Just three years later, he was the subject of a front-page profile in The Wall Street Journal. He reaped even more publicity after he was kidnapped at gunpoint in 2003 and held hostage in a Days Inn before talking his way to freedom. By 2004, ESL’s spectacular 29 percent annualized returns landed him on the cover of Businessweek magazine.

Besides Mr. Rainwater and Mr. Geffen, his high-profile investors included Michael Dell, members of the Ziff publishing family and Thomas J. Tisch, a philanthropist and heir to the Tisch family fortune. In 2006, Forbes ranked him No. 67 on its list of the 400 richest Americans, with a net worth of $3.8 billion, a few notches ahead of another retailing executive, Jeff Bezos of Amazon. He was widely hailed as another Warren Buffett, only perhaps even smarter. “Eddie is one of the extraordinary investors of our age, if not the most extraordinary,” Mr. Tisch told Businessweek.

No one compares Mr. Lampert to Mr. Buffett anymore. His high-profile investors are, for the most part, long gone. Mr. Tisch, who’s also a director of Sears, is described as steadfastly loyal. Steven Mnuchin, Mr. Lampert’s roommate at Yale and now Treasury secretary, disclosed last year that he had a $26 million investment in ESL. (Mr. Mnuchin said he would divest the position.)

Notably, a group of Goldman Sachs clients who had invested $3.5 billion in 2007 bailed out of the fund in 2013. Their exit “pretty much says it all” as far as investor confidence in Mr. Lampert goes, Mr. Melich said.

Where did someone as smart, successful and hard-working as Mr. Lampert go wrong? His initial concept to combine two iconic but deeply distressed retailers — Kmart and Sears — initially appealed to many investors as a classic investment in undervalued, poorly managed assets in the Warren Buffett style. But Mr. Buffett doesn’t personally manage his portfolio companies. Several former Lampert investors told me that Mr. Lampert’s fundamental mistake was one common to many once-successful hedge fund managers: hubris, and the belief that investment prowess would translate into management skill.

“He was a very successful investor before he took over Kmart and Sears,” said Mark Cohen, former chief executive of Sears Canada and a professor at Columbia Business School, where he’s the director of retail studies. (Mr. Cohen left Sears Canada before Mr. Lampert arrived.)