, or was he distracted by the circus he helped create surrounding Herbalife? Look at his returns and judge for yourself.

Last year, despite a roaring market that saw the S&P 500 gain 20%, Ackman's Pershing Square fund lost 4%. His fund lost 13.5% in 2016, and in 2015, Pershing Square lost a whopping 20.5%.

During that stretch, Ackman battled publicly with fund manager Carl Icahn, a feud that became very personal at times. He lost money on the Herbalife trade, and on other large bets as well. In the process, Pershing Square's assets under management (AUM) fell from $18.3 billion in 2015 to just $8.77 billion at the end of last year. It'll take a lot of work for Ackman to rebuild both his fund and his reputation.

This profession requires that we know when to walk away. Any time we feel that we are personally involved in a trade, meaning that we can't remain 100% objective about the outcome, we should close it immediately. I'm sure Ackman wishes he'd done exactly that, but it's too late now.

This commentary originally appeared on Real Money Pro on March 1. Click here to learn about this dynamic market information service for active traders.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | U.S. Equity | Politics | How-to | Mergers and Acquisitions | Stocks

More from Investing

Traders: Keep Your Fingers on the Trigger and Targets on a Bottom

James "Rev Shark" DePorre
Mar 4, 2021 4:39 PM EST

As the correction goes on, here's what to do now.

There's Nothing Pleasant About the Current Action

Timothy Collins
Mar 4, 2021 3:00 PM EST

The next good sized bounce in SPAC names, and maybe ARKK names, might be the last exit off the bagholder highway.

Royal Caribbean Is Getting Called Back to Port

Bruce Kamich
Mar 4, 2021 3:00 PM EST

Has the reopening news already been priced in? The charts are telling investors to look out ahead.

Nike's Charts and Indicators Are Still Bearish

Bruce Kamich
Mar 4, 2021 2:20 PM EST

Avoid the long side.

Listen to Mr. Market, Not Mr. Powell

Jim Collins
Mar 4, 2021 1:56 PM EST

Let's look at bonds, rates and, especially, inflation for a true picture of what's going on, and where to put your money.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:53 AM EST GARY BERMAN

    Nasdaq Composite: Some Backing and Filling Is Here

    As today is the 4th day of the month, it seems lik...
  • 07:59 AM EST PAUL PRICE

    Fabulous News on United Natural Foods (UNFI)

    The major potential risk factor for , its contrac...
  • 08:50 AM EST PAUL PRICE

    Michaels: Close to a Deal?

    It appears that a deal could be announced soon. ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login