Ackman's Valeant Bust Shows the Cost of Inconsistency

The 95 percent plunge in the shares of Valeant Pharmaceuticals International Inc. since mid-2015 obviously was a disaster for investors who held on for the ride down. Professional traders tend to have risk-management strategies, taking smaller losses to protect capital and avoid a bigger loss. But many investors don't necessarily have the same tools at their disposal -- or the same dispassionate outlook. And so this episode is a teachable moment, and is an important reminder that there are many ways to achieve market-beating returns. Various styles present specific risks, and investors who seek to beat the market should be cognizant of the different hazards these methodologies present.

Most associated with the Valeant debacle is Bill Ackman of Pershing Square Capital Management. His fund's loss estimates on Valeant range from $2.8 billion to $4 billion. It has to go down as one of the hedge-fund industry's biggest disasters.