Hedge fund magnate Bill Ackman of Pershing Square Capital recently had his bid to seat five new directors on the board of Target (NYS: TGT) soundly rejected by shareholders. Management has fought Ackman tooth and nail. Ackman's strategy has been fairly simple. He believes Target should sell off key real estate assets with lease backs for his stores. He also believes Target should, as much as possible, get out of the credit card business by letting a specialist company run that practice. The board has told Big Bill to just buzz off. We are seeing a current Piqqem Sentiment of Target as Neutral with actually not a ton of interest, implying no one sees a big move in the stock coming.

It's Friday, and a big storm is approaching the West Coast, a fitting end to a wild week. The SEC is investigating whether certain hedge funds allowed employees and favored clients to redeem their money before less favored clients. If allegations are true, then this gives new meaning to the term "front running", and should prove a great way to rebuild the reputation of an industry already viewed as having questionable ethics.

This post is part of our feature on Money Winners of 2008. See all 20.

Bill Ackman, who manages the hedge fund Pershing Capital, was one of the first major investors to realize what poor shape Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were in. He warned that the apparent back-up of the federal government wasn't going to do investors much good unless the company fell apart and had to be bailed out.

"It doesn't matter what the rating agencies say about their capitalization," Ackman told CNBC. "Implicit guarantees don't work in the market that we're in now." And he turned out to be right, of course. Ackman was shorting the debt of Fannie and Freddie.

While Ackman has had to take some heat from investors who blame him for profiting off Fannie and Freddie's collapse, some critics say he was a bloodsucker, others point to his keen analysis as the reason we should allow short selling: it's the only way to offer an incentive to investors not to believe the hype.

Having tried unsuccessfully to find a buyer, struggling bookseller Borders Group (NYSE: BGP) was contractually obligated to give Pershing Square Capital, a hedge fund controlled by William Ackman, warrants to acquire its stock. Stifel Nicolaus & Co. analyst David Schick wrote the move will likely dilute shareholder by as much as 9%.

The stock is trading up about 3% today, and the Associated Press described the warrants as "potentially giving its largest shareholder even more reason to push the bookseller toward a sale."

I'm not so sure. While it's true that Ackman now has more to gain from a sale with a significant premium, the cost to a potential acquirer also goes up because of the increase in the number of shares. And given that Ackman already controls 29% of the company's stock, it seems doubtful that he needs any additional incentive to push for increased shareholder value.

More likely, Borders has been unable to sell itself because no one wants to buy it.

With Borders' (NYSE: BGP) efforts at a sale of the entire company so far producing no results, the company is coming up on an important deadline. Under a deal struck with hedge fund manager William Ackman, if the company doesn't sell itself by October 1, Ackman's fund will receive options to purchase 5.15 million shares of the company's stock at $7 per share. Given that that represents a good chunk of the company's 60.5 million shares outstanding, any deal at a substantial premium would become a lot more expensive after October 1.

The Wall Street Journal reports (subscription required) that since "shares of Borders are trading close to the exercise price of the warrants, Mr. Ackman is likely to wait to redeem them until the shares are well above their current level. If Borders misses the deadline to complete a deal and issues the warrants, Mr. Ackman stands to benefit even more from a sale and may begin to exert pressure on Borders to secure a transaction quickly."

I'm not so sure about that. I think the problem is that no one wants to buy Borders -- Barnes & Noble (NYSE: BKS) reportedly lost interest after taking a look at the books -- and the higher cost to a potential buyer that will come with the options grant will make a sale much less likely, however badly Ackman wants it.

Ackman already has a 35.6% stake in Borders, and shareholders are lucky to have someone as smart as him on their side, pushing the board of directors to maximize value. But it may be too late.

Pershing Square Capital Management's William Ackman is famous for two things: his high-profile campaigns for management changes at public companies, and his prescient and aggressive short-selling and trash-talking of companies like MBIA (NYSE: MBI) and Freddie Mac (NYSE: FRE).

Neither of those would make most people think of Ackman as a compassionate, soft-hearted guy, but apparently the trials of Lehman Bros. (NYSE: LEH) have touched his heart. Speaking on CNBC he was asked about the company and said that it is in a "tough spot" and that he didn't want to pile on because he thinks that it's been "picked on enough."

Ackman did add that the company is unlikely to find a buyer, but also didn't talk about bankruptcy or a bailout. Instead, he said that the company would have to heal itself by shrinking. Given where the stock is trading right now, that's not such a bad outcome.

Ackman has been one of the most pessimistic -- and perceptive -- observers of the mortgage mess, and it might be a bullish sign that he's not ready to sound the death knell for Lehman.

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.

When word started circulating that hedge fund manager and renowned short-seller William Ackman was set to make public a new short position, a friend and I discussed it with some anticipation. We both hoped that it would be something new and exciting -- ideally a non-financial stock and, at the very least, something other than a bond insurer. Ackman has made headlines with his prescient calls -- and publicity-generating antics -- warning of trouble at Ambac (NYSE: ABK) and MBIA (NYSE: MBI).

Well the name of the company is out and it is indeed another bond insurer. And making it even less interesting, it isn't even a short. He's betting against Financial Security Assurance which, since it's owned by French bank Dexia, can't be shorted. Instead he is buying credit default swaps on the company's bonds.

A Fortune piece discussing Ackman's claims somewhat snidely points out that his long picks aren't doing well lately. Sears Holdings (NYSE: SHLD) and Target (NYSE: TGT) have been weak performers this year. But I think analyzing a stock's performance over a few months completely misses the point -- Ackman does higher quality research than just about anyone else on Wall Street, and it can take the market years to catch up with him. In the case of Amback and MBIA, an analysis of stock charts would made Ackman look like a buffoon for years after he started raising red flags. If Ackman's research is sound -- historically, it generally has been -- patient investors should do quite well following him into Target and Sears. Impatient investors probably won't do well no matter what.

With questions swirling about the viability of the company amid concerns about its credit rating, it's nice to see that the top brass at MBIA (NYSE: MBI) are keeping their focus on the real problem. That's right, short sellers.

According to Reuters, MBIA plans to urge lawmakers and regulators to take steps to curtail "the unscrupulous and dangerous market manipulation activities of short sellers" when it testifies in a hearing tomorrow. The testimony mentions William Ackman, who has been very vocal and, so far, very right about his criticisms of MBIA and Ambac (NYSE: ABK).

The testimony adds that "MBIA notes that Mr. William Ackman is appearing at the hearing on February 14th as an 'industry expert.' Mr. Ackman is in fact not involved in the industry in any capacity except as that of a short-seller, and, accordingly, MBIA questions the characterization of Mr. Ackman's expertise."

If you think you do thorough research before you make an investment, think again: hedge fund genius William Ackman spent $109,000 on photocopying conducting the research that led him to make a massive bearish -- and prescient -- bet against shares of MBIA (NYSE: MBI).

According to Bloomberg, Ackman has always been willing to make big bets when he's been confident in his beliefs: "In high school Ackman bet his father $2,000 that he would get a perfect score on the verbal portion of the SAT college- entrance exam. He says his dad called off the wager the morning of the test for fear he would lose the bet, though Ackman ended up scoring wrong on one answer."

In his latest book, market guru Ken Fisher talks about the question that investors need to ask before they make an investment: "What do I know that others don't?"

In this world of reasonably efficient markets, an information edge is, I believe, crucial to strong performance as an investor. But getting an information edge can take tons of research. There's an army of very smart people looking for their own information advantage.

If the idea of spending hours poring over documents doesn't interest you -- and there's nothing wrong with that -- index funds are probably your best bet.

Short sellers often get a bad rap. After all, these investors seek to make money by identifying stocks that are going lower. That's un-American (sarcasm dripping)!

Well Bill Ackman can hardly be called greedy. He's donating the millions he made shorting MBIA Inc. (NYSE: MBIA) and Ambac Financial Group, Inc. (NYSE: ABK) to charity. Ackman has said that could amount to $400-500 million.

According to Marketwatch, "Ackman isn't the first hedge fund manager to donate subprime-related winnings. Paulson & Co., a $28 billion hedge fund firm that's generated huge returns from the mortgage crisis, is giving $15 million to a new non-profit group that will provide legal help to subprime homeowners facing foreclosure."

It wasn't so long ago that anyone who criticized the valuations being applied to subprime lenders found themselves on the receiving end of vicious criticism. Our own Peter Cohan, a brilliant mind and all-around great guy, had his ethics questioned in comments left on this site, and Herb Greenberg and others were accused of being in the pockets of "naked short sellers".

Hopefully all the short bashers will come rushing to apologize for all the insults they heaped on these investors, some of whom are donating their well-deserved riches to charity.

Super-investor William Ackman has a well-deserved reputation, but I have to admit being puzzled by his recent decision to raise his stake in bookstore chain Borders (NYSE: BGP) to 17.1%.

It's a pretty classic contrarian bet. Borders has been hitting new lows of late on increasing losses and middling sales increases, but what does Ackman see here?

I have to tell you: I have no idea. Borders can't compete with web-based retailers on price, and its big box bookstores have developed a Wal-Martesque reputation among a lot of book aficionados, who believe in supporting independent booksellers.

Of course, CD sales are in a terminal decline, and DVD sales will likely taper off at some point as new methods of delivery gain broader acceptance.

Some have suggested that Ackman is optimistic that Chinese-toy recalls will boost book sales for the holiday season. But I think Ackman is probably more long-term oriented, and wouldn't be buying a 17% stake in a bet that the quarter will beat expectations.

Even if Bill Ackman is unable to make humongous strategic changes or value-extracting deals for Target (NYSE: TGT), his investment in the retailer has limited downside, according to breakingviews. Although Ackman could potentially "push for a sale of Target's credit card business, a reengineering of its real estate portfolio, or more aggressive share buybacks," none of these seem very likely at present.

Target probably wouldn't sell its credit card business because its becoming a more and more important contibutor to earnings. Moreover, reengineering the real estate portfolio or increasing the already-aggressive buyback would probably require borrowing. At the present time, borrowing at attractive rates is difficult.

Despite Target's rise in the last few years, the stock remains cheap. As breakingviews noted, the stock trades for just 14x earnings -- the same price as Wal-Mart (NYSE: WMT) -- despite growing much faster than Wal-Mart and possessing much more favorable growth prospects than Wal-Mart.

After soaring nearly 15% when Ackman's $2 billion investment in the company was rumored and revealed, the stock has come back to earth and retraced all of those gains. At these levels, Target is an appealing investment opportunity. The stock is undervalued vs. its peers and possessing loads of free options, most importantly the potential for Ackman to unlock value.

Target looks like an incredible long-term investment and I've been contemplating adding it to my long term buy and hold portfolio for the last month.