“Brendan, it’s time for you to put your money where your mouth is. If you are sincere in your statement that a premium bid for the company is not worthy of discussion, then we must insist that you demonstrate your conviction by acquiring shares.” — Dan Loeb
Daniel Seth Loeb is the founder of the New York based hedge fund Third Point LLC, which at the end of the third quarter reported assets under management of $17.5 billion.
The outspoken and prominent value investor founded the hedge fund in 1995 and is currently responsible for the business activities of Third Point. He is also the managing member and chairman of Third Point, LLC.
Dan Loeb is known for his explicit public letters regarding the performance and actions of other financial executives. His mocking letters are an entertaining yet thought-provoking approach of addressing and disapproving a certain serious issue.
His letter to Obama supporters is a good illustration of his blunt and sardonic ways as he begins the letter by referring to them as ‘battered wives’. It was especially interesting, since Loeb supported the President. A link to a copy of the letter can be found below.
Dan Loeb: Background and bio
Daniel Loeb, commonly referred to as Dan Loeb, had a keen interest in stocks since the age of 5 and actively traded before even graduating from high school. He attended the University of California for two years before transferring to Columbia University. He graduated with a degree in Economics in 1984 from Columbia.
Over the years, Loeb has been a member of numerous organizations, driving them to success with his financial market expertise and astuteness. He began his career right after graduation and started as an associate with the private equity, E.M. Warburg Pincus & Co.
During the brief period of 1991 to 1993, Loeb worked as a senior vice president at Jefferies & Co. Moreover, he served as a director of Massey Energy and Ligand Pharmaceuticals. Before the sale of Radia Communications to Texas Instruments in July 2003, he was the company director. Before the formation of Third Point in 1995, Dan Loeb was a vice president of High Yield Sales at Citigroup.
Dan Loeb: Third Point LLC
According to Third Point LLC’s website, the fund employs an event-driven, value-oriented investment style. The Firm seeks to identify situations where traders anticipate a catalyst will unlock value. The company also has a reinsurance affiliate named, Third Point Reinsurance, a Bermuda-based specialty property and casualty reinsure:
Third Point LLC identifies investment opportunities using a combination of top-down asset allocation decisions and a bottom-up, value-oriented approach to single security analysis. Third Point LLC seeks dislocations in certain areas of the capital markets or in the pricing of particular securities and supplements single security analysis with an approach to portfolio construction that includes sizing each investment based on upside/downside calculations, all with a view towards appropriately positioning and managing overall exposures. Through our investment manager, Third Point LLC, we make investments globally, in both developed and emerging markets, in all sectors, and in equity, credit, commodity, currency, options and other instruments.
Third Point LLC has historically favored “event-driven” situations, in which it believes that a catalyst, either intrinsic or extrinsic, will unlock value or alter the lens through which the greater market values a particular investment. Third Point LLC attempts to apply this “event” framework to each of its single security investments and this approach informs the timing and risk of each investment.
Third Point Partners L.P., which is Third Point LLC’s oldest fund, has reported a compounded annualized return of approximately 21% from its formation in June 1995 through December 31, 2012, and a compounded annual return of 9.74% and 17.66% for the five- and ten-year periods ended December 31, 2012.
Third Point Investor Letters
- Third Point-Q4-2014-Investor-Letter
- Third Point-Q4-2012-Investor-Letter
- Third Point-Q2-2010-investor-letter
Dan Loeb: Investment philosophy
Dan Loeb’s investment philosophy is value based. He believes in merging philosophy with investment in order to gain an upper hand in the world of financial market.
He believes in investing in companies, not based on the market capitalization, but based on the fundamental analytical framework of the company along with legal, regulatory and accounting analysis. The entire concept of value investing, adopted by Loeb, is to be opportunistic and invest in companies which are not discovered by others.
His investments are mostly event-driven, and Loeb takes advantage of companies with financial problems investing in distressed debt, special situations, and spin offs. After careful analysis of the distressed companies, he invests in them given that they have growth and profitability potential once they are out of the temporary financial crisis.
His investment philosophy is quite similar to that of Joel Greenblatt, which is not surprising, as Loeb considers Greenblatt’s book You Can Be a Stock Market Genius to be the best book he has ever come across.
Loeb benefits from rising markets by investing in those company stocks which have not yet completely financially matured or reached its full potential. To him the prospect for profitability lies in the fact that other investors are unaware or ignorant of such opportunities.
When talking about business, Loeb emphasizes the guiding principles of making his investors a priority, and firmly believes in putting their interests before his own personal motives. This is evident in the fact that he just recently decided to close his hedge fund to new investors.
To Loeb, teamwork, creativity, honesty and transparency are integral components of creating a profitable business culture. According to him, the individuals within the company should work together in order to realize company objectives and actively work as one towards the common goal of profitability.
Dan Loeb is a firm believer of free-market capitalism. According to him, government intervention and unpredictable government regulations have a great amount of impact on individual companies, industries and the economy as a whole. Loeb highlights the need for free market capitalism for proper resource allocation, growth, development of job opportunities and creation of innovation.
Dan Loeb: Books
- Reminiscences of a Stock Operator by Edwin Lefèvre is referred to as a ‘classic’ by Loeb. With the biographical account of Jesse Livermore, the book perfectly encapsulates the observations of Lefèvre regarding investing, speculating and the nature of the financial market. The story illustrates the ups and downs of the character Livermore.
- You Can Be a Stock Market Genius by Joel Greenblatt is another one of Dan’s favorite books. He states that the book is “probably the best book ever.” The best-seller covers various value-investment concepts and elaborates on the notion of investing in companies indulging in spin-offs, mergers, risk arbitrage, etc. It is worth-while to note that the investment philosophy of Greenblatt and Loeb are quite similar and the book can be believed to be an inspiration for Loeb in developing his investment philosophy.
- Financial Shenanigans by Howard Schilit highlights the manipulative and deceiving tricks adopted by the management in the past, which will continue to be used in the future as well. The book is on accounting but instead of focusing on the simple basics, it adds an interesting twist by focusing on the various manipulations used by companies to alter the income statement, and the cash flow statement to serve their own selfish purpose.
- Kathryn Staley’s The Art of Short Selling is a book about finding tricks used by management in financial statements, and using the information to short the company. Long only investors such as myself can learn a lot from the book.
- Loeb also mentions his favorite “non-investing” book. Jim Loehr’s The Power of Story Loeb stated that the book can “change your destiny in business and in life.”
Dan Loeb: Quotes
“I am sure, if we are really nice and stay quiet, everything will be alright and the President will become more centrist and that all his tough talk is just words; I mean he really loves us and when he beats us, he doesn’t mean it; he just gets a little angry,”
“Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth and jobs.”
“It is time for you to step down from your role as CEO and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons, where you can play tennis and hobnob with your fellow socialites,”
Dan Loeb: Activist letters
- Letter to Obama Supporters
- Letter to Intercept
- Letter to Penn Virginia-1
- Letter to Penn Virginia-2
- Letter to Pogo
- Letter to Nabi Pharma
- Letter to Salton Corporation
- Letter to Star Gas
- Letter to Ligand
Dan Loeb: News
- Cramer: Check your tactics at the door, Dan Loeb
- Energy Bull Dan Loeb Just Bought A Massive Chunk In El Paso And Now It’s His Biggest Stake
- Dan Loeb learns email is forever
- Special Report: OMG! Dan Loeb said what?
- Dan Loeb to Obama’s Hedge Fund Supporters: You Are Like a Battered Wife
- Daniel Loeb, Hedge Fund Manager, Blasts Obama Administration’s ‘Redistribution Of Wealth’
- A few hedge funds standout in a ho-hum year
- Third Point’s Loeb Sells 7-Foot Egg At Auction
- Third Point Dumps Hard Lock-Up, Annual Redemptions
- Intellectual Activism’s Impact On General Growth
- Another hedge fund backing Icahn on Yahoo
- Hedge funds flex political muscle in election
- Hedge funds chalk up more losses, big names suffer
- TXCO Resources Reaches Settlement Agreement with Dan Loeb’s Third Point LLC
- Third Point reportedly plans fund IPO in London
- Most hedge fund strategies lost money in August
- Loeb Quits Massey Board, Decries ‘Blankenship Discount’
- Third Point wants to oust Nabi CEO from board
- Value Investors Speak Out
- Activist managers get more flies with honey
- Hedge fund sets ultimatum for Walter
- Ligand settles suit, sets meeting
- U.S. Hedge Funds Tackle Malaria ‘Emergency’ in Africa
- America’s biggest hedge funds
- Salton bondholders expect bankruptcy, form committee (Limited View)
- WEDDINGS/CELEBRATIONS; Margaret Munzer, Daniel Loeb
- INVESTOR’S LETTER RIPS WARNACO (M) -WARNACO INVESTOR IS FED UP
- Conseco seeking time to pay debts