Here’s One of The Many Ways Talking About Your Trading Can Hurt You

Simple Trading

Pershing Square is breaking a cardinal Simple Trading Principle.  The firm is (was?) short HLF.  It looked like a genius trade many weeks ago.  Since then the stock has done nothing but squeeze higher.  Under normal circumstances, anyone short could have long since headed for the sidelines and/or covered and re-initiated at a higher level.  Pershing’s problem is that its founder Bill Ackman has been very loud about his conclusion that Herbal Life is a Pyramid Scheme and destined to be investigated by federal authorities.  He has also engaged in several well-covered (and well publicized) fights with other hedge fund managers about Herbal Life’s prospects.

So why is all of this a problem?  By being so loud about his position and thoughts on HLF, Ackman has tied a substantial portion of his reputation to the stock’s performance.  This will ALWAYS be a problem when you think about a position.  It makes that position way more significant than it really is (or should be)… and clouds your judgement. 

Not exactly a recipe for effective, simple trading.