While William Ackman's investment in Target (NYSE: TGT) has been a poor performer since he first disclosed a stake in July of 2007, he isn't backing down.
Bloomberg reports that Ackman has added at least $100 million to the $2 billion fund he established for the sole purpose of investing in shares of the Minneapolis-based big box retailer. The shares are down 38% in the last year but, according to Bloomberg, "The Target fund's loss may exceed the drop in the Minneapolis-based company's stock because it uses derivatives, which can amplify gains and losses."
Ackman has pushed for share buybacks, real estate sales, and the divestiture of the company's credit card operation. The company has said it will repurchase $10 billion in stock by the end of the year, and sold a 47% stale in its credit card business earlier this year.
Some experts, including one quoted in the Bloomberg piece, are criticizing Ackman for throwing good money after bad, but in my opinion that completely misses the point. Ackman invested in Target because it was undervalued and he felt he could help unlock value. Now the stock has become more undervalued and he still thinks he can unlock value. Why the heck wouldn't he buy more?
Ackman has demonstrated -- most recently with his aggressive short sales of financial and bond insurers -- that he's one of the investment world's great minds. The fact that shares of Target have gone down over the past year doesn't mean he's wrong, any more than the fact that shares of MBIA stayed high for years after he initially shorted meant he was wrong there. He was extremely right there. If anything, investors may want to consider taking advantage of the bear market to piggyback of Ackman's research at a much lower price.
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