Dan Loeb - Lessons from 30 Years of Investing - [Invest Like the Best, EP.475]

Transcript from https://podmenti.com/t/e2beb729a7a9edd4

Welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
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Mm.
My guest today is Dan Loeb, the founder and CEO of Third Point. Dan started Third Point in nineteen ninety five with a few million dollars, and today the firm manages$24 billion across equities, corporate, and structured credit, venture, and insurance.
He is best known for his activist work at companies like Sotheby, Sony's, and Yahoo, and for the public letters he has written to boards over the years.
What I find most interesting about Dan is how much his approach has evolved across those thirty years. He came up as a credit and event driven investor at Warber Pincus and Jefferies, built Third Point, then layered in quality investing, thematic technology investing.
And now a very large credit business that sits alongside the hedge fund. We cover how he thinks about the AI stack and the companies inside it he believes matter most.
The difference between good and bad governance, the Sony and Sutheby stories, and the power of writing. Please enjoy my conversation with Dan Loeb.

Damn, we've only been trying to do this for
Six years. Welcome. I've been excited to finally chat with you about all things markets.
It's such a crazy time. And I was walking in here, I'm like, what am I actually the most curious about as it relates to how Dan runs his life? And one of the questions is the simplest, which is
In this time where there's more information than you could ever read.
Literally, what does your day look like to stay up to speed on all the investments that you've made, the investments that you could make.
How you stay on top of
The fire hose.
I
Wish I could say I have uh
Cloud code that is organized.
All the information in one place and I go through it all, but you know, I
Check the news and see what's relevant for the economy.
And what's relevant for our positions.
Try not to get too obsessed with the minute to minute stuff'cause that will drive you
I try to be a little more tactical.
Then strategic.
People who ask me about macro, what's important.
And I think when people think about macro, they think about all the typical stuff that the government reports.
Growth, unemployment, inflation rates, currencies, where's gold, where's crypto. And I think that all that stuff is trumped right now by two things.
Where's it well?
And that's gonna be dictated by
What happens in the war and geopolitics.
And
What's happening with AI both on the spending front
infrastructure and what's the impact of that going to be.
on society and on the economy. So those are the main things I'm focused on really.
Trying to deeply understand.
What is your model of both of those things?
Do you feel like you need to have just a clear view or a differentiated view? Like how do you process things as big as this where
Probably no one person can understand the whole thing.
I'm not natively a tech person, but I think given where the world is today
There was a time when you could say um
Just gonna punt on tech and focus on
industrials and consumer and
healthcare I think you have to be a tech person today. It's a big and growing
and compounding part of the economy. It affects everything else. So I think
Best as I can. I try to
Talk to smart people.
Regularly.
Jensen has laid out
Well and everybody talks about
The AI stack.
Starting with
Power and energy at the bottom and chips and infrastructure and moving up.
through LMs and software and applications and
how that plays through. And I think that's a good mental model to just think about.
Well then we've
played different elements of that through industrials and infrastructure and hyperscalers and
Things like that. But
Right now.
The socks is up forty percent.
I don't think I've ever seen
An event like that.
Fact if you just go back a few years.
Semiconductors were kinda left for dead. They were like roadkill in the market. Like people were just not.
And I think that all changed.
When NVIDIA reported its march
Results.
Three years ago.
I think
You either were there
Or it's okay if you weren't, you could quickly play catch up.
That was the big event.
And now of course it's sort of thinking about
The NVIDIA
Patrinium.
And the TPU ecosystems and how those play out and relative strength and how that
Plays through.
The different hyper scalers.
And then of course the foundational models.
I try to think in terms of
That stack but I also think about
What's going on?
The three most consequential companies today.
NVIDIA.
Anthropic.
And
Elon.
World.
All of his companies collectively.
There's a lot of ways to
look through the prism, but for me that's been an effective way to kinda think about
How things
Flow through.
How would you describe yourself as an investor? You have an early reputation for just incredibly precise.
ability to go through things with sort of a forensic lens as an activist early in your career.
But now third point is
A much bigger, broader, more diversified.
collection of twenty five billion or so of assets.
А до йосе.
As stylistically as an investor.
The roots of third point really
come out of my experience as a credit investor and my
Time at
Jeffries. Jeffreys was like my
Laboratory for studying some of the best investors.
My clients were people like
David Tepper.
Who had not yet started Appaloosa, but started Appaloosa.
Guys like Eric Mendich who ran the
Trading desk at Goldman.
Firms like Angelo Gordon, Farrellon.
was able to watch firsthand
How the best
I guess at that point we would call them either distress debt.
or event driven or risk arbitrage investors.
So my natural first lens was to think about credit.
But on the equity side to think about it.
In terms of a hierarchy
And a mental model.
I completely thought about it through the lens of
event driven investing. So
Merger arbitrage a little bit off to the side'cause that's
Less directional.
But on the non merger arb part, which is really just a
Mathematical exercise in earning a return.
And the risk that you're taking, but
Terms of a fundamental investment lens.
I think it would be best characterized by
Those types of firms and the best book
I think is still relevant today.
Would be Joel Greenblatt's book.
The classic
You can be a stock market genius.
Think the original title was You Can Be
A stock market genius, even if you're not that smart. I think he took that part out'cause investors
don't like to think of themselves that way. That's a brilliant book.
And most of the people I know in that world kind of use that as their
Framework.
Talked about things like spin offs.
Demutualizations.
Privatizations
Post rear equities.
That's how I thought about things.
It was totally unfocused on
business quality.
The mo
return on capital.
I barely even thought about relative multiples for different kinds of businesses.
All I thought about is
Am I buying something really cheap?
Yeah.
has the following characteristics.
A new security is often
Created.
Which
Is
Christ and valued
Uh
a very cheap price because of
A lack of liquidity.
So when a large company or any company spins off a subsidiary, especially in those days, or part of the business.
There's a new stock being born.
The existing investors at that point in time, especially usually mutual fund types.

For whatever reason
It maybe wasn't in their sector.
They just weren't doing the work. So it just
routinely sell it. So there'd be this sort of liquidity gap.
And if you could figure out the value of the business.
Those tended to be good trades. And that was exacerbated.
by the fact that the management teams would go out in the case of a spin off.
And do a road show.
That would

conservative view. Some might even say sandbag the numbers. Why?
Because people are always creatures of incentives.
They're
Incentive package would be set at the time of the spin off.
So they would come out very conservatively.
But there's more.
The companies themselves were inefficiently operated within these larger businesses.
So margins were lower than they
Should have been.
Sales were probably less.
The management team
didn't have the incentives to really
Optimize the businesses.
So that was an incredible business model and that dynamic that I just described.
It applied to spin offs.
It applied to
privatizations that applied to demutualizations, that applied to
Newly created companies like
Visa or MasterCard. So that was a beautiful
business and it was sort of under
appreciated for a long, long

Really excess returns.
Would take that.
basic framework and start applying it to other things like
The synergies that come
When you
Combined to
Companies in a major merger.
Something like the
Union Pacific Norfolk Southern.
Merger.
Things like that.
From nineteen ninety five when we started the fund.
Probably up until the
early
Two thousand thirteen to fifteen, that was our
And what changed in that
Yeah.
How would you describe that landscape today? Does Joel Greenblatt's book still as valuable as it was when you first read it? Are there opportunities like that that still exist? Are they too small for someone like you as an example? No, they still exist all the time.
The real opportunity
Today.
Yeah.
Understanding those types of opportunities
And looking for
Something that combines that with
A business quality lens. So let's talk about how
My business evolved.
And how we evolved.
I think if you look at a lot of the people who
I've underperformed or haven't survived.
The last decade or so.
When people were really
Stuck on the idea of deep value, low multiples.

how they viewed businesses less flexible.
about moving into
hire multiple
Companies or
growth your company. So
We basically just started to look at
companies that grew faster that had
better returns on capital that were
Quote unquote.
quality.
Businesses.
I kinda opened up a whole new world for us.
So I would call that
The other
significant part of what we do which would be
quality investing, thematic investing.
And that's when we started to organize our team.
Around
industry experts.
And less generalists and less around the transactions.
And if I
Would suggest a couple
books. I'm sure people have mentioned them.
I think you may have even interviewed some of the people who wrote them.
Probably the two
The most consequential books that I read that had the most
influence on me in that area.
One would be
The outsiders.
Talks about
More from the perspective of
The
Managers who understand capital allocation.
Along with great
operation so
Companies like
Danaher, trans dime.
And others.
The most influential.
An eye opening book to me. It was this book, Quality Investing by Cunningham.
And that I think really lays out
The idea of
Super high quality businesses with
Good motes, the high return on capital.
And that you might want to own for many, many
Yeah. What happened last year was really interesting'cause a lot of these
Companies that appeared to be super high quality.
Probably the worst.
year and going into the beginning of this year because the disruption of AI
Алатиз апарні хай кваліті компанії.
very rapidly became less so.
One of the most distinctive things about you
and the business is how much of that you've done, how much changing of your stripes or evolving of your strategy you've done relative to others.
And I'm curious
I'm assuming that's gonna have to keep happening, the world's gonna keep changing.
Probably at a faster clip even than before.
How have you done that?
And how do you think about
the conditions or the cultural touch points or
What is the key to doing that well across thirty years now for you?
And
Two thousand thirteen.
I was
In a room.
It was a dinner in Davos, which I don't go to anymore.
It was a Goldman Sachs dinner.
Eric Schmidt.

talk and you go back to two thousand thirteen.
It was a time of
When you look back at it was almost quaint in terms of the technological
Innovation. This was probably
Around
The time that maybe the Uber app
Came out and the iPhone.
was starting to come up with some interesting apps which were starting to be
Adopted.
The SAS revolution.
was sort of at the front end.
Companies like Microsoft were starting to find their footing.
Think about all the period from
The dot com.
Bubble
to the
GFC.
The nineties were a time of incredible
technological innovation.
And yes, stuff was happening.
I don't think we've got

There was a lot going on. There are other things going on in those years, but it was
The sexy industries
At times where
natural resources, energy, financial services.
So he said to the room.
It will be your natural tendency to think that this
Increase in
technological innovation disruption change.
that we've been experiencing for the last couple of years is an anomaly and that things are going to go back
to kind of a steadier
Type of
Innovation and growth, but hold on to your seats because things are only gonna accelerate from here.
And he was really right.
I think you could have said that again in
Two thousand seventeen.
You could have said it again in two thousand twenty.
I think you can really say that right now. Like it is just
Continue.
to logarithmically
Accelerate.
Yeah.
going through something now where we're at the front end of
A I think we're just h gonna have to
learn to live with this.
In the same way I don't know that
From an evolutionary standpoint, our brains
have been able to deal with things like social media.
And some of the other changes.
It's gonna take a lot of work for us to just prepare ourselves as a species.
And even mentally.
How to ingest all this information and
Brad Dersner.
Talks about
This book
Essentialism.
And I think we also
have to adopt this idea of a centralism because you can't
Do it all. You have to figure out the things that are most important and most relevant to what you do.
Is your sense that there is a lot of opportunity to earn great returns still in this environment? Like the fact that Socks is up forty percent this year.
We're several years into
Everyone kinda being aware that this thing is a big trend and yet
Still these things are up tremendously in year three or four.
There's so much wisdom in books for investing.
One of my favorite books, Reminiscences of a Stock Operator quotes.
I think it's from Ecclesiastes, which says there's nothing new under the sun.
And
The question is will AI
Take human
Nature.
And the flaws
In
human emotion out of the investment process.
Or
Might the AIs even adopt some of that.
Under the name of
Risk management or
Managing downside or whatever.
It will test the theory that
There's nothing new under the sun.
And the thing that doesn't change is
Hysteria's
Bubbles.
Panics.
And just the extremes of human nature, but
Optimistically and pessimistically.
Think about just this year.
Why is the socks up so much?
It's up so much because
All the evidence pointed to
The fundamentals in
Semiconductor, semi
Cap equipment.
Memory.
Everything around it being
Super strong.
What happened? Expectations were too high.
In the same way that
NVIDIA
After Q one three years ago.
had this monster quarter
People piled on it kept going up.
You had a couple of quarters in a row where it put up
Solid numbers.
than shockingly good numbers and the stock tanked.
The whole sector went down.
And I think people were just scratching their heads saying
Why the numbers look so good?
And stock prices keep going down and then
The same thing happened with Micron.
Yeah.
Phenomenal quarter up eighty percent.
way ahead of expectations. The stock went up a little bit because expectations were too high.
And then
It went down. Now that happens a lot. Happen to meta
A couple of years ago they put up a good quarter.
Stockwin. Uh was like Wiley Coyote.
There's no one else to buy the stock, it tanked.
So those things happen.
And I think that's

Comes in.
To understand and to be able to
Make those tough trading decisions when
Fundamentals are going one way and stock prices are going the other way.
To be able to
Take the pain of
Losses.
In the short run.
The advantage that someone like me being a fundamental investor who
Doesn't
Make trading decisions based on computers.
Is that
There are still a lot of
market irregularities caused by
Some very good strategies, but collectively
They create these
Anomaly. So you have
quads and CTAs, you have
Pods.
They have a
Great.
strategy for them and their investors, but it causes some
Unusual behaviors because
Fundamental investors believe that when
As Warren Buffett would say, if uh
stock goes down, you celebrate it because it's a chance to buy more at a better price.
They have risk metrics which have forced selling on the way
Down so they do the opposite.
It might be rational for their
business model, but it's not rational for
Long term investors. So you have a lot of these
Things that will
continue to create opportunities, I think, for fundamental investors.
So interesting to imagine where the source of potential outsize returns are human behavior, which as you said, I may maybe that changes how much that impacts prices.
And structural things like these and absent those two.
maybe it would be a less exciting market or something like that.
Yeah, but then you'll have corporate transactions.
That will create opportunities.
Feels like there's always something
There's failures, there's
credit cycles, there's bankruptcies.
It's hard to imagine the computer sitting on a creditors committee.
And working through
The capital structure and
being able to transact.
If you think about a continuum of public securities.
And private equity.
Yeah, I will not do
private equity, always need people to do deals. And then you have
The stuff in between that requires a lot of
negotiation and
human interaction and high touch.
private credit.
Or
Working through a restructuring.
You'll probably always need
Human beings.
to do that part of the investment business.
It seems like we're entering time as well where governance becomes incredibly important, especially in companies. I mean, we saw this play out with open AI.
in the public.
Where the governance structure and the people on a board can matter tremendously to outcomes.
This has been an area where you've spent a huge amount of time thinking, writing, investing
A lot of your great successes have come in and around this topic.
When did you first get interested in it?
Where'd it come from?
My dad
Who was a securities lawyer.
was an expert on corporate governance and wrote books about it.
He's actually the first
person I'd ever heard of who actually talked about
corporate responsibility.
He's on the board of Mattel and later Wim Sonoma.
He'd go visit these factories where
They were sourcing their materials from and
Wanted to make sure that they were ethically
Soros and the workers were treated well at Metall or Williams Sonoma, so
He was really a ahead of his time on that stuff.
What was he like as a person?
My dad was
Incredibly funny.
Warm, irreverent.
Really smart.
He was the only son of two
Immigrants from Europe, my
Grandmother, his mother came from Poland.
In nineteen fourteen, his father came from Romania and like
Eighteen ninety eight.
Incidentally his
Mothers
Youngest sister.
She was the first of that family.
That was born in this country.
Her younger sister founded Mattel Toys.
It was a self made
personally went to U C L A, did well, went to Harvard Law School and
Spent most of his career at one law firm.
I'm curious for you to sum up if you think about everything you've done in governance, what good and bad governance are, like just at the highest
possible level. How do you think about it?
I think we have an incredible system. Let's start with that.
There's something beautiful about the American
capitalist system in the aspect of it.
Yeah.
Creates boards of directors.
That ultimately have
A roll.
Within
But
Capitalism and a
democratic system.
Where
The board is responsible.
And answerable to the shareholders.
And is responsible for accountability for the management.
Setting strategy.
And
Key financial.
Decisions.
We have a great system in place.
Were there shortcomings?
within governance happen is when
the board members lose sight of what their
Duties are as fiduciaries.
Or
The composition of the board.
is such that they aren't really equipped.
to
carry out that duty because they're
is a lack of
Deep knowledge or
intellectual or talent diversity on the board.
Or
They are
Thinking excessively about
Things other than their duty to shareholders.

Ада респонсиліз.
But I think ultimately they should feed into creating shareholder value.
If you go back to both Milton Friedman things that Warren Buffett have said.
Of course, boards care about
The communities that they serve, the products, the employees.
proper conduct, et cetera. All those things are very important.
They are not inconsistent with
creating shareholder value. In fact it's part of creating shareholder value.
But I think
Especially a few years ago.
The
Business round table said
We're no longer going to
Say that
Board's responsibility is primarily to drive shareholder value.
Well I think it was a distraction.

Bad governance I've seen is when
They let their loyalty
or relationship to a CEO who's not up to the job.
overshadow their duty to shareholders.
That's probably the main thing.
It's very important to understand the boards don't run the companies.
In a well functioning company.
The board is strategic.
Not tactical.
So they should be really
Focusing on those things.
But if the company isn't
allocating capital well.
Or is it holding the management?
Team responsible.
Where there's some very obvious things.
That should be done differently.
That's when we can come in.
What have you learned about
The power of writing.
Yeah.
Investing, you're obviously extremely well known for some letters you've written to chairs of the board and things like this.
throughout your entire career. And I just know you're a writer. You've used writing in a lot of different ways.
What is great writing to you and how do you use it well?
Great writing is really about
Clear thinking and organizing your thoughts.
Communicating them to people.
In a clear way.

Outcome.
You can also use
Writing to influence and in our case it's been very helpful.
In
Getting the attention.
of other shareholders.
Sometimes the board itself.
Shaking them up a little bit.
Getting
Media
Attention.
Focused.
On a board.
I think about
Activism you've got
A few different levers.
You can have uh financial lever.
So we can make a bid for the company.
You have legal levers, proxy contests, litigation.
information requests, et cetera. Social pressure is actually a very effective way.
And I think the best way to
Put social pressure on a company is through writing.
And
PR efforts around the company.
If I look across all the different activism that you've done.
It seems like maybe there's an interesting theme of
You going activists on places or people or companies that
Hold themselves out as quite high status.
But then they're not living up.
To it.
Whether that's Sotheby's or some of the Japanese conglomerates or just certain CEOs and their family members on the board, things like this.
There's like a status component that
would be deserved if being earned on an ongoing basis, but maybe the company wasn't and you saw that gap as an opportunity.
Is that a thing? Do I see a correct pattern?
Certainly was the case in Sotheby's.
Can you tell that story? That's such a good story. Such an interesting one.
I'll come back to the story about Sutheby's in a second.
Board members often feel a sense of
status for being on these boards.
And I think that in itself needs to be
Dispelled because I think
If you're
on a board because you are either getting status or you're getting income.
And that's your primary reason for doing it, not
For
representing shareholders and that's where we come in to try to
This intermediate that
And take away some of the status or increase the cost of doing that.
Sutherbees I thought was just an interesting company. It was a pretty small
Company and a small target for us.
It's actually a very good example of what you're talking about because although it was a public company
It wasn't really run for the shareholders. It was run
Because I think people did feel like it was
High status.
Business.
Had been mismanaged, it didn't really recover.
From
And any trust.
Violation that
spilled into criminal
charges brought against the company and some of the individuals.
The business itself
Was a good business, but just run
Unbelievably
And
Profitably.
The company had been around since the seventeen hundreds.
And some of the business practices had not really been
Updated since that time.
We took a position, we bought
Nine point nine percent of the company.
We went after the board, but really just
wanted them to implement some basic
business practices that we thought would be better.
The CEO
That was there.
He didn't have a particularly deep knowledge of art.
I think he came out of the rug division. Didn't really have deep relationships with the collectors.
Either. So we came in and
Give'em a shot for a year and then
I think the board came to realise he wasn't the right guy. We brought in guy named Tad Smith who was terrific from MS G cleaned up
The operations in
Prove the technology.
They sold the company.
Good result. Yeah, good result.
Do you think that there's a lot of that?
Parking out there today.
If one wanted to start
a career and only do that. Go find companies where it was kind of mediocre or bad.
management where if it was good management the company would do way, way, way better. Do you think there's still a lot of that out there?
I think there's probably
Some of that.
In the
Sub two billion dollar
Market cap space.
Not necessarily even
Bad management, but
B plus management.
Not optimizing.
What we're finding is that
It's almost like a negative selection process.
We'd much rather invest in a great company with awesome management that's doing
Right things.
And cheer them on then.
kind of find something that but for
mismanagement the company would be worth a lot more.
So what you find is
That
If
The things that you've identified.
are badly run, then there's probably
Ten times more things that are badly run.
One of the interesting things about their point is that if I understand it correctly, it's something like sixty percent credit, which I think would surprise a lot of people. And also when you started, I think you started with no institutional investors. It was individuals, families, things like this.
And it seems like you sort of have felt your way into the strategy. The strategy as it exists today probably wouldn't go on like a clean PowerPoint deck.
If you're a new firm doing this from scratch.
It would be hard to pitch what you have now.
And I'm really interested by that, by
A firm which has evolved into its model and
It's sixty percent credit today and it's a blend of other things.
And I'd love you to just talk about
that evolution and why it is and the value of that evolution versus predicting, okay, here's exactly what we're gonna do.
First of all, third point is a
Whole collection of businesses.
My
Main focus is on
The hedge fund strategy.
Which started at
Three
million dollars. It's now about nine billion dollars.
Today.
That fund itself is about
Thirty percent credit in total.
The rest of the portfolio.
It moves all over the place.
It is primarily equities and I think our
Equity book is
Generically around.
A hundred and ten long by
Thirty or forty.
Short.
But that can be all over the place.
Going into the war it was down
We really dialed back our risk.
Think for the first time since two thousand nine.
We did have more credit exposure than equity, but we very
quickly have taken that back up.
The hedge fund were still more equity than credit.
But across the fund we have
A CLO business with
About seven billion dollars in it.
Within Third Point itself we have about
Thirty percent of
Which would make it about
close to three billion dollars in structured credit and corporate credit, but that's in the hedge fund.
And then we have
an insurance company that we manage about a billion dollars.
In credit.
We have a couple billion dollars.
in asbestos liabilities that we
Manage.
In its own pool.
And we just started a private credit business, which is small.
What's the thread that unites all those things, like asbestos liability and private credit and
Corporates.
It seems all over the place.
I've worked in venture capital, I've worked in risk arbitrage, I've worked in credit, I've worked
But equities.
Having a
View value.
And
Thinking about valuing enterprises.
Whether there are
earlier stage, mid stage, or mature businesses.
And looking at
to invest in whatever the fulcrum security is.
In that enterprise, obviously for an early stage.
company the only fulcrum is
The equity. What does that mean, fulcrum?
And one that's gonna have the best risk reward.
It's usually used in terms of
Companies that have
Debt and equity.
Do you wanna be in the equity? Do you wanna be in the junior debt, do you want to be in the senior debt?
Let me give you an example. Like when
Credit Suisse.
was going through its
troubles and being bought by UBS.
You could invest in the preferred shares.
You can invest in the hold coat paper.
Or you can invest in the opco paper, which was
most senior within the capital structure.
This fulcrum there was actually
the hold coat paper that had the most upside, but the opco paper
Also did well. The pref was wiped out. So that was
The wrong place to be.
But there are always different interesting places within the capital structure.
To play.
And having a
Comprehensive view.
of these companies
Gives you
I really
great vantage point to make alpha generating investment decisions. Let me give you two
Examples.
We had a good enough knowledge of Twitter.
And X AI.
To understand the equity value of both of those businesses.
And without making
A decision.
Whether or not we wanted to own
Equity in XAI.
There were two financing transactions that came up.
One for XAI.
And another one for Twitter. The Twitter debt was a resale.
Of the financing
debt that was offered when Elon
bought the company.
Morgan Stanley sat on it for a while.
It was deep under water.
When it got close to par they decided to sell it.
Most credit investors
We're really scared and nervous.
to buy that even though it was like ninety six, ninety seven cents on the dollar.
It was yielding around a twelve percent yield.
We were comfortable enough.
With the underlying value of the business and with the fundamentals
That
We made that.
At that time our largest
credit position.
Then when I'm
XAI did a debt financing.
Very few credit people wanted to play
In that one because there was no cash flow.
Two billion dollars in revenues and uh
twenty billion dollar enterprise value, but we were very comfortable that this was a real business. We looked at them
As credit investors, but we also were able to bring in
resources of our
Private.
Investing knowledge.
Yeah, it's a fascinating example of the value of seeing across the whole ecosystem and being able to invest however you want.
Which brings me the question of again, as I understand it, you're sort of still the single portfolio manager that sits on top of all these assets across all these different buckets, like ultimately you have to make the decision to buy or sell something.
Let me just push back on that.
Portfolio manager of the hedge fund.
But
Private credit.
CLOs structured credit.
A high yield business.
They'll have their own PMs.
I will come in if there's a
An interesting
Opportunity.
We supersized both of those.
Both Twitter and XAI.
When I got involved, but
I'm not even on the investment committees.
of those businesses.
So to zoom in.
I'm just the hedge fund where you're the PM.
You mentioned before you could be a great investor and not bother with tech, Warren Buffett style or something, and now today the market's seventy percent tech. What do you think of that complex of companies today, the sort of Amazon, Microsoft, Google?
big technology companies.
relative to the last ten years of watching them and investing in them carefully. What does this set up feel like to you today?
I think the setup's great.
You can still buy NVIDIA.
Maybe the multiple slightly higher right now.
But
There's such a catch up trade in NVIDIA.
At fifteen times.
Twenty seven, twelve times twenty eight for the most dominant
Very fast growing.

I look through our whole
Sami is
Cap equipment.
Hyper scalar
Portfolio.
I thought
My instinct was gonna be okay, we've got to
Take.
Profits here. I looked at the valuations. I looked at their growth rates.
Unless you are really
Draconian or negative and you think that
Somehow the AI world is gonna roll over.
In thirty one or thirty two.
I think it's
most attractive sector right now. It's where
The bulk of our capital is invested.
As a person that was born in this sort of value discipline and made a lot of money in that kind of investing.
Those people who tend to have not evolved as much
would point the day and say, Oh, it's just like another classic example of like a giant
Bubble in the making.
Do you feel
Seeds of that at all? Are there aspects of the market that feel
Euphoric or strange or something.
Are gonna yield a return then
You would have to believe that there
Just
Flashing
money down the toilet and that they're not gonna get a return.
Because the gap earnings numbers are
Really
strong and the multiples on that.

Yes, but the cash flow after Capex is
Squad but these are companies also that are
for the most part, investing money off their balance sheets.
They're generating enormous amounts of cash. So
It's very different.
From
The dot com bubble, which we were short.
going into and had good numbers in those
Years you don't have the evaluation bubble now.
On those companies.
that you had on those companies back in those days.
You see
Anthropics revenue growth.
And the adoption
And
the usefulness of its products and the anecdotes that you hear about the next generation
Mythos.
And what that's going to do.
We're barely scratching the surface.
There's so many layers of corporations that are just getting started. So
I'm in the optimists.
Camp in terms of seeing this as something that's gonna play out. What about the rest of the world? I'd love you to tell the Sony story, the story of going to Japan and spending so much time there and everything that you learned. I think it's a really colorful, cool story.
But it's also an excuse to ask about
the rest of the world and what you see going on there. I know you'd be willing to invest anywhere.
Whereas the American companies get basically all the attention in markets these days.
Whichever order you want to go into can tell the Sony story first, that's just an example of this. But I'm curious how you think about everything outside the US.
Israel's an interesting market. It's kind of a
Niche year market and we had
One of our top
investments there that despite the war has been one of the
Best performing.
Stocks in our portfolio.
In terms of the big markets.
There's a lot going on in
Korea, Taiwan, Japan, I'm
Probably more bullish on
Um just in terms of a hunting ground to find
Great companies.
The European markets are
Tough right now.
Given the regulatory environment.
They just have a different
Attitude about
business and capitalism and
We're invested in a couple businesses there.
Rolls Royce.
Yeah. S M L.
But the companies that are
in Europe dependent on the local
Economy or
Challenged. Can you tell that Sony investment story and kind of everything you learned through that process?
At one point.
We own seven percent of Sony.
There's a list of companies that we
at one point own significant.
stakes in that had I not sold would be worth
In the mid to upper
Single digits, billions of dollars.
Sort of took two runs at Sony.
The first time we invested in it.
It was basically a conglomerate.
It had
Obviously the main Sony studios
It had a semiconductor business.
A life insurance business.
Obviously had all the consumer electronics.
So we advise them to
Separate these businesses certainly
At a minimum take out the
Insurance.
business which had no place.
Yeah.
We met with the management team.
We had a
Big.
Jack.
That we went through.
At the end of the meeting
We told them
Well, in the interest of transparency
We shared
our investment thesis.
With the New York Times.
So Andrew Ross Sorkin wrote the story.
They went into a panic when we told them
About that.
Andrew agreed to
embargo the story.
Until
The Japanese market closed.
The story came out.
And they had prearrang us to go on a tour
Of
They're
Innovation Center.
But before we went on the Innovation Center.
When we told them that
There was gonna be a story that came out.
His name's Kaz Harai.
He goes, You told the New York Times? I said, Yeah, but just the New York Times, nobody else. He says, Okay, just the New York Times
It was wild. We were walking around the innovation center.
And we're looking at our blackberries at that time.
The story went everywhere and
Ended up being a really good investment.
They really pushed back.
On
Everything that we recommended.
took them about five years. And I think one by one
They've done many of the things.
They've broken out the semi business.
They partially
Spine out.
Or they plan to spin out their
Financial services business.
The one thing I learned is that
Activism in Japan is really hard.
Он враст трипся вид.
The Prime Minister.
And we met with his right hand man
Sugar Sun.
I told him I would write a paper explaining to him why
Activism was
Good for
Japan is a country.
And they had released something called the Three Arrows.
is about fiscal, monetary and restructuring.
Am I
Suggestion was that they needed to
Include corporate governance.
And in particular, focus on return on investing capital.
As part of their
Three arrow strategy.
And I came back to New York.
I met with Larry Lindsey and Neil Ferguson.
We wrote a three person.
Paper. They did most of the writing.
But we wrote a paper.
For AEI has and picked up as an editorial in the Wall Street Journal.
And
They then adopted that. It was pretty cool.
But the government actually really wants the companies to do this. It's really the management teams.
that are more entrenched'cause the shareholders and the government want that. And you've really seen
Progress.
since we first went over there. They're breaking up some of these
Cross.
Shareholdings.
They're penalizing companies that trade at discounts to book value. There's
Bunch of other things.
Definitely moving in the right direction.
If you think about all the investments that
You've made.
Is there any that stands out as the one that taught you the most just about like how this world
Works.
I'm just always interested in these like instructive
Learning by doing versus by reading. You can read all these amazing books, The Outsiders and Joel Greenblatt's book and
They're great.
But it feels like part of investing is you have to get
hit in the face or
experience things to really
Imbibe the lessons.
Is there any investment through your career that stands out as one like that?
I think investing
In Danaher has been the most instructive because
It really is truly
One of the best run
Businesses.
It was
Also one of the first experiences that I had
Investing in a super high quality business.
That
Internalized some of the
Best practices.
Of
Creating a corporate
operating system.
My partner
Then Muneb and I actually went to
Gotta hurt.
And got them to boil down their five day
D B S Danaher business system training into a one day
thing for us. It was really instructive.
It was a really, really good investment.
For about four years.
What I learned
By observing them
By watching them
incrementally improve the business quality of the company.
by shedding lower quality businesses.
buying higher return on capital.
Better quality, higher margin.
businesses to shift from kind of general industrials
Into health care.
I learned a ton.
And it then stopped working as an investment.
Because of Covid.
There were all kinds of
Irregularities
Surges in orders and
Increases in inventory
And then a correction for that.
all the benefits that they got from the surge in demand.
It was a tailwind became a headwind.
They still have it.
It'll be interesting to see
how they navigate AI in the next few years. We actually sold it
Recently
The recent
Sell off of
Gotten back in, but in a small way.
I learned a lot about
How
Really thoughtful.
Business.
Thank you.
philosophically and deeply about their operating system.
about optimizing
and motivating and inspiring their team and
Even the fact that they have a system in place.
And it's also been
Incredibly instructive watching the diaspora.
of executives. Larry Culp was there, right? Yeah, Larry Culp was there.
The guy from Ingersoll Rand, which is
Been a well run business.
If you have to sum up that one day
What was it? Just some system for continuous improvement was the thing that you took away?
Cult is a little bit too strong of a word to describe it, but they had a very strong corporate
Identity.
And culture.
It's one thing to say.
We are a Kaizen company and we're dedicated to
Continual improvement.
But what they have.

implementing improvement across the organization.
There were a lot of things that I learned that day, but one of the things I took away.
Is that
They would hold people very accountable.
And individually
show when people were underperforming.
But the interesting thing about it was that
Because these things were all addressable and fixable.
when they found someone that was underperforming, it was celebrated.
Because
Instead of shamed because look.
Look what all these things you're doing wrong. We can fix those.
And they did. They do that over and over and over again.
And they do it both in terms of operations.
Working capital
And it was really cool to just
walk around a place. It was really
Amazing how everybody's on the same
Wavelength.
Trying to accomplish that.
Can you talk about the insurance business that you've built and acquisitions that you've done?
Everyone talks about
In investing the stuff you're putting money in.
For less discussion of like where the money's coming from.
Apollo's certainly done this with Athene. There's been a lot of cool innovation in the liability side.
How have you thought about it? What have you done?
We actually
started an insurance company de novo.
In two thousand ten.
We were back to
by myself.
Kelso.
And Pinebrook.
And we started a
Bermuda based reinsurance company.
And the thesis.
There when we started was
We have an executive
that will do these reinsurance deals.
We will invest the float.
All in third point and in treasury. So it was sort of a barbell.

Defer taxes.
Get leverage on our capital.
Green light re at the time was trading at one hundred and forty percent.
of book value, I thought this would be the future. We'll just keep
Raising money for this.
Vehicle.
The problem was that the reinsurance
This is took a sharp turn.
For the worst.
Yeah, we had some good years.
At third point, but we were like
Scrambling.
to offset the losses from the insurance company.
About three years ago.
I said, Well
We had the right idea.
But
We had the wrong insurance.
Vehicle. We were doing
P and C insurance, we really should have just done
Uh
I knew it is.
Problem is with the annuity business though it can't invest in the hedge fund, it can only do credit.
So a few years ago
We started a reinsurance company. We've done
Two things since then.
We merged our reinsurance company.
into a closed end fund.
That we had in
The UK
Third point offshore investors.
We reincorporated
That business.
From Guernsey.
To
Came in.
And we repurposed it from a closed end.
investor in my hedge fund into an insurance company.
Still has some of the investment in the hedge fund, but it now owns our reinsurance company.
That company will then be in a position to
Do more reinsurance deals, issue primary annuities.
And then third point manages the money in
Private credit.
Structured credit.
whole loan mortgages
Some direct lending in real estate.
Some
Investment grade, corporate debt and private
Investment grade.
But we also put the equity
Of that business.
in things like the junior tranches
Uh
Structured
Financing.
But we'll also be using it for growth equity investments.
What's the hardest investment lesson that you've ever learned?
I would have to say our investment in FTX.
It looked great.
Company was growing fast.
We could
Verify it all on the blockchain.
We felt like we had some good company.
on the cap table with us, we did.
Turned out.
Yeah.
It wasn't what we thought it was and
It was
Painful because
No, I think in general
One of the amazing things about
Ar
Capitalist system.
And that venture backed companies
have this incredible ability to go out.
and raise capital for interesting ideas.
Most people are good actors with good intentions.
We've rarely had
Any kind of mishap. Doesn't mean that you don't do very
Careful due diligence.
I will say that now our due diligence process
We definitely like check bank balances and do like the most
Basic due diligence that probably would have turned stuff up on this. If you hadn't
ended up being a crook or very sloppy.
The venture investments he made would have the best venture investor of this era.
Anthropic.
Solano, everything he did, I mean the guy had a great nose for value. So that was probably the
Toughest.
The mistake that we made within the last two years
We obviously were looking for and we've taken some great shorts and things that have been
Disrupted.
By AI.
But where we've made the mistake.
is
Thinking that companies that were controversial
But we thought we knew better the AI wasn't
really going to
Affect
This part of the info services business.
Or these guys had proprietary information.
That's where we've made some
Mistakes.
There probably will be a shake out there where there will be some Phoenixes that rise
From the ashes, but that's been
Yeah.
investment lesson of the last year or so.
How do you guide your team?
through this. You've got a bunch of extremely smart
Ambitious, I'm sure hungry.
analysts, investors, et cetera. Like what do you tell them
Going into this
Crazy uncertainty.
First of all, we all have to just
Start using it. The only way to get good is this is just
Two
Use it.
People at different levels. We have
Some
Experts that we have
Brought on that our
Native
computer scientists that are
Coming at this as
Expert AI people who are
working on specific projects, they're coaching the team.
But we're also encouraging everyone to
Use
AI.
We do hire system integrators. We have a
System integrator.
Working with us.
But
I'm obsessive about
Continual
Improvement.
both at individual level and organizationally.
McClaude really enables you.
To be an individual self improver, it makes you very autonomous.
It'll give you back whatever you put into it. If you put a lot of time and energy and effort into it.
So I'm encouraging everyone to do that. And I think
Collectively.
We're all sharing best practices and
Some people are running
Agents overnight and using tons and tons of tokens other people are
Probably more like me, just using it more for queries and things, but
We're all very involved with it.
Where do you feel like your and the firm's view is the most different from your peers these days?
You're close with lots of the great investors of this era that run firms like this one.
Everyone's trying to do the best they can. Where do you feel the most
out by yourself or
Distinctive in how you view the world.
I think we're
Maybe less pessimistic that there's going to be some kind of
Apocalypse from AI. I'm still pretty optimistic that
It will
create opportunities and create jobs and create
Net jobs obviously lose in some places.
gain in other places. The differentiator for us is that we can always
default into credit investing.
We haven't been in a scenario where we had like a real credit cycle.
But I'm very comfortable investing
In
Incredibly stressed times. We really haven't had any
Since twenty twenty.
So going back to like
Covid.
The thing that we got really right'cause we had a good year that year, but it wasn't because we piled into stocks, we piled into
I G credit.
Answering the question a little bit differently. Having that credit
Arsenal and our
Back pocket.
What do you suppose more?
Places don't do that. Seems like it would be an obvious thing.
To provide an advantage, have more options for expressing a view.
It's so different.
I grew up in credit. I worked on a trading desk.
You don't just electronically trade
Bonds, you have to

Firms.
Part of the reason for expanding into
The CLO businesses that
We had the high yield market, trillion and a half dollar market.
Pretty well wired.
We
We're sort of dabbling in the broadly syndicated loan market, which is another
Trillion and a half dollars.
But we also have
Eyes on a six trillion dollar
Structured credit market.
These are not markets that lend themselves to tourism.
When
The opportunity's really
Come up, we're already
there with the relationships and the understanding the companies
What makes a great analyst today
in any way that's distinctive from what made a great analyst
twenty years ago.
The great analyst twenty years ago was like someone that could build a
model really
Fast.
And understand
Some really complicated
restructuring like when I was
I'll use myself as the example of that ancient
Dinosaur of an analyst that used to be useful.
When I was at
Jeffrey's
Drexel went bankrupt.
And there was a thick disclosure statement.
About three or four inches thick.
On this bankruptcy of
A company
Called Drexelburnum.
And this thing
got passed around and nobody could crack the code on this thing.
And I was relatively new.
And I knew I had to differentiate myself. So I just spent like a whole weekend
Studying this thing.
And ultimately
That was one of the best investments ever in the history of
Bankruptcy was the claims.
on Drexel.
'Cause people didn't understand the complexity of the different value pools and liquidations and
The claims were overstated.
Yeah, but it was
Super complicated. And that was the kind of thing that differentiated
the analysts of the nineties when I did that. I think now
It's somebody
Who's like a Gavin Baker type. A junior Gavin Baker, somebody who
understands a company or understands an industry.

Technology.
Let's get away from technology for a minute.
Casey's general stores.
Why was this one of the best performing stocks? It looked like a
Text stock.
It was
Because they were not a
convenience store chain. They were a pizza chain.
Masquerading as convenience stores. I had an analyst who went
To Texas and eat pizza and
That kind of an analyst today.
I think
Is what
It's different.
If you think about the next ten years for yourself.
And everything going on in markets.

This era.
What excites you the most about this next ten year period?
As an investor.
And you're lucky you have all these resources and you can invest in anything in credit, equity, whatever.
And then what worries you the most?
The thing that worries me the most is just
Not having the
time to do the things that
I care about
Spending the time with my family or
Being able to go surfing and
Read.
Books that I want to read.
Not really worried about
The business. And then the thing that excites me is just the things that have excited me that keep me going. I mean
What an awesome opportunity.
To be able to
Incorporate.
Everything that you
can possibly know about the world that's relevant.
to
study industries, to study technology, to
Say consumer behavior, to look at the US economy, look at politics.
To travel to
The Middle East which I think is probably the most
Vibrant.
interesting part of the world. I mean who would have thought
twenty years ago or even three years ago.
That Bahrain
The
Emirates.
Saudi
Morocco, Azerbaijan would be better allies to the US.
Than NATO.
Who have thought that their growth rates would way exceed them or their embracing of technology.
That's the stuff that keeps me going. Just being able to incorporate
All these different things and also to form relationships.
With people that are doing interesting things.
It's just incredibly fun to hang out with.
Jeremy O'Brien who founded PsyQantum and talk about
Quantum computing or lad Raz who started
Next Silicon or
the CEOs of the companies that we invest in have get to know Mitch Rells from Danahurst.
It's so cool to finally be able to do this with you. I've obviously followed the Third Point story for many years talking to you about it and others.
And the thing that I really take away is
Draw your own path.
Don't just copy other people. Third point doesn't really look like any of the other firms.
that had been built, but it works for you and for the team.
So it's so cool to finally hear about it directly and do this with you.
When I do this, I ask the same traditional closing question of everyone. What's the kindest thing that anyone's ever done for you?
Before I answer that.
I do want to talk about the importance.
Of kindness, and I know you know it's important because you asked this question.
Every

It's important

If you
elevate kindness as
a characteristic that you want to elevate in your hierarchy of things that you want to be
Honest and
truthful and
Smart, clever, innovative. Kindness is very m important.
I think it goes with
Forming deep relationships.
With people
Kindness enables you to be empathetic.
I think it's that empathy.
that enables you to
connect with people, to learn from them, to be better as a human being.
I hate to sound crass, but ultimately it will benefit your
So I will say
On the kindness front.
Be kind to the people, not just that will benefit from you.
Be kind to people, you have no idea how it will
Ever
Benefit.
Yeah.
And sometimes it will.
And sometimes it won't. Sometimes you just
Connect with someone who thinks you're a better person. For his own sake.
But anyway.
I came down to my friend.
Carter.
So
When I was
Let's just say in between
Jobs before I started at Jeffer's. I had about a
six or nine month period where I wasn't working.
And uh he let me sleep on his couch.
And then when I got my job at Jeffery's
I suggested to him.
A bunch of different distressed
debt situations and
He trusted me.
The few hundred thousand dollars of his
Money and then it turned into
Well over a million dollars and then he
Then rolled that into my
Fund.
It really enabled me to get my business started. So that was
One of the kindest things.
I wanna say one other thing on the kindness topic. Gavin actually said this and I think he was
Quoting Pomerlucky.
He said.
The one thing money doesn't buy you.
Is
Friends that believed in you when you had nothing. It's a great lie. Amen.
Shout out to Carter.
Dan, thanks much for your time.
Thank you very much.
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