Dan Loeb outperforms with his flagship offshore fund returning 16.1% during the fourth quarter of 2020. Dan Loeb’s Third Point fund returned 20.5% in 2020.
Dan Loeb outperforms achieving alpha returns was mainly down to the fund’s holdings in a dark horse stock called Upstart Holdings (UPST)
Founded by Google technologists, Upstart launched in 2012 and originated its first personal loan in 2014. IPO transaction was priced by Goldman Sachs at $20. UPST is a fourth revolution fintech stock, which operates a cloud-based artificial intelligence (AI) lending platform. The company’s platform aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners.
“Dan Loeb’s Third Point fund returned 20.5% in 2020”
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So, Dan Loeb outperforms embracing fourth revolution fintech stocks, which are like cash machines for investors packed with brainy technology low liabilities, and high revenues.
“Our biggest winner in the Fourth Quarter was Upstart Holdings, Inc., which had a successful IPO in December” said Dan Loeb.
“Through September 2020, 70% of loans through Upstart were automated and approved instantly without human involvement.
Upstart’s AI platform has yielded a 75% reduction in loss rates.
(The typical age of an Upstart borrower is 28 years old, which is a valuable demographic), added Dan Loeb.
Investing in automation where the company has a young demographic market base is how Dan Loeb outperforms rival funds
But Dan Loeb outperforms by also being an activist shareholder investor. These investors acquire a large stake in the business, then pressure management to make changes that could improve the profitability of the business.
As we noted in a piece entitled, Dan Loeb urges Disney to digitalize, dated October 2020 the billionaire investor wrote to the CEO of Disney, Bob Chapek after acquiring a large stake in the company, saying “the billions in annual shareholder dividends would be better invested in the company’s direct-to-consumer streaming service”.
“Upstart’s AI platform has yielded a 75% reduction in loss rates”
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A month or so later the CEO of Disney replied,
“Despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses”.
Walt Disney Co (DIS) stock is up over 100% year to date.
“Constructive investments in The Walt Disney Company and Prudential plc were top performers, along with Pacific Gas & Electric Company, which we originally purchased as credit during its bankruptcy and now hold as equity” wrote Dan Loeb.
“Another top winner in Q4 was Foley Trasimene Acquisition Corp. II’s purchase of Paysafe, which we participated in via a PIPE transaction. Detractors included Alibaba Group Holding, three equity shorts, and a private credit position negatively impacted by COVID-19” he added.
“The rapidity of the rise and collapse of bubbles, fueled by retail trading platforms and social media and recent short squeeze in certain securities is nothing new” – Dan Loeb
Sidestepping bubbles partly created by retail trading platforms and social media is another reason why But Dan Loeb outperforms rival funds
“The rapidity of the rise and collapse of bubbles, fueled by retail trading platforms and social media and recent short squeeze in certain securities is nothing new. Indeed, as Jesse Livermore said in Reminiscences of a Stock Operator, (quoting Ecclesiastes), in investing, “there is nothing new under the sun”. 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” wrote Dan Loeb.
“ We managed to sidestep substantial losses for two reasons. The first is that we have always felt more comfortable with higher net and lower 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,” he added.
Dan Loeb outperforms by not shorting heavily shorted companies
“Since then, we have mostly avoided taking short stakes in companies with modest liquidity and large short interests” wrote Dan Loeb.
“On the economic front, the surprising resilience of the US consumer has informed our optimism since Q3 2020 about a rapid economic recovery following widespread vaccine rollouts” – Dan Loeb
Dan Loeb also expresses his optimism regarding the economy in his Q3 letter to investors.
“On the economic front, the surprising resilience of the US consumer has informed our optimism since Q3 2020 about a rapid economic recovery following widespread vaccine rollouts. Employment is still down 7% from pre-pandemic levels but jobs in sectors disproportionately impacted by COVID-19 such as retail, restaurants, and entertainment should return quickly as vaccinations ramp and consumers eagerly return to normal life” he wrote.
Dan Loeb’s Third Point also bought underperforming chip maker Intel
“After building a significant stake in Intel in Q4, we sent a letter on December 29th to Intel’s Board” he wrote.
Dan Loeb suggested to the Intel board in his letter certain steps the company could take to remedy a rapidly deteriorating outlook urgent need for Intel to address its “brain drain” of engineering talent. Intel announced it was bringing back Pat Gelsinger as its new CEO.
Dan Loeb outperforms and remains bullish due to policy tailwinds
“Both monetary and fiscal policy are also supportive tailwinds. We expect substantial additional stimulus in Q1 or early Q2 and the Fed remains firmly on hold, keeping nominal rates fairly low by historical standards” he wrote.
But Dan Loeb notes that inflation remains a chief concern.
“Consensus is strong that it will remain subdued given the high slack in the labor market but, if this is incorrect, the Fed will hike rates more quickly, shocking markets and challenging the recovery,” he wrote.
Dan Loeb outperforms and believes he can continue doing so by keeping yields, interest rates, and inflation on his radar
“We are focused on interest rates, which will help define how and what type of assets “work” at the margin going forward. The interaction between US nominal yield, the US real rate, and the effective difference between the two (e.g., inflation expectations) is our focus” he wrote.