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In a letter to investors on Wednesday, Dan Loeb, head of the hedge fund Third Point LLC, addressed the recent market volatility spurred by the GameStop trading frenzy led by the speculative investing Reddit discussion forum, WallStreetBets.
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"The recent short squeeze in certain securities is nothing new," Loeb wrote. "As targeted securities have started to come back to earth, wiping out fortunes on the way down as they did on the way up, we can see that this was a bubble no different than other manias over time, going back to the Dutch Tulip Bulb Mania in the 17th century. What is different today, however, is the rapidity of the rise and collapse of bubbles, fueled by retail trading platforms and social media. Large short interests were also an accelerant in this conflagration."
He noted that his firm was able to "sidestep substantial losses" by sticking with "higher net and low gross exposure."
"It is tempting to think that lower nets imply lower risk, but recent events are a stark reminder that leverage, in all its forms, is a double-edged sword," Loeb said.
In addition, Loeb noted the firm has had "a few previous painful experiences of our own taking positions against companies with large short interests" and decided to cut its losses. Loeb said Third Point has "mostly avoided taking short stakes in companies with modest liquidity and large short interests."
Loeb said that Third Point's biggest winner for the fourth quarter of 2020 was Upstart Holdings Inc., which had a successful initial public offering in December, and Foley Trasimene Acquisition Corp. Other constructive investments the firm had in 2020 include the Walt Disney Company, Prudential, and Pacific Gas & Electric Company.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| UPST | UPSTART HLDGS INC | 91.04 | +10.79 | +13.45% |
| WPF | FOLEY TRASIMENE ACQUISITION CORP. | 10.67 | -0.08 | -0.74% |
| DIS | WALT DISNEY COMPANY | 189.63 | +1.42 | +0.75% |
| PRU | PRUDENTIAL FINANCIAL | 82.11 | +0.68 | +0.84% |
| PCG | PG & E CORP. | 12.08 | +0.32 | +2.72% |
| BABA | ALIBABA GROUP HOLDING LTD | 267.79 | +1.30 | +0.49% |
Meanwhile, Third Point's detractors included "Alibaba Group Holding, three equity shorts, and a private credit position negatively impacted by COVID-19."
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Looking ahead, Loeb said the company will remain a long-term shareholder in Intel Corporation, in addition to Prudential and Upstart Holdings. Third Point sent a letter to Intel in December expressing its views regarding the company's "dramatic underperformance" and steps it could take to address it.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| INTC | INTEL CORPORATION | 58.86 | +0.08 | +0.14% |
"We highlighted an urgent need for Intel to address its “brain drain” of engineering talent, the chief cause of the manufacturing and design deficiencies that have led to its declining market share," Loeb wrote.
The famed investor added that shortly after sending a note and ensuring engagement with the company, "Intel announced it was bringing back Pat Gelsinger as its new CEO. Gelsinger is a respected engineer and manager who previously spent 30 years of his career working closely with Intel’s legendary founders during the company’s best days...It is hard to think of a better person to motivate and inspire the best of Intel’s thousands of brilliant employees who will help build the company’s future."
Third Point believes that there will be an enormous opportunity for "additional shareholder value creation" once Gelsinger successfully repositions Intel as the "premier microprocessor vendor in the world."
"The semiconductor compute TAM is over $100 billion, including CPUs, GPUs, FPGAs, ASICs, and other architectures, and growth is increasingly driven by unstoppable trends like cloud computing and artificial intelligence," Loeb added. "Intel’s human, financial, and intellectual property resources are unmatched in the semiconductor industry. The ability to leverage those resources in order to better capture the full unbounded growth of this market opportunity set makes us excited to be long-term shareholders."
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Third Point's flagship Offshore Fund returned 16.1% in the fourth quarter, leaving it up 20.5% for 2020.
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