The hedge fund battle between Pershing Square Capital Management and Third Point Capital over Herbalife is fascinating. Third Point’s Daniel Loeb is long on Herbalife citing the potential for further value creation via a revamped management. Pershing’s Bill Ackman likens the health products distributor to a multi-level marketing pyramid scheme. Slate‘s Matthew Yglesias has a good summary of Ackman’s pyramid scheme allegations and the fallout in the media and financial markets. Loeb and Ackman’s duel is a valuable real-time case study that reveals how hedge funds develop variant perceptions; how they use long and short positions to create zero-sum strategies; how they analyse company management and performance to determine valuation; and how they discover alpha (active investment returns above a benchmark or passive strategy).