Welcome to the eighth edition of Hybrid Vigor, Hillside Advisor’s flagship convertible letter.
We continue to get noticed. We’ve been posting our letters during the “beta” period on LinkedIn (enjoy it for free while you can, LinkedIn people!). One of those LinkedIn people tweeted us and asked for an update on Herbalife convertibles, about which we wrote previously, with the stock trading below $50. We posted an update to our website and tweeted back, and subsequently ran the note with our friends at Minyanville on their Buzz & Banter trading section as well.
The next thing we knew, the New York Post was calling. It proved to be a good exercise in getting the core of the convertible message out to a wider audience. Convertible purists will always take exception to some of the simplifications required for general readership, but for the most part we think the story provided an accurate depiction of the Herbalife convertible. What’s more, in order to bring in both new investors and new issuers, we need to make more of an effort to distill convertibles into a form that intelligent but unfamiliar observers—and potential users—can understand.
A final note on Herbalife: while we don’t blame the company for commenting that the convertible price drop was nothing more than a natural reaction to the stock decline, we respectfully disagree. We have no formal opinion on Herbalife’s creditworthiness. But we know the convertible market. We’ve made the necessary technical allowances for the difficulty (itself a potential red flag) of borrowing Herbalife shares. We still believe that yield-hungry investors, at least to this point, have chosen to step aside rather than take Herbalife credit risk despite extraordinarily attractive current terms. It may simply be that yield buyers don’t want the headline risk associated with the name—but again, this in itself is a potential problem.
As always, we thank you for your interest and support.
Co-Founder and Managing Principal
Hillside Advisors LLC