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The Fall and Fall of Bill Ackman

NEW YORK ( TheStreet) -- Those who enjoy a little schadenfreude over an August weekend are getting a surfeit of it as hedge fund manager Bill Ackman of Pershing Square Capital Management twists slowly, slowly in the wind.

Ackman -- the name means "oak man" in German -- likes to be seen as the smartest guy in the room and helped endow a center for Jewish Geneology Research.

But sometimes the smartest guy in the room outsmarts himself.

That's what happened to Ackman after he bought a huge stake (now 18%) in J.C. Penney (JCP - Get Report) in early 2011.

Penney was one of the fallen angels of American retailing. A long-time shopping mall anchor, founded by James Cash Penney, a merchant who once taught a young Sam Walton how to wrap packages more efficiently, it had fallen onto hard times. Ackman figured he could make a killing by resurrecting it.

But the man he picked as Penney's savior, former Apple (AAPL) stores head Ron Johnson, turned out to be worse than the disease. Johnson tore down the old business model, replacing it with a high-tech paradise that didn't hold sales, where clerks carried iPads. The old customers bailed, new ones didn't show up, and in April Johnson was shown the door.

This should have been bad enough, but in the meantime Ackman had decided to recoup his losses with a second big bet, a short on Herbalife (HLF - Get Report)Herbalife (HLF), announced at a conference in December. He called Herbalife a pyramid scheme and put his evidence online.

Regardless of whether Ackman is right or wrong on Herbalife, the history of a short doesn't always follow the facts. Ackman's hedge fund rivals, including Dan Loeb of Third Point, George Soros and Carl Icahn, took the other side of Ackman's big bet -- Herbalife stock has doubled since Ackman stepped in.

We now enter the "squeal like a pig" portion of our program. Penney brought back Johnson's predecessor, Myron "Mike" Ullman, to run the company. Ullman has a long-term plan that could get the company back to where it was, a low-profit $18 billion outfit selling at roughly half its sales, worth maybe $9 billion, within a few years. (The present market cap is about $3 billion.)

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