Billionaire Dan Loeb’s Third Point has changed with markets over its 25-year history, Loeb wrote in a letter to investors Thursday.
The current environment requires quality to be an “essential” screen for any new investment, he wrote, as “this investment environment is characterized by breakneck technological innovation and sluggish growth.”
Loeb describes Disney, Amazon, and Alibaba as such because they’re growing on top of the core businesses — he specifically highlighted streaming and cloud computing as examples.
Visit Business Insider’s homepage for more stories.
For novice investors looking to run a value strategy, billionaire Dan Loeb recommends Joel Greenblatt’s book “You Can Be A Stock Market Genius.”
But Loeb himself has shifted away from his roots as an “event-drive, value-oriented” manager, he tells investors of $13.4 billion Third Point in his latest letter dated Thursday, taking activist positions as the investing environment continues to change.
Now, with an environment “characterized by breakneck technological innovation and sluggish growth,” Loeb says there’s an “essential” screen he needs for all new investments: quality. (For this, he recommends the book “Quality Investing: Owning the Best Companies for the Long Term” by Lawrence A. Cunningham, Torkell T. Eide, and Patrick Hargreaves)
“It is essential to find companies with great leadership and unique products in growing end-markets in which they are gaining share and achieving high topline growth and strong margins. These factors drive robust earnings and free cash flow growth supported by high returns on existing invested capital,” he writes.
“However, when investing in a quality or ‘compounder’ company, it is critical to find an entry point at which an investment is attractive since most of these businesses trade at relatively high multiples.”
See more: The manager of a $135 million hedge fund is predicting a crash like the 2000 tech bubble and says unprofitable growth stocks are ‘one step above a Ponzi scheme’
In the second quarter, Loeb — who is now the sole CIO after Munib Islam and Loeb split the role for less than a year— added positions in Alibaba, Amazon, Disney, and JD.com because of the quality screen and the price point. He expects more opportunities to come. Third Point is down 6.5% for the year through June.
“Recent market dislocations have created several unique opportunities for us to acquire more of these kinds of companies at bargain prices,” he writes.
“We anticipate selectively adding to this long-term portfolio when opportunities present themselves.”
Read on to see why he’s so bullish on Alibaba, Amazon, and Disney.
SEE ALSO: Here are the 8 ‘long-lasting implications’ of the pandemic hedge-fund billionaire Seth Klarman lays out to investors in a new letter
SEE ALSO: Big investors have been slashing valuations on stakes in private companies like Palantir and Airbnb. Here’s why some ‘mature unicorns’ are in a tricky spot and could keep sinking.
Alibaba’s potential cloud computing boost
Loeb writes that Third Point “took advantage of jitters about China’s relationships with Hong Kong” and bought into Alibaba and fellow Chinese e-commerce player JD.com in the second quarter.
While both companies are expected to continue to grow their core businesses according …read more
Source:: Business Insider