Editor's Note: The following is a conversation compiled by Herb Greenberg between he and Jim Cramer. The conversation took place on Tuesday's Columnist Conversation on RealMoney.
Monday's piece questioning whether Cramer really said what I heard him say prompted this response from him:
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 - Get Report). 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.
My response to Jim's response:
Great piece on the left about "What I Actually Said."
And BTW, never ever thought what you were saying was insinuating ANYTHING about me. (Was just making a joke b/c you always pronounce the "H" in Herbalife -- and the "H" is silent.)
All I care about in any of this is that people continuously understand there is more than one way to view or "play" the market.
If you unshackled me from journalist stock-trading/owning rules and said -- "given everything you have learned about the market, Herb, how would you trade? -- I would likely be a hybrid between opportunist and (on the avoid to buy list) a stubborn fundamentalist. I think today most investors, certainly on the short side, dance around their positions.
There are times to buy, sell and sit on the sidelines.
As I said in the piece, nobody I know CARES more about fundamentals than you do. A lot of people miss that. You understand the mood of the market perhaps better than any single person I know. It's why you can stir such strong emotions.
Oh, and you didn't offend me; you will have to work very hard at that. You did infuriate me, no different than I infuriate many. It's the nature of the market. We all believe we're right. And as you and I have said publicly and privately -- we can both be right, given the point in time.
Jim back to me:
Thank you Herb! My big issue with the hedge funds that bash stocks is that the only time these stocks are really cheap--a la CAT, HAIN, HLF, GMCR is when the shorts let loose their barrages.
But I totally get the sidelined issue. IF there were no such thing as "performance anxiety" this market would be lower, maybe much lower.
On to the next topic.
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