In his latest Q2 2021 Investor Letter, Dan Loeb explains why he’s made the shift from value to growth. Here’s an excerpt from the letter:
In our Q2 2018 Investor Letter, I laid out our rationale for shifting the emphasis of the portfolio toward higher quality compounders and growth stocks, although they trade at higher multiples than traditional value stocks, in a section titled “Growth Is Where the Value Is”. Recently, legendary value investor Howard Marks expressed a similar view, albeit much more comprehensively and articulately than I could have.
In this framework, we had in mind companies like S&P Global, Visa, Danaher, and some large tech names we own such as Microsoft, Google, and Amazon. We retain high conviction in each of these companies, and believe they still offer excellent “value” despite near-term earnings that exceed the S&P average multiple of ~ 18x.
While valuation always matters, our analysis is more focused today on business quality, differentiation, innovation, disruption and market structure. This contrasts with our previous focus as an event-driven fund on using “events” (spinoffs, recaps, mergers, etc.) as opportunities to find “cheap” stocks. We have not abandoned this approach and have found that the broader lens helps us recognize more opportunities.
For example, today, we see many high-quality companies “hiding out” behind the opaque curtain of corporate reorganizations, or smeared by the taint of having come public in an unorthodox manner and bearing the four scarlet letters “S-P-A-C.”
You can read the entire letter here:
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