Herbalife: Ackman Bitten in Big Dog Game

NEW YORK ( TheStreet) -- Last summer hedge fund heavyweight Bill Ackman reportedly bonked -- dehydrated and wracked with cramps, in cycling parlance -- while trying to bury rival traders on a Long Island bike ride.

Maybe it was a message. If it was, he didn't heed it. And now he may pay with his fortune, along with those of his investors.

New York has always had big dogs, traders who felt they knew better than the common herd and were anxious to let the world know it. They attack or defend big companies like they're cards in a poker game, and make the media part of the play. They're the lion tamers in the market circus, the bullfighters in the market bull ring. They're the market's high-wire acts.

And sometimes they fall.

Today's vehicle of choice is the hedge fund. Privately held, it's not subject to the rules that governed brokerages or conglomerates back in the day. Most hedge funds are quiet, taking the pennies that fall out of any quick market move, counting nickels and dimes a million times. Others are more active.

Ackman's Pershing Square Capital Management is an example of a more active fund. It makes big public bets, for and against big companies. When it's right, as with McDonald's ( MCD) or General Growth Properties ( GGP) it wins big. When it's wrong, as with Borders or Target ( TGT), it loses big.

Trouble is, of course, that the know-it-all, I'm better-than-you attitude makes enemies. Wall Street nature is red in tooth and claw, so weakness in a big dog is seen by the rest of the pack as a cue to attack.

And that's what is happening to Ackman today. His bad bet on J.C. Penney ( JCP), which included the hiring of former CEO Ron Johnson, has weakened him. But while that bet was failing, he bet bigger with a short of Herbalife ( HLF), announcing it in December through a three-hour presentation whose highlights were then posted to a Web site.

Ackman claims to be shocked that other big dogs, like Dan Loeb of Third Point LLC, another hedge fund, and investor Carl Icahn, are taking the other side of the trade, aiming to squeeze him dry.

He shouldn't be. I don't know the merits of the Herbalife trade. In this story, Herbalife is just the MacGuffin, the element which drives the plot but isn't the plot, like the Maltese Falcon.

The plot is greed, ambition, animus, pride, ego -- all those elements of the Wall Street story that link the Gilded Age to our own. Ego is the unifying thread that ties it all together.

When auditor KPMG resigned the Herbalife account this week and fired one of its partners, Scott London, for handing out inside tips on the company, a story detailed at the Los Angeles Times, it was just another great plot twist. And when big dogs like this fight, I've found it better to buy popcorn than stocks or options.

Our Jim Cramer is right in saying on CNBC that this dramatic tension can't go on, that the story has to end, and for someone it will end in tears. The curtain must come down on even the most riveting play. The fat lady has to sing. The question is whether the lesson will be learned, that no one is smarter than the market, and that it's better to earn pennies millions of times than to always try for the big score.

My guess is it won't.

At the time of publication, the author was long MCD.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.