Dan Loeb：失传的做空艺术，以及选股为何又回来了

Legendary activist investor Dan Loeb who of course is the [music] CEO and CIO of Third Point.

The lost art of short-selling has come back and it's absolutely critical.

[music]

It doesn't matter what you do, you have to be really selective. People talk about stock pickers market, this is a bond and credit pickers market. When we were small, [music] our main tool was a shame and humor.

Dan Loeb turning up the heat on Nestle over [music] the weekend.

The shift has really been more towards a dare to be great message. [music] Activism without proxy contest is like Catholicism without hell.

You're [music] very active on the Twitter as well.

Oh, well.

You found your voice.

A lot a lot of emotion brewing there.

Can we actually start with that? Before Twitter, you were actually quite active, but in very different places. I mean, you were in WallStreetBets before WallStreetBets existed. Can you walk us through your evolution as a public persona?

Sure. There was this brand-new technology that came out called the internet. Shortly thereafter, long before Reddit or any of these other things, there were a series of chat boards. There was Yahoo, there was something called Silicon Investor, and a few other ones where people would congregate and kibitz.

It was done mostly anonymously, and it was an interesting place to exchange ideas. It was really the Wild West. People could pretty much say or do anything, but there was a lot of substance there, too. It’s not actually that much different from today.

Did you engage at all in any trolling per se?

Well, some people use the term “OG.” Sometimes I say I was the “OT.”

The original troll.

Yeah, no, I did. I didn’t know I was one day going to run institutional money and have a big fund. I was just having fun, blowing off steam, and, yeah, it was fun.

Investing is fun, particularly on the short side. There’s so much humor in it when you detect these companies, especially in the ’90s. It was really unsupervised. There were some incredibly fraudulent companies out there, and it was fun to uncover them, taunt the management teams, and ultimately prevail.

Do you have one story above others that stands out from that era?

There were a bunch. There was a company called Actrade that I remember, run by a guy who was a repeat fraudster. We uncovered it, and I know we really got under this person’s skin. Ultimately, it was just a factoring company trading at 5 or 6—I don’t remember what it was at—some large multiple of book value.

They had created a new technology called TADs. I don’t remember what TAD stood for, but they were basically repackaging factoring securities and saying that they had some special technology. They were financing refrigerators and things like that.

Tell us about your evolution as an investor. When you started Third Point, you started with very little capital. Now it’s almost 30 billion of AUM. You’re multistrategy, but you learned at Jefferies. I think you learned helping people like David Tepper allocate capital. Walk us through how you learned to invest.

I started really fascinated by investing and wanting to do it. I remember when I was 10 years old, my dad took me to meet a broker. My dad was a notoriously bad investor himself, so he didn’t give me any good examples. He was a great lawyer, not a great investor.

Then, in high school, in the 11th grade, I got a job at the branch office of PaineWebber, working for a guy named Alan Crown, who let me post his books and make cold calls. I think we broke certain securities laws, but I think the statute of limitations has passed.

I would trade options on Occidental Petroleum and Teledyne. There was a lot of volatility, and I think I had flurries of making money and lost all of it a couple of different times, but it was a good lesson. I continued doing it in college.

My learning started formally at Warburg Pincus, where I learned to value enterprises. It was my first job in a kind of broad spectrum of private equity and venture capital. I worked at a risk-arbitrage firm, which was really invaluable.

Skipping forward, I had way too many jobs in my 20s, but I got really serious at Jefferies. I had an amazing opportunity to work on the distressed-debt desk there. I started out as a research analyst, and it was like drinking out of a fire hose. There was so much activity. The securities were so cheap coming out of distressed.

It was the 10,000 hours, 10,000 reps. We would write up different things every day. There were big blocks of debt to move, and that was my real learning point.

I stress this to people: Everyone sees mentorship as a hierarchical thing where you learn from some wise older person, but I learned a ton from my colleagues, from my own cohort, and from my customers.

Eric Mindich was a boy wonder at Goldman. He was the youngest partner at Goldman.

Youngest partner at Goldman.

Yeah. He ran the arbitrage desk there, and he had this triumvirate or quadrumvirate—whatever you call four people. I don’t want to leave them out, but there were Marrone[?], Dinakar[?], and some other guys. Anyway, they were great, and they really brought me into their thought process of thinking about event-driven investing.

I covered some of the smartest people in the business, including David Tepper. I got to watch their thought processes. I was like a Chinese corporation that was copying and reverse-engineering, taking everything in and creating my database of knowledge and my own operating system—taking the best out of what all these different people did.

What was that style when you first started Third Point? What was that expression?

We called it event-driven investing. It was less focused on the quality of the business and more focused on very complex transactions: takeovers, spin-offs, risk arbitrage, bankruptcies, privatizations, and demutualizations.

These transactions created unbelievable opportunities for alpha because of the confluence of dislocation, opacity, and time. This goes on and nothing changes. I always quote this Jesse Livermore line: “There’s nothing new under the sun.”

There was a real focus on management incentives. In all these different kinds of transactions, management was incentivized to sandbag their numbers during a time when there was an excess supply of securities and their options were being reset. We as co-investors got to come in with these depressed projections and ride along with a few different things that would happen: greater transparency and understanding of the business, coverage, and companies that delivered a top line, margins, ROE, and everything else better than expectations.

It was really a golden era for that type of investing.

From where that started to what Third Point is today, describe that. Where do you go from here?

Stylistically, that event approach is still something we think about. It’s in our framework. But I think what happened when technology became a bigger force—and, really, everything changed—was a greater focus on business quality, innovation, and disruption.

It became more thematic on the one hand: understanding consumer trends, what’s going on in financial services, and what the economic and macro backdrop is that’s supporting all this. Of course, the big topic of this event, AI, is sort of the culmination of that, along with all these major technological innovations that have really happened since—

You could make money before by not being technology-savvy in the markets.

You could be technologically illiterate, or just say, “I don’t do it.” Up until the GFC, I think you could also be more or less economically illiterate and make a lot of money.

And now?

You wouldn’t want to be either one of those things, given how much more important—

The tech through line needs to be understood everywhere.

Yeah.

But even if you’re Blue Owl, on your trade—I mean, Blue Owl is obviously very sophisticated in technology now—any pool of capital that used to not be correlated is effectively correlated.

Yes, you could say that. I just want to answer your question by fast-forwarding and giving people a snapshot of what we do today.

Rob Schwartz is my partner, and we took Kempo Karate together when we were 10 years old. He was a purple belt. I think I never made it past yellow belt.

We reconnected at our 20-year reunion in 1999. I’m aging both of us—sorry to give up your secret, Rob. He was working as a sales rep for wireless RF components, and I said, “Wow, this guy would be great for us to do channel checks.”

A couple of years later, I asked him, “If you meet some smart people and ever come across a really savvy engineer, we should invest.” We didn’t know what we were doing. We weren’t venture capitalists, but we were getting behind people. There was a guy named Dave Fisher.

Dave Fisher started a company called Radio Communications. He made chips that were ABG compatible for Wi-Fi base stations, and ultimately the company was sold to Texas Instruments. We won’t go deep into our venture business, but we started to do that within the fund. We’ve done a couple of dedicated funds, so we have that strand of activity. We can talk a little bit more about what we’re thinking and how we’re seeing this, but I think what you ultimately get to is that all these things are interconnected and come together under the platform that we have today.

We have the main hedge fund, which does credit and equity long/short. Credit is both structured credit and high yield. We have a CLO business that we acquired, and we started a private credit business. It does traditional private credit, direct sponsor financing, direct lending, and workouts, which are very important—credit solutions, as they call it. There’s a lot to do there.

Then we started an insurance company a few years ago. It’s not the first insurance company we did—we did a P&C company—but this one was wholly owned. Now we own half of it. The insurance company captures basically the investment-grade part of what we do: private credit through structured vehicles, structured credit, whole loans, and investment grade, both private and public. But we can also use our surplus capital in very interesting ways.

So, what’s the role of the human? What’s the role of Dan Loeb in running Third Point 10 years from now? Ten years ago, Dan Loeb was 100% of Third Point. Now there are agents, AI, all this learning, and all of this data. Where do you see the role of the human? Where do you see the role of systems making decisions, allocating capital, and managing risk?

First of all, my time is spent primarily on managing the hedge fund, which for now is the biggest capital pool and the most important business that we’re in.

Yeah.

The human element—I think this is true for everyone you have here—is the social component, the human network of knowing people, being able to capture opportunities, work with people, and interact. That’s never going away. Maybe you can theorize that there will be agents that will sit at Andreessen Horowitz and whoever else’s funds, but I think the human will always have to be there because people like to—

You want to know who’s making or losing the money.

Yeah. There’s a thing that I think the agents they have will never really be able to do: look you in the eye and assess all the things that—

You’ve expanded your philosophy of investing in companies from cheap securities with catalysts, I think is how you described it on a podcast recently. Now you’re very concerned about moats, defensibility, and the quality—or the brittleness, as Chamath likes to remind us—of the revenue. Could you tell us how you evolved that core thinking about the quality of companies, and maybe give us some examples of the companies that now fit through that filter, where you feel they have a moat and durability?

Yeah, obviously that’s everything right now. Chamath talks about the time-bounded value of companies, and I think that’s essential. What are the companies that are going to be around 7, 10, or 20 years from now? What are the real moats that exist out there? It is harder now. I don’t know that we can really go out 10 or 20 years.

By the way, I think we diluted ourselves earlier, because if you ask people about the moat around IBM or some of the other companies—

AOL.

AOL, Yahoo—you say the same thing. We’re investing outside of tech. First of all, it also comes back to the management, because we can’t just look at a product or a technology and say, “Oh, this is going to be it forever.” We really look for a management team that we think will be adaptable. Just like you guys were saying last night, you don’t want to be on boards of companies. These are things that they should be doing.

I think that’s a huge part of it: finding management teams that you really believe in, that have a proven ability to stay ahead of—

Is that quantifiable, or is it still very much subjective?

Sorry, what?

Is it quantifiable, assessing the management team? Have you built a rubric for doing that?

No, it’s still very subjective and qualitative. I think it’s one of those things where, after 30 years, there’s a pattern-recognition element to it.

Let me ask a question on screening. I think you’ve said recently, publicly, that there are a lot of opportunities on the short side in the market right now for the first time in a long time. How do you start top-down? Is that a top-down approach, or is it opportunistic—something comes across the wire and you jump on it in an event-driven way? Or do you have a systematic, top-down approach to looking at the market and finding those opportunities?

Yeah, there’s no one approach to it. One thing that we’ve avoided is a solely valuation-based approach. I’ve seen too many people get run over by shorts that have dumb valuations, but they get captured on Reddit or one of these other things, and they just get squeezed. Some of these space companies right now have no rhyme or reason.

We had a really strong view on homebuilders from last year that there were 2 things going on. It wasn’t just rates and mortgage spreads that were depressing home prices. The homebuilding industry was first structurally impaired because of the way they were all pretending to be NVR. They were all pretending to be asset-light, but they had massive commitments to these land pools, which they said were options but were really very committed in their capital, and that value was going down.

The homebuilding industry was really the last industry that had this post-COVID hangover of inventory disruptions and pricing that made no sense. You had all those prices go up to unsustainable levels, but building costs went up, too, and buyers were no longer able to pay those prices in the current financing environment. They’ve also gotten squeezed by inflation and costs. That’s been something we’ve been focused on, so we’ve been shorting things related to that.

Let me bring Sacks into the discussion here. Sacks, we’ve learned a little bit about the distribution of public securities. You’re famous in the All-In theme song for the great quote, “Let your winners ride.” I’m curious, when you hear Dan talking about this, how you think about, as a private-market investor, navigating the distribution of equities and how you’ve sharpened your blade about which ones have brittle or more robust revenue.

I’m sure you guys share this. It’s one of the most vexing questions. We were private investors in Palantir, and I think we sold all our stock in the 20s. Huge mistake.

Gosh, so you missed a 10x after going public.

Yeah.

Or 8x or something.

We were private investors and led the B round in Upstart. That was one where I think we learned not to go on boards anymore, because it restricts your ability to be liquid. We were also early investors in Enphase. We sold some stock on the IPO and then took a tax hit, and I think we sold it under $1. The stock, I think, had we stayed in, would have made $4 billion. So, I am not claiming to have any great expertise in knowing how to best distribute our—

Dude, markets are brutal.

It’s so hard.

I mean, you’re—this is why I bring it up. We’ve all struggled with this. Sacks, where have you wound up?

I think it’s case by case. There are some companies where I was on a board and you can’t sell, and you end up regretting that. Then there are others where the best thing to do is just hold on to that stock forever.

Examples in your portfolio where you made great decisions?

I’m not going to talk about the ones that didn’t do so well. I’ve owned Meta and Palantir as a private investor, as a venture investor, and as an angel investor.

And you sold—

Well, I sold some and held on to some. Obviously, in hindsight, you take Meta. I think Meta—Facebook back then—IPOd at a $50 billion market—

Yeah.

$50 billion. Now it’s—

It went down to $18.

Yeah. Now it’s—

Yeah.

Can you imagine the alternate universe—

It’s $400, right?

Chamath never sold his Facebook. How insufferable he’d be.

Or if—

I would—

Reid Hoffman never sold his Facebook. Reid Hoffman would be worth $10 billion.

No, I wouldn’t be nearly as good. I’m like an analyst, because he created tension. It’s not real. It’s not earned.

So back in those days, 10 years ago, we thought a $100 billion market cap company was pretty much as big as anything could get.

And things are just totally different now. We have multitrillion-dollar companies. The market is so much bigger, and that changes.

That's a rub against Nvidia, which is a five-billion dollar company, and people feel like that's sort of a ceiling on it. I think we'll look back at some point in time and say that was a foolish way to think about Nvidia, given its dominant position and its valuation relative to everything else.

Right now?

Yeah, absolutely, on earnings over the next 2 or 3 years.

And is it because people are having a hard time processing the largest entity that's ever existed in human history?

I think that's part of it. Well, first of all, technically, there's all this other stuff that's growing faster and going up more. The long-short pods are structured such that they have to be short something, so Nvidia feels like a safe short. By the way, Google was a safe short. Amazon was a safe short. So this just happens, and sometimes they languish at a valuation and then break out. I think that'll eventually happen with Nvidia.

But there's probably some boundary-condition discount to that, right? We've never seen a valuation like this. You can't overbet that.

I want to shift topics for a second. I just want to talk about society and culture before we run out of time with you. There was this incredible thing that you told me, which I relate to these guys, which is that you're very passionate about criminal justice reform. Specifically, you were a key person in getting the pardon of Ross Ulbricht. Tell us your views on criminal justice, why it hit such a nerve, and then why Ross Ulbricht. What happened there that said, “I must fight for this guy?”

Let me take a step back and just talk about my framework for philanthropy, which I think is not unlike Brad Gerstner and many people in the room here. I care—I would say everybody up here cares deeply—about income inequality. I care deeply about making sure that as many people as possible have opportunities to do the incredible things that we've all had here. So my interest in criminal justice reform really started earlier with an interest in education and education reform, and I was very lucky to start supporting, get on the board of, and ultimately become chairman of Success Academies, which is a charter-school network in New York.

I do think nobody talks about it, but the thing that's hiding in plain sight for everybody is that the problem with income inequality isn't that Jeff Bezos is going to be a trillionaire or that all these other people are gaining wealth. It's that we're not equipping children, particularly the most vulnerable children, with the intellectual tools that they need to succeed and compete. And it's not because poverty is this intractable thing that can't be overcome; we've proven that it can be. The problem is that the unions and the basic principles that we all use in business—accountability, merit, and cultivating talent—are set aside for the benefit of adults who are part of these unions. It's a systemic thing. It's not a lack of money. It's just a broken structure.

Accountability is, I think, what I'm hearing, yeah.

So I spent a lot of time on that. I'll leave it at that. I then became aware—and it was interesting that I was looking for issues that conservatives, liberals, and progressives can agree on. Hopefully, they can agree that we want young people to be better educated. I think we can also agree that whenever you put the government in charge of something, they'll fuck it up one way or another.

I want to give you guys a shout-out, though, for not fucking up this public-private partnership with investments in the private sector, because I think this administration has done an enormously good job backing companies. But let's put that aside. It's one of the rare instances where I've seen that.

Can you give an example of that that's standing out in your mind?

We have a company in our portfolio called Atom Computing that, along with many other quantum companies, has gotten money from the government. We were just super impressed with how they contracted with us to engage with them in cryptography and to meet the government's needs, but also, in the financial component, they drove a really tough bargain. The government—the taxpayers—are going to make a ton of money on this. Their involvement will also contribute meaningfully to the value of this business. It's just a win all the way around.

And a customer.

Right. And they are capturing part of that value as a customer for the American people, which I think everybody deserves.

Okay, so back to criminal justice reform.

First of all, there are a lot of bad people in jail. I think the criminal justice reform movement has been undermined by folks who see it as an opportunity not to prosecute or deal with bad people who are out there. But there are also a lot of people who have been rehabilitated. There are really 3 different categories: people who were falsely convicted; people who have shown contrition and rehabilitation; and those who just had a really disproportionate sentence relative to what they did.

There's a case right now of a guy named Jonathan Grobman who dealt in gray-market diapers and formula. He got an 18-year sentence for dealing these goods.

In the case of Ross Ulbricht, I was approached by someone, and—people may know, probably this room knows—he was sort of a folk hero because he had this cat-and-mouse game with the government. He ran Silk Road, which was one of the first crypto-based exchanges. He acknowledges that he did things that were illegal that he shouldn't have done. He regrets it. Drugs were dealt on the exchange, but that's what he was accused of.

The government later said there were murder-for-hire incidents. That wasn't in the indictment; he was never prosecuted for that, and he denies that it ever happened. But in any case, he was sentenced to 2 life sentences plus 40 years. Who knows how he got the extra 40 years on there and how he would spend that after he'd been there for 2 lifetimes?

There's a woman I met through Intel named Rivatez, who's friends with Olaf Carlson-Wee and sort of the crypto insiders. I thought about this: This guy's got no way out. There's no recourse through the system to get someone with a life sentence out of jail. This will only work with a presidential pardon. We had some familiarity with the pardon process and worked on it.

Then I approached Charlie Kirk about this. Charlie really embraced this individual as someone who had been, if not falsely, then unfairly sentenced. He took it to the president. Charlie also had an attorney named David Warrington, who's currently the White House counsel. I just found out a couple of days ago, because I was talking to him, that he was Charlie's lawyer for a decade.

I'm not taking credit for this, and I'm not saying Charlie takes credit either. It takes a village, but David had been working on it. On the last day of Trump's term as the 45th president, we were certain that Ross was going to get out. The Justice Department, for whatever reason, said to the president, “If you commute his sentence, we're going to go after you.” So he, as I understand it, withdrew the commutation.

4 years went by, and Charlie really took the lead on this. This was his only ask of the president, and the president had promised libertarians and the crypto community that he would deal with this. Not only was Ross's sentence commuted, but he was pardoned. Today, Ross is married, is having a child, and is living a free life after spending a decade in prison. People can argue about whether that was the right amount of time or not.

Do you feel like there's a role for you to play in doing more of this? Was this a one-off, or—

I continue to work on cases. There's an organization called Aleph, and we work constantly on different people. I think it's—look, as philanthropists, it's great to work with organizations, and there are a lot of great organizations I work with. I do a lot fighting antisemitism and supporting Jewish identity, too, but I also think that we can help people one at a time. I think it really nurtures the soul, and I think it's just amazing.