Bill Ackman, Target and High-Risk Investing

For most of 2007, Target (TGT) stock was trading in the low 60s. If you'd bought $2 billion of stock at those levels, you'd have about $1 billion today, since the share price now is in the low 30s.

That's the kind of performance Bill Ackman can only dream of. In 2007 he raised $2 billion for a hedge fund, Pershing Square IV, dedicated to going long Target; today, in the wake of a 40% plunge in January, that fund has dwindled to just $210 million.

The January implosion is particularly surprising because Target stock basically went nowhere over the course of the month: it closed on December 31 at $34.63, and closed on January 31 at $31.20.

Still, hope springs eternal for the fund manager:

"While PSIV and Target stock have declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated," he wrote in the letter dated Feb. 5.

Ackman's already tried announcing clever ideas about spinning off Target's property holdings; they led to a brief uptick in the share price in October, but that didn't last long. He's not giving up, though: in fact he's investing another $25 million of his own money into the beleaguered fund, which he says will be wiped out if the stock remains below $35 in two years' time. This is ultra-high-risk investing: a caricature of what hedge funds do. I wonder what proportion of Ackman's net worth that $25 million represents.

(Via Tyler)

Comments

[valueinvest...:]

If I had to guess I would say that $25 million is probably 5% of his net worth. What amazes me is that there are morons willing to pay him 2 and 20 for a fund which invests in one stock when they could just go out and buy the stock themselves.

Feb 08 06:40 PM

[User 305589:]

I have repeatedly stated that people like ackman (and besides him einhorn and tilson) are way overrated. They can make smart presentations, eloquently talk their books and even force companies into the abyss by their media presence but when it comes to real performance and real life riskmanagement their numbers and 'achievements' tell the real story.
notice that his fund will be 'wiped out' 2 years from now when Target's stock hasn't moved up by then? Now, that is ultra-high beta investing, with the excessive use of options obviously. yeah right. 'enhancing' the position by buying calls in an ultra-high volatility environment makes a lot of sense.
go figure.

Feb 09 03:58 AM

[ROLEX18:]

Ackman is bust.

Feb 09 08:45 AM

[GENIE_US:]

BILL ACKMAN IS AN UNSCRUPULOUS SLIME. HIS PLAYS WITH CREDIT DEFAULT SWAPS TO FORCE PRICES DOWN SHOULD BE PROSECUTED.
HE IS DESTRUCTIVE AND DOESN'T CARE ABOUT WHO HE DAMAGES. MAYBE HE SHOUDL JOIN FORCES WITH BERNIE MADE OFF (WITH TONS OF MONEY)

Feb 09 11:10 AM

[Jared Schne...:]

Let's not forget about Ackman's first hedge fund, Gotham. He screwed that one up and screwed over a lot of investors. It collapsed because his terrible investing style.

And guess what, people gave him money to start a new fund (Pershing) in 2003. People just don't learn from the past. It's only a matter of time before Willy and his fund collapse once again.

I wrote an article about his Target situation at : www.investorpitstop.co...

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Aug 31 12:54 PM