Bill Ackman's Target Fund Crushed

Shares of Target were down 9 per cent in February but a hedge fund started by Bill Ackman that invests only in Target options was down 33 per cent last month. Bloomberg reports that the fund disclosed the enormous losses in an email to investors. Ackman’s fund was down 40.1 per cent in January. Total losses since inception must now be close to 95 per cent, according to our best guess.

Ackman has been in talks recently to name directors to the board of Target. While competitors such as Wal-Mart have thrived in the economic downturn and consumer pull back, Target has suffered. Some say that Target’s focus on cheap-chic discretionary items–furniture, fashionable clothing–has been a major weakness when compared to Wal-Mart’s consumer staple heavy inventory.

In a recent SEC filing, Ackman said he continues to believe in the “fundamental investment case for Target.” He said he thinks its stock is currently undervalued.

Ackman did far better late last year with his bet on shares of Wachovia, which he bought shortly after it was announced that Citi was going to buy the bank. When Well Fargo stepped in with a much higher bid, Ackman saw an enormous gain in a very short time.

As you can tell, we like Ackman, in part because of his heroic call on Fannie Mae and his advocacy of a General Motors bankruptcy. So it’s hard not to root for Target. Also, some of our best friends absolutely swear by Target. But those people don’t live in New York City. The Target in Brooklyn is notoriously short on any inventory. We’ve never met anyone who is satisfied with their experience there. We’ve never been able to get a satisfactory answer about why the Brooklyn store is so bad.

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