William Ackman has gained a tremendous amount of publicity for his prescient calls on the subprime bubble, but his biggest long position has not panned out.

In 2007, Ackman raised $2 billion for Pershing Square IV, a hedge fund dedicated exclusively to shares of Target Corp. (NYSE: TGT). Because of a high-risk options strategy that made the fund far more volatile than the shares of the underlying stock, the fund is down 89.5% since inception, including a 40.1% drop in January alone.

"While PSIV and Target stock have declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated," he wrote in a letter to investors."

Ackman is pumping another $25 million of his own fortune into the fund, and his employees and board members are also investing more cash.

Ackman may indeed be right about his long-term thesis, but his options strategy required the market to alter its valuation of Target in a very short time-frame, and that didn't happen. Ackman's investors are learning first-hand the billiance of John Maynard Keynes' truism that "The market can remain irrational longer than you can remain solvent."

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