Pershing Square is breaking a cardinal Simple Trading Principle. The firm is (was?) short HLF. It looked like a genius trade many weeks ago. Since then the stock has done nothing but squeeze higher. Under normal circumstances, anyone short could have long since headed for the sidelines and/or covered and re-initiated at a higher level. Pershing’s problem is that its founder Bill Ackman has been very loud about his conclusion that Herbal Life is a Pyramid Scheme and destined to be investigated by federal authorities. He has also engaged in several well-covered (and well publicized) fights with other hedge fund managers about Herbal Life’s prospects.
So why is all of this a problem? By being so loud about his position and thoughts on HLF, Ackman has tied a substantial portion of his reputation to the stock’s performance. This will ALWAYS be a problem when you think about a position. It makes that position way more significant than it really is (or should be)… and clouds your judgement.
Not exactly a recipe for effective, simple trading.