A hedge fund manager perfectly captured what Bill Ackman is going through as Valeant crashes

Hedge fund manager Whitney Tilson sent around an email on Thursday that captures what activist investor Bill Ackman is going through with his massive money-losing investment in Valeant Pharmaceuticals.

Here's Tilson's take (emphasis is ours):

Every investor should analyze this case study to learn from Ackman's experience, as every last one of us has had (and will have) to deal with a major investment going south. How do you collect more information, filter out the noise, analyze the situation, control your emotions, and ultimately make the right decision among four choices: dump it all, trim, hold, or buy? It is almost never obvious what the right answer is - rather, every option feels really crappy when you've lost a lot of money on an investment, especially if you're in the hot glare of the public spotlight. I've been there and it's no fun.

Ackman, the founder of Pershing Square Capital, has lost more than $2 billion on paper on Valeant. Pershing Square owns just over 21.4 million shares.

Valeant's shares have collapsed more than 50% after Citron Research, a short-selling firm led by Andrew Left, issued a report in October asking if the company was running an Enron-like fraud.

The stock had already been under pressure after the company was scrutinized for raising the prices for two acquired drugs. This week, the US Senate has launched a bipartisan investigation into drug price hikes in the pharmaceutical industry.

Last Friday, the last trading day in October, Ackman spent nearly four hours defending his investment. Ackman said that he expects that Valeant will have to deal with negative press reports and scrutiny from regulators and politicians in the next several months. He also expects that investigations will conclude in four years.

"Life will go on for Valeant. While this has been a very damaging moment for the company ... we think the Valeant business is quite robust." he said.

Ackman thinks the stock is "tremendously undervalued" and that it has an "89% upside." He added that investors are forgetting the "rest of Valeant's business."

Valeant's collapse has crushed Ackman's performance. The stock is the fund's largest holding, making up a percentage of the portfolio in the "high teens." Pershing Square Holdings, the publicly traded vehicle led by Ackman, is down 19% year-to-date through the end of October, according to a performance update. The fund fell 7.3% in October.

Ackman was the best-performing fund manager in 2014, gaining more than 40%. This year, he ranks among the bottom performers, according to data from HSBC.

Tilson, who runs Kase Capital, is a value investor who has gained notice this year for his bet against Lumber Liquidators.