“The disgusted, annoyed look on his face when confronted by the masses beneath him is like one you’d expect to see [from someone] confronted by a homeless person who hadn’t showered in weeks. You can almost see him puckering his nostrils so he doesn’t have to smell these inferior creatures.”
Stories of Ackman’s hubris are legion. He went toe to toe, and ultimately prevailed, against MBIA Inc. (NYSE:MBI), the municipal bond insurer, and at the time, one of the largest players on Wall Street, that nearly collapsed after it began insuring mortgage-backed securities. He successfully sued Carl Icahn after a verbal agreement between the two soured. And he made a fool of himself on an infamous bike ride with Third Point Capital’s Dan Loeb.
These are the reasons Ackman has now found himself in a most unenviable position. Shortly after announcing his bearish stake in Herbalife Ltd. (NYSE:HLF), the list of people who began lining up against him soon read like a who’s who list of Wall Street scions.
This could be the “mother of all short squeezes,” Carl Icahn said on CNBC. “This is like Wall Street’s version of the movie Kill Bill,” Chapman said in the same Vanity Fair interview. “Bill Ackman has been so arrogant and disrespectful to so many people, presumably on the theory that he would never be in a position where these subjects of his disrespect could actually act on their deserved hatred for him. But now, with J. C. Penney and Herbalife Ltd. (NYSE:HLF) going against Ackman, his ‘stock’ has moved down, allowing once again, a decade later, for those holding their Kill Bill puts [i.e., options they have been waiting to cash in] to exercise them against him.”
And now comes news that yet another “master of the universe” has joined in the anti-Ackman crusade: “Billionaire investor George Soros has taken a large long position in [Herbalife]” The Wall Street Journal reported yesterday. “His stake … is said to be among his top three positions.”
The law of unintended consequences
While it’s hard to say exactly how much damage has been inflicted on Ackman, there’s no question it’s significant — the most recent estimate I’ve read places the loss at $300 million. Over the past week alone, thanks to Soros’ rumored stake, shares of Herbalife Ltd. (NYSE:HLF) are up nearly 16%. For the year, they’ve gained more than 100%.
For the average investor, beyond the undeniable entertainment value of watching this play out in real time, the point here is that things don’t always work out as planned — not even if you’re a billionaire hedge fund manager.
The article The Folly of Hubris originally appeared on Fool.com is written by John Maxfield.
John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill (NYSE:CMG). The Motley Fool owns shares of Chipotle Mexican Grill and has the following options: long January 2014 $50 calls on Herbalife.
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