In a letter to investors on Wednesday, Dan Loeb, head of the hedge fund Third Level LLC, addressed the latest market volatility spurred by the GameStop buying and selling frenzy led by the speculative investing Reddit dialogue discussion board, WallStreetBets.
“The latest brief squeeze in sure securities is nothing new,” Loeb wrote. “As focused securities have began to return again to earth, wiping out fortunes on the way in which down as they did on the way in which up, we are able to see that this was a bubble no totally different than different manias over time, going again to the Dutch Tulip Bulb Mania within the seventeenth century. What’s totally different right this moment, nevertheless, is the rapidity of the rise and collapse of bubbles, fueled by retail buying and selling platforms and social media. Giant brief pursuits have been additionally an accelerant on this conflagration.”
He famous that his agency was capable of “sidestep substantial losses” by sticking with “larger internet and low gross publicity.”
“It’s tempting to assume that decrease nets indicate decrease threat, however latest occasions are a stark reminder that leverage, in all its kinds, is a double-edged sword,” Loeb mentioned.
As well as, Loeb famous the agency has had “a number of earlier painful experiences of our personal taking positions towards firms with giant brief pursuits” and determined to chop its losses. Loeb mentioned Third Level has “largely prevented taking brief stakes in firms with modest liquidity and enormous brief pursuits.”
Loeb mentioned that Third Level’s largest winner for the fourth quarter of 2020 was Upstart Holdings Inc., which had a profitable initial public offering in December, and Foley Trasimene Acquisition Corp. Different constructive investments the agency had in 2020 embody the Walt Disney Firm, Prudential, and Pacific Gasoline & Electrical Firm.
|UPST||UPSTART HLDGS INC||102.18||+7.05||+7.41%|
|WPF||FOLEY TRASIMENE ACQUISITION CORP.||10.77||+0.27||+2.57%|
|DIS||WALT DISNEY COMPANY||187.67||-3.24||-1.70%|
|PCG||PG & E CORP.||11.80||-0.20||-1.67%|
|BABA||ALIBABA GROUP HOLDING LTD||267.85||-1.08||-0.40%|
In the meantime, Third Level’s detractors included “Alibaba Group Holding, three fairness shorts, and a non-public credit score place negatively impacted by COVID-19.”
Trying forward, Loeb mentioned the corporate will stay a long-term shareholder in Intel Company, along with Prudential and Upstart Holdings. Third Level sent a letter to Intel in December expressing its views relating to the corporate’s “dramatic underperformance” and steps it may take to handle it.
“We highlighted an pressing want for Intel to handle its “mind drain” of engineering expertise, the chief reason for the manufacturing and design deficiencies which have led to its declining market share,” Loeb wrote.
The famed investor added that shortly after sending a observe and guaranteeing engagement with the corporate, “Intel introduced it was bringing again Pat Gelsinger as its new CEO. Gelsinger is a revered engineer and supervisor who beforehand spent 30 years of his profession working intently with Intel’s legendary founders throughout the firm’s finest days…It’s arduous to think about a greater individual to encourage and encourage the very best of Intel’s 1000’s of good staff who will assist construct the corporate’s future.”
Third Level believes that there might be an unlimited alternative for “further shareholder worth creation” as soon as Gelsinger efficiently repositions Intel because the “premier microprocessor vendor on the earth.”
“The semiconductor compute TAM is over $100 billion, together with CPUs, GPUs, FPGAs, ASICs, and different architectures, and progress is more and more pushed by unstoppable traits like cloud computing and synthetic intelligence,” Loeb added. “Intel’s human, monetary, and mental property sources are unmatched within the semiconductor trade. The power to leverage these sources with a purpose to higher seize the complete unbounded progress of this market alternative set makes us excited to be long-term shareholders.”
Third Level’s flagship Offshore Fund returned 16.1% within the fourth quarter, leaving it up 20.5% for 2020.