What Dan Loeb Has Learned As An Investor
1. His style of investing has evolved and adapted to the investment environment, his process has evolved significantly. Importance of process itself on running an investment management firm. Leadership is very important. Most firms fail from dysfunctional process, or leadership of the firm.
2. Areas of focus and interest: if spending all your time reading research reports and only looking at screen, you will fail. Be well-rounded, travel, study things outside of the narrow topics of finance. If investing was just about numbers, any young accountant could do this. More than industry analysis, need to understand why you make decision, when it’s right to be contrary, when its not. Santa Fe institute has good ideas.
3. Importance in today’s world of political analysis. You can be right about financials, but if you don’t understand what the next move is by our politicians, you can get it wrong.
4. Looking at portfolios, think deeply about process over outcome. If you do something the right way enough times, you’ll win. Look at risk in an intelligent way, look at Alpha generation, not just how much money you make.
On Value Investing: Let’s not delude ourselves; some of us are just buying really crappy companies at low prices. Don’t make excuses for making bad investments at apparently cheap valuations. He’d rather pay up for a better business that has some growth.
On Managing Risk: He was down 30% in 2008, went from 6B in assets to 1.4B in assets, so he knows that everyone says they’re long term investors, but they still don’t want to lose money in any given year. He’s back up to 9B in assets now. He doesn’t want to lose money in any given year. Tries to have things in different sectors, and asset classes. Has 1.8B mortgage portfolio now for example. Uses tail-risk hedges, and shorts to hedge risk. To have a sustainable, growing business, managing volatility is important.
On “Stinky Feet Stocks”: When your first reaction to a pitch is that’s a terrible stock or industry, those have often been some of their best investments. He considers that a positive when it’s something in an out of favor industry. Auto parts in 2009, European banks in beginning of this year.