In Search of the Perfect Investment

Snap is now worth $28 billion.

It debuted on Thursday and did this:

I am very interested in Snap, since it might be the next Facebook, which did this:

I did not buy FB at $20, since I thought its business stupid (at that time). I’ve since bought it and still own it.

I’m not missing out on Snap. I’ve been reading. Snap describes itself:

Our flagship product, Snapchat, is a camera application that was created to help people communicate through short videos and images. We call each of those short videos or images a Snap. On average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day.

I installed Snapchat on my iPhone. Here’s my first Snapchat, a ghastly selfie.

It painted me pink. It told me to stick my tongue out. Had I done it properly (and been 60 years younger), I could have made this:

I used Windows Snipping Tool to check Snap’s financials:

You can read Snap’s 251 page red herring here.  It starts:

The company gets all its revenue from advertising. In 2015, revenue was $59 million. It was $404 million in 2016.

That means it grew 6.9 times in 2016. Not shabby.

Younger members of my extended family like and use Snapchat. According to a plugged-in member matriach-grandmother of the family:

If you want to find me, I’m HarryNewton2017.

I’ll watch SNAP Friday. Maybe it’s a bargain at $24? There isn’t much like it around.

This the long-term “max” chart of Herbalife’s stock,

It’s been a rocky ride, as one hedge fund shorted it and another bought it. The whole sordid story has been written up in the latest New Yorker by Sheelah Kolhatkar.

Financiers fight over the American dream

A hedge fund planned to make a fortune-and do good-by exposing how Herbalife preyed on the poor. What went wrong?

Here are some excerpts from the fascinating article:

Shorting a Rainbow

+ Herbalife, which is based in Los Angeles, sells weight-loss-shake powder, vitamins, supplements, protein bars, and skin-care products, and when Richard started investigating the company it reported more than four billion dollars in sales.

Herbalife cultivates an image of wellness and athleticism; it sponsors more than sixty sports teams and a hundred and fifty professional athletes, including Cristiano Ronaldo, the Real Madrid soccer star. But most people who were getting involved in Herbalife, Christine Richard believed, were responding to the company’s aggressive promises, advertised in both English and Spanish, of a business opportunity that might lead to wealth and financial independence. Testimonials spoke of how much money they could make. (“Now, while earning $25,000 a month with Herbalife, I get to do all the things I love: play music and ride my motorcycle!”)

Herbalife’s recruiting technique involved revival-style “seminars” where distributors in company T-shirts stood up and shared stories about the weight that they had lost and the money that they had gained. On a Saturday this fall, one such seminar took place at a hotel near Newark Airport. About a hundred people, mostly black and Latino, were crowded into a small ballroom, many wearing buttons pinned to their shirts: “I  Herbalife” or “lose weight now. ask me how!” The fee to attend the meeting, which was ostensibly for sales training, was thirty dollars, and the aesthetic in the room tended toward high heels and gold jewelry.

+ Juan was there to explain how the business of Herbalife worked. It was based on a system of product discounts. Once people used the products and liked them, they could sign up and get them at a twenty-five-per-cent discount. They could use the products themselves, or become distributors and sell to friends and acquaintances at full price, keeping the difference. Distributors were required to purchase a “business pack,” priced at ninety-four dollars. The pack included copies of a sales video, buttons, and product samples. As their purchase volume increased, they qualified for deeper discounts. “That is based on how many people you’re sharing your story with,” Juan said. “It doesn’t happen overnight.”

+ In a pyramid scheme, according to the definition most commonly used by courts and by the Federal Trade Commission, participants derive most of their compensation from recruiting other people into the network as salespeople, rather than from selling products to actual consumers. If recruiting is a company’s main purpose, its survival depends on constantly bringing new people in, and those at the top of the pyramid make money largely from those coming in at the bottom. Still, it can be hard to distinguish between enterprises that are legally considered fraudulent and those which aren’t, and no specific statute outlaws pyramid schemes. A series of settlements with the F.T.C. dating back to the nineteen-seventies have shown companies how to adjust their business models in order to remain in the zone of legality.

+ Christine Richard was doubtful that Herbalife had done so. From her research, she had concluded that the company’s real business was recruiting people to recruit more people to recruit more people to sell its products.

+ Within the hour, Ackman started shorting Herbalife stock. He decided to commit ten per cent of Pershing Square’s capital to the short-around a billion dollars. He estimated that the most the stock could possibly go up, which would represent the fund’s potential losses, was fifty per cent. On the other hand, once regulators and the public learned what was really going on at the company, he expected Herbalife stock to go to zero-whereupon his fund would net a billion dollars in profit.

+ Government investigators have found that it was almost impossible to make money selling Herbalife products, and that more than half the company’s sales came from purchases of products by its own distributors. Hundreds of thousands of new distributors joined the network each year; after losing money, or at least not making any, eighty-nine per cent of them ended up dropping out within the same year. (The company disputes these conclusions, and says that most of its sales go to actual customers using its products, although it also says that it doesn’t know the precise breakdown.)

+ Strikingly, many of the themes and slogans that multilevel-marketing companies favor-lots of gilt, and promises that “we are going to make you rich”-are the same ones employed by Donald Trump, whose pledge to solve Middle America’s economic woes helped propel him to the Presidency. Trump honed his pitch during his own career in multilevel marketing, as a promoter of the short-lived Trump Network, which peddled “cutting-edge health and wellness formulas,” in Trump’s words, and as a spokesman for the telecom outfit ACN, which has settled state fraud charges. “The economic meltdown, greed, and ineptitude in the financial industry have sabotaged the dreams of millions of people,” Trump said in a 2009 video for the Trump Network. “Americans need a new plan. They need a new dream. The Trump Network wants to give millions of people renewed hope, and with an exciting plan to opt out of the recession.”

+ Herbalife has been singularly effective at selling the dream. The company was founded, in 1980, by Mark Hughes, a high-school dropout with a talent for storytelling and salesmanship. Within Herbalife culture, Hughes is a figure of worship. He was twenty-four years old when he started selling weight-loss products out of his car. (According to the Los Angeles Times Magazine, he used as part of his pitch a fake story about his mother having died of obesity.) By the mid-nineteen-eighties, the company had annual sales of more than three hundred million dollars, and Hughes was living in a mansion in Beverly Hills.

+ Ackman strode onstage in a stylish black suit, one hand in his pocket and the other holding a slide-clicker remote. He began by announcing that Pershing Square was shorting Herbalife stock: “Herbalife stock goes down, we make money; Herbalife stock goes up, we lose money.” He then argued that most of the company’s sales came from distributors who bought products and then failed to make a successful business out of their investment, while those at the top raked in millions-a classic pyramid scheme. He showed a clip of a testimonial from an Herbalife Chairman’s Club member, one of the company’s top earners. “This is a product that changes people’s lives,” the man onscreen said, as images of sports cars flashed by. “In ninety days, our income hit ten thousand dollars a month.” The presentation contained dozens of pie charts and bar graphs, and went on for three and a half hours. Ackman pledged to donate his personal profits from the short to charity.

+ The more vocal Ackman became about Herbalife, the more the stock price rose. The company hired more lobbyists and advisers, including Antonio Villaraigosa, the former mayor of Los Angeles, and the law firm of David Boies. Ackman had set up a Web site called Facts About Herbalife (“Herbalife is a pyramid scheme that harms millions of people around the world”); the company countered with a Web site called The Real Bill Ackman (“Bill Ackman’s self-serving activism has cost investors millions of dollars”). Herbalife benefitted from a widespread sense that Ackman was smug and patronizing. It wasn’t that he was wrong, necessarily; it was that he took too much pleasure in believing he was right.

+ Ackman was sitting at his usual spot at the head of the table eating cashews, which were his preferred healthy snack until recently, when he became concerned that they might contain toxic amounts of mercury.

+ Herbalife’s stock went down. Then it went back up again. During the next two years, Pershing Square continued lobbying and putting out reports and videos as it waited for the F.T.C. to complete its investigation. Herbalife’s stock price remained in the sixty-dollar range, well above the forties, where the fund had sold it.

You can read the full New Yorker article here. Better yet, get yourself a subscription.

Please buy this new Leica SL for me.

The MSRP for the camera body — no lens — is $7450.  The reviewer on DPreview.com wrote:

So far as I can tell, there just isn’t a strictly rational reason to recommend this camera to any particular type of photographer, but when has purchasing a Leica ever been a strictly rational decision?

As with many previous Leica cameras, it’s hard to rationally recommend the Leica SL to a person based strictly on its merits as a photographic tool. For less money, there are cameras that have more sophisticated autofocus systems, higher resolution, a greater native lens lineup, more pleasing JPEG engines, and so on. Of course, those other possible options don’t have a big red dot on the front, nor the world’s best electronic viewfinder.

So is the ‘feeling’ of using the SL in the real world enough to make you forget about what else that $7450 MSRP could have got you? Since the Leica experience seems to be as much or more about emotion versus rationality …

For me, no, the experience of using the SL just isn’t all that magical, and this is coming from someone who is always considering selling all his gear to buy a Leica Q. To me, the Q has a more distinct ‘personality,’ not least of which because of the limitations imposed by a single, fixed lens. Even the M has a more established personality, encouraging users to slow down, and see just a little differently through their rangefinder tunnels.

The SL, on the other hand, is trying to be something much more difficult to be: a mirrorless full-frame all-rounder that’s free of compromises and aimed at the professional or well-heeled enthusiast. Despite being a beautifully built camera capable of exceptional images, I just don’t see it measuring up in a crowded market of objectively better, cheaper and more flexible options (yes, I fully expect to be burned at the stake in the comments for that opinion; maybe I’ll make it my epitaph).

…Having reviewed the aforementioned bulkier and heavier cameras, as well as used my own bulky DSLRs for 12-14 hours at a time, I find it almost impressive that Leica has managed to make the SL this uncomfortable to hold and carry around with you. It’s true that the camera body isn’t terribly bad to hold on its own, but attaching the native lenses results in a perturbingly unbalanced experience that gave me a unique wrist pain…

To see what sort of pictures, this pricey camera can produce, click here. 

For my taste (and pocketbook), my favorite camera is the $749 Canon G5X:

The G5X is small, light, pocketable and doesn’t require you to buy lenses. It comes with a handsome build-in zoom lens.

Which camera takes better photos — the $749 Canon or the $7450 Leica? I’ll stick my head out and say you probably wouldn’t notice a difference. What makes the “difference” today in digital photography is what you do to the photograph AFTER you’ve taken it. And you usually do that with an Adobe product, like Photoshop, which works magic on some of the poorest photographs you’ll ever take. I use Photoshop on every image you see on this site. Every image. Photos. Charts. Images. Photoshop is magic.

Stuff

+ Australia has now gone more than 25 years without a recession — meaning two negative GDP quarters.

+ It’s still not the time to own most store-based retailers. Look at Best Buy, Abercrombie and Fitch, Hudson’s Bay, and Whole Foods, which continues to struggle.

+ Please put your wiring instructions on your invoices. It’s much easier to wire than to write checks, these days.

Favorite recent New Yorker cartoons

Harry Newton, who’s playing tennis daily and loving it because it’s exercise without the boredom of a stationary machine or the dangers of running on uneven city streets. A reader TomFromVa emails:

I often wonder about the difference between good and bad tennis days. My theory is that on good days I get the ball centered well on the racquet. So small day-to-day differences in hand-eye coordination have a large effect.

Tom’s right. Hit the ball in the racquet sweet spot every time (as the pros do), you’ll get speed, control, placement and pleasure. But it’s not easy. Searching for that sweet spot is what a tennis player’s life is all about. My new prism glasses have made a huge difference.