June 19, 2012
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I'm no Wizard of Oz expert, but two things happened in the last few weeks that gave me an unmistakable, "Toto, we're not in Kansas anymore" feeling about the markets.
"Not in Kansas anymore" thing number one:
36 minutes into the Herbalife quarterly conference call, hedge fund manager David Einhorn ruined the company's victory lap. Sales may have been up 21% and net income up 22%, but because Einhorn asked three questions on the call, the stock immediately tanked over 20%.
A few days later Einhorn spoke at the Ira Sohn Conference (a fundraiser where hedge fund luminaries pitch their best ideas) and, because he did NOT mention the stock, Herbalife was up 14% within one minute after he flashed his last (the 137th) slide.
This gives new meaning to the expression silence is golden.
Don't get me wrong, Einhorn has put up monstrous numbers and is deservedly well-respected for his short calls. But last time I checked, investing is supposed to be based on something more intellectually rigorous than whether or not David Einhorn asks a question. (For the record, we have no dog in that hunt -- we don't own and never have owned Herbalife.)
"Not in Kansas anymore" thing number two:
Not long ago, we got a breathless call from a sell-sider claiming one of our stocks was going to miss the quarter. What caused him to call? It was the announcement of the CEO's retirement four months before his contract expired.
We were puzzled. Yes, it's true the CEO's contract didn't expire for another four months. That said, we were fully expecting him to retire, his successor had come on board a few months earlier and said heir apparent was doing a splendid job.
Indeed, we would have gotten antsy if the leadership transition had NOT been announced in that time frame, as it would have meant that something had gone amiss in either the succession or the turnaround plan.
When we asked the sell-side analyst some questions about where he thought margins could go in the next two years, we got a Ralph Kramden "hamida hamida hamida" and heard some desperate scuffling through papers. His non-answer was followed by an email a few hours later with a bit more information.
Jeez, if you're going to go out with a negative call on something as tenuous as the timing of a clearly spelled out CEO succession, at least be prepared to talk turkey, if not numbers.
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