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Friday
Jan252013

Mister Market Gives Icahn The Win

 

Activist investor, Carl Icahn, went on the offensive today poking holes in Bill Ackman's infamous HerbaLife short thesis during an unbelievable 30+ minutes on CNBC earlier this afternoon.  And the market clearly gave the win to Icahn during the debate.  

Here's why: Mr. Icahn brought up the fact that Mr. Ackman's fund, Pershing Square Capital Management, hadn't done too well last year.  The firm waited until the last 8 days of trading left for 2012, and then revealed their short,  attacking HerbaLife as a pyramid scheme, so that their "portfolio" would look VERY positive "on paper".  Mr. Icahn stated that this is not the first time Ackman has done this.  He then raised the spectre of a "short squeeze".  

Definition: Short Squeeze: A situation in which a lack of supply and an excess demand for a traded stock forces the price upward. During a short squeeze, individuals holding short positions are typically forced to purchase shares in situations where the price increases rapidly, in order to exit their short position. 

What does that mean?  If a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely need to get out. For example, if a stock rises 15% in one day, those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher. (Investopedia)

And it seems the market believed Mr. Icahn (see below).


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