Chances are you’ve had at least one friend try and sell you on a multi-level marketing endeavor that they were involved in. Whether it was an “exclusive” brand of makeup or a “revolutionary” new health product, your friend probably told you that you could only but this product through them and not in stores. In fact, if you bought more of that product, you could sell it yourself and supposedly make money.
If this sounds like a pyramid scheme, that’s because it totally is. Instead of selling products directly to stores like everyone else on earth, multi-level marketing companies (or MLMs) sell products through individual buyers, who then sell to other buyers to cover their costs and hopefully (but rarely) make some money back. In the end, MLMs make tons of money, while their sellers almost never break even.
Some MLMs, however, are big enough to be publicly traded on the stock market. These companies make millions of dollars each year from their “members” buying and sometimes selling products, and there are actual investors demanding these stocks to the point where they can increase (or decrease) in price over time. But who are the publicly traded MLMs, and should you invest in them?
Multi-level marketing companies make most (if not all) of their money through direct sales to their members.
For instance, if a company is advertising nutritional supplements, they would likely not sell those supplements in a GNC or Vitamin Shop, instead opting to sell through individuals. These companies usually prevent the buyer from returning the product, so it’s up to them to offload their stock or hold onto it while the company keeps making money. For more information on how multi-level marketing companies operate, read our recent primer on why they’re a bad investment.
Despite their notoriety, people still spend millions on multi-level marketing schemes.
Due to the oft-deceptive nature of MLMs, the exact figures of how much money the industry makes is anyone’s guess. Some unrepeatable sources claim the industry is valued at hundreds of billions a year, while others claim it’s worth in the low eleven-figure range. We can assume that multi-level marketing is a multi-billion-dollar business that millions of Americans buy into, but like the rest of the sector, exact numbers and statistics are shady.
Several MLMs have gone public in the last decade-plus.
MLM supplement companies like Herbalife ($HLF), Nature’s Sunshine ($NATR), and Nu Skin ($NUS), as well as financial service companies like Primerica ($PRI) can all be bought or sold through brokers and brokerages. Numerous ETFs hold positions in these companies, as do many individual investors. Despite the nature of each business, all four of these stocks are up in the last year. Primerica alone increased in value by 87% since this time last year.
Should you invest in multi-level marketing stocks? While you should definitely not invest in MLM products on your own, MLM stocks have made some pretty sweet gains over the last year, and investors are fairly positive on their future, since there’s no shortage of people willing to buy their products. Yet if you invest in an MLM, you’re essentially making a profit off of the millions of people who will lose money on directly selling their products. If you’re fine with that, do your research on the stocks before you buy. If not, you’ll definitely want to look elsewhere for your investment.