Dan Loeb: We Continue To Invest In The Integration Of Our Fundamental Process And The “Rise of the Machines”

Johnny HopkinsDan Loeb, Shareholder LettersLeave a Comment

Dan Loeb recently released his Q32018 shareholder letter in which he discusses the difficulty of investing in the market this year, the current market environment, and how he plans to invest in the future.

Here’s an excerpt from that letter:

In the hit NBC television show The Good Place, (spoiler alert!) the audience is led to believe that a group of people who led righteous lives arrive in a utopian village where they are given the homes of their dreams to live in, are matched with their soul mates, and can eat endless amounts of frozen yogurt and never get fat. Eventually, the characters learn that their “soul mates” were chosen in error and that the angel played by Ted Danson was actually an evil demon who concocted the scenario as a way to torture them. Turns out, the “Good Place” was actually the “Bad Place.”

Looking back, it has become clear that we and many investors thought earlier this year that we had arrived at the “Good Place” in terms of market conditions. In January, fueled by tax cuts and synchronized global expansion, PMIs rose, economic growth estimates were revised upwards along with corporate earnings, and stocks surged across the board, especially growth stocks. Then, in February, volatility spiked to record levels and stocks dropped precipitously after a series of technical dominoes fell into place. After October’s market rout, it seems that the environment this year ought to have been dubbed the “Bad Place Market.”

As a firm, we continue to invest in the integration of our fundamental process and the “Rise of the Machines” across our single name, sector, and portfolio positions. We remain excited about the application of alternative data insights into long and short investments.

Over the next few months, we will focus on further evolving our “quantamental” process to aid in portfolio selection, construction, and hedging. We see opportunities to shape our portfolio borne out of a more thoughtful understanding of the derivative markets, passive and quant flow impact, cross asset signaling, and how investor behavior sometimes creates extremes in positioning.

We have seen again over the last month what the new era in quant and ETF‐driven markets looks like and we are determined to evolve in order to thrive as fundamental stock pickers in this environment. Led by our new Managing Director, Bob Boroujerdi, we will focus more on these areas to ensure we avoid errors of commission and omission, seek out mispriced assets, and optimize sizing. Finally, we are focused on layering in additional systematic capabilities to identify capital structure opportunities and leverage our  experience in ESG more robustly.

You can read the entire Q32018 shareholder letter here – Dan Loeb Q32018 Shareholder Letter.

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