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Bill Ackman is a “marquee” hedge fund investor, meaning he buys stocks for his hedge fund, Pershing Square, with long-term value potential when the market shifts to undervaluing the stocks. Ackman chooses well-known brands and typically invests enough to form an insider interest; he serves on 7 corporate boards. While Ackman spreads his positions (Pershing Square is evenly divided between consumer goods, financial and services stocks), this strategy leaves his hedge fund’s $5.4 billion portfolio particularly concentrated. It also introduces a level of risk.

Luckily for Ackman and Pershing Square’s patrons, the hedge fund is performing very well. It realized returns close to 30% in 2010. However, since March 31, 2011, the fund has taken a sharp downturn. The fund’s 13F positions lost 15% compared with the S&P 500 ETF (NYSEARCA:SPY)’s 11% loss for the same period.

CompanyName

Ticker

Value (x1000)

Return

AUTOMATIC DATA PROCESSING

ADP

Sold Out

-8%

BORDERS GROUP INC

OTC:BGPIQ

NA

0%

GENERAL MOTORS CO

GM

Sold Out

-18%

TARGET CORP

TGT

Sold Out

-2%

PENNEY J C CO INC (Class 1)

JCP

1253944

-25%

GENERAL GROWTH PPTYS INC

GGP

1111509

-11%

FORTUNE BRANDS INC

FO

1031622

-12%

KRAFT FOODS INC

KFT

697423

10%

CITIGROUP INC

C

648448

-28%

HOWARD HUGHES CORP

HHC

252045

-29%

ALEXANDER & BALDWIN INC

ALEX

162603

-11%

PENNEY J C CO INC (Class 2)

JCP

149267

-25%

CORRECTIONS CORP AMERICA

CXW

107777

-21%

GREENLIGHT CAPITAL RE LTD

GLRE

7052

-19%

Several of Ackman’s stocks have produced significant negative returns. Stocks such as Howard Hughes Corp (NYSE:HHC), Greenlight Capital RE Ltd (NASDAQ:GLRE) and Citigroup Inc (NYSE:C) have been generating returns of approximately -25% (-29%, -19% and -28% respectively). To make matters worse, these were not singular anomalies; Ackman’s positions in two other companies also lost more than 20%, namely Corrections Corp America New (NYSE:CXW) and JC Penney’s Co Inc (NYSE:JCP). These losses come on the tailwind of one of Ackman’s most singular successes. When JC Penney announced the appointment of Apple’s (NASDAQ:AAPL) head of retail operations in June 2011, its stock price jumped by 17.5% (See the details).

Ackman’s only positive return since the end of the first quarter was thanks to Kraft Foods Inc (KFT), which netted a 10% return and prompted Ackman to increase his position in the diverse foods company by 14%. Kraft is also a favorite pick of the famous Warren Buffett (Check out Buffett’s top stock picks.)

We like Bill Ackman. Historically, he has been able to produce consistently above- market returns for Pershing Square’s clients but his performance as of late has fallen a bit short. Part of the reason for this may be that he usually invests in cyclical companies that decline sharply during economic downturns. Whatever the case, the odds are simply too steep for an average investor. Mirroring Ackman’s picks could be worth it, but only if you are prepared to hold onto your stock for a long time and you are able to take a loss, at least for now.


Disclosure: I am long C.

Source: Bill Ackman's Favorite Stock Picks