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As many of you know, we have been consistently bearish of Billy Ackman's investment strategy on Target and the activist strategy more generally.

In fact on January 13th, 2009, we wrote the following:

"A primary reason we are negative on activist investing is that it typically includes an inability to sell easily due to large, and thus illiquid, positions in a Company's stock.  Additionally, being a "successful" activist often means becoming an insider by way of a Board seat.  The problem with this "success" is that it does not allow an investor to change their view, by way of selling stock, when the investment's prospects change.  The net result is what we call thesis drift, which occurs when your original thesis is no longer intact and you invent a new thesis to justify your investment."

Ackman's thesis on Target was the perfect example of thesis drift.  As Target's management acknowledged, "Bill Ackman is an idea machine."  Now ideas are cool and all, but if you are just wrong, either on timing or the investment, a new idea is not going to get the stock up and is merely indicative of thesis drift.  Now Billy manages more money than we do and probably has a higher net worth, but he has also reputedly managed two funds to 90%+ losses, the Target fund and his prior partnership, Gotham Partners.

That said, the loss on the investment is not really the worst part.  The embarrassing part is that Billy cried after losing the proxy battle for Target late last week. According to Joe Nocera from the New York Times:

"It was pretty startling when, in the middle of his speech to Target Corporation shareholders, William A. Ackman, the hedge fund manager who had waged an expensive, high-profile proxy fight against the company, suddenly choked up and stopped speaking, The New York Times's Joe Nocera writes in his Talking Business column.  Mr. Ackman, he notes, actually wiped away a tear."

Billy, if you want to be a big boy activist . . . don't cry.  The "boo hoo hoos" won't get your investors their money back.

Daryl G. Jones
Managing Director