3 Of Bill Ackman’s Biggest Blunders (JCP, HLF, VRX)

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Bill Ackman has been making the wrong kind of headlines again so far in 2016 after his hedge fund Pershing Square Capital Management lost more than 20% of its value in 2015. Here’s a closer look at three of Ackman’s biggest investment blunders: J.C. Penney (JCP), Herbalife (HLF) and Valeant (VRX).

J.C. Penney (JCP)

JCP-JCPenney-logoBack in 2010, Pershing Square became JCP’s largest shareholder when Ackman decided to try his hand at turning around the ailing company. After joining the JCP board in February 2011, Ackman selected Apple (AAPL) VP Ron Johnson as the new JCP CEO. Johnson came up with a radical turnaround plan that involved transforming JCP into a collection of boutiques that would be “fun places to hang out.” The transformation fell flat, however, when JCP shoppers that were used to hunting for markdowns rejected the new “full-but-fair price” strategy.

In the end, JCP’s 2012 sales plunged 25% to their lowest level since 1987 and Ackman stepped down from the board and dumped his stake in JCP for a reported $500 million loss.

Herbalife (HLF)

Ackman made a brazen $1 billion bet back in 2012 that HLF was nothing more than a pyramid scheme. According to Ackman, HLF takes advantage of gullible entrepreneurs by luring them into becoming distributors. Ackman set up factsaboutherbalife.co, which claims that recruiting, not the company’s herbal products, is the main source of growth at the company. The site claims that “pyramid schemes eventually implode when they run out of new victims to recruit,” which is the basic idea behind Ackman’s belief that the stock will eventually go to $0.

While the market has been relatively weak this year, HLF stock is up 17% after the company discussed a “potential resolution” to a Federal Trade Commission investigation in a filing earlier this year. Ackman is reportedly not deterred and Ackman and his HLF short will be the subject of an upcoming documentary entitled Betting on Zero at this year’s Tribecca Film Festival.

Pershing reportedly started shorting HLF at around $47. Back in 2015, Ackman said that his break-even point for his HLF short is “something in the mid-30’s.” Unfortunately for Ackman, HLF is now trading at around $63, implying that Ackman is down between $600 million and $800 million on his short position.

Valeant (VRX)

So far in 2016, it’s looking like VRX could end up being Ackman’s biggest loss to date. The stock plummeted more than 50% last week following a Q4 earnings report that included a 12% reduction in 2016 guidance and a warning that a delay in filing its annual report could result in a debt default. VRX is also currently under investigation for suspicious business and accounting practices.

Ackman is once again sticking to his guns. “We continue to believe that the underlying business franchises that comprise Valeant are worth multiples of the current market price,” Ackman explained in a letter on March 15. On Monday, he assumed a Valeant board seat as CEO J. Michael Pearson stepped down.

Incredibly, conservative estimates of Pershing’s VRX losses put them at over $3 billion, including a $1 billion paper loss last week alone.

Disclosure: As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.

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Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/bill-ackman-worst-losses-jcp-hlf-vrx/.

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