1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (245) 

Dan Loeb Keeping His Powder Dry

November 07, 2011 | About:

Hedge fund manager Daniel Loeb recently released his third-quarter investor letter where he shared some macro insights.

First of all, it appears that Loeb is concerned about Chinese economic growth slowing. Due to his concerns, he shorted copper last quarter.

While we do not do this often, we will occasionally identify attractive discrete macro trades, which are more often short opportunities than long. A recent example of this was our decision to short copper prices during the last quarter due to weakness in Chinese demand.
Copper was one of the worst performing commodities last quarter. Copper peaked at $4.50 per pound but has plummeted to $3.50 per pound today.

Loeb also seems to favor keeping his "powder dry" as he patiently waits for further market dislocations.

"The main question on every investor’s mind is when we will start to significantly increasemarket exposure. As in past macro‐driven periods of unusual market volatility, it isimpossible to predict precisely when we will feel it is safe to get back in the water, althoughwe have taken small advantage of the optimism regarding the European situation that drove October markets sharply higher. We remain patient and cautious for the moment until we determine it is time to deploy our dry powder decisively."

One can conclude that Loeb most likely sees no imminent resolution of the European debt crisis. Thus, he has fled to the safety of the sidelines.

Finally, Loeb commented that the credit markets had some parallels with 2008 when private equity shops gobbled corporate credit at the peak.

"It appears that credit focused funds (and perhaps funds with broader mandates but too much capital) may have repeated the mistakes of the last credit cycle and traded down in terms of credit quality and liquidity in pursuit of yield. We are seeing early signs of potential stressed selling that we surmise are emerging from these and other sources. We are gratified that our discipline and patience in maintaining low corporate credit exposure will be rewarded. If past credit cycles are any guide, continued patience is advisable. We remember quite well how seemingly savvy and elegant the early prints in 2008 appeared – when certain private equity firms purchased with leverage bridge loans at 10 and 20 point discounts – only to see these investments wiped away when the other shoe dropped. We are looking forward to increasing our exposure as absolute value emerge."

Again, the theme of Dan Loeb's letter might be that it is best to keep "powder dry" and remain patient.

2011 Third Point Q3 Investor Letter Prospect Version

Rating: 3.0/5 (5 votes)


Please leave your comment:

More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by matsandalex

User Generated Screeners

daftheadersg hk best
henrikLynch inspiret Oct 17
lajor10Low EV/EBITDA
canidPE >50th percentile of INDUSTR
brucexoct 17 user defined screen
AngryQuality Growth cheap
EnjoylifeDad 1
punjanoot2007a academy+joe
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat