Dan Loeb: The Lost Art of Short Selling, and Why Stock Picking is Back

**Jason** (0:00)
Legendary activist investor, Dan Loeb. He, of course, is the CEO and CIO of Third Point.

**Dan Loeb** (0:06)
The lost art of short selling has come back, and it's absolutely critical. Doesn't matter what you do, you have to be really selective. People talk about stock pickers market, this is a bond and credit pickers market. When we were small, our main tool was shame and humor.

**Jason** (0:21)
Dan Loeb turning up the heat on Nestle over the weekend.

**Dan Loeb** (0:24)
The shift has really been more towards a dare to be great message. Activism without proxy contest is like Catholicism without hell.

**Jason** (0:34)
You're very active on the Twitter as well. You found your voice.

**Dan Loeb** (0:39)
A lot of emotion brewing there.

**Chamath** (0:41)
Can we actually start with that? Before Twitter, you were actually quite active, but they were in very different places. I mean, you were in Wall Street Beds before Wall Street Beds existed. Can you just walk us through your evolution as a public persona?

**Dan Loeb** (0:56)
Sure. I mean, there was this brand new technology that came out called the Internet. Really shortly thereafter, long before Reddit or any of these other things, there were a series of chat boards. There was Yahoo, there was something called Silicon Investor, a few other ones, and people would congregate in Kibitz. It was done mostly anonymously, and it was an interesting place to exchange ideas.
It was really the Wild West. People could pretty much say or do anything, but there was a lot of substance there too. It's not actually that much different than from today.

**Chamath** (1:35)
Did you engage at all in any trolling, per se?

**Dan Loeb** (1:38)
Well, some people use the term OG. Sometimes I say I was the OT.

**Chamath** (1:44)
The original troll?

**Dan Loeb** (1:45)
Yeah. No, I did. I mean, it was fine. I didn't know I was one day going to run institutional money and have a big fund, and I was just having fun and blowing off steam.
It was fine. I mean, investing is fun. Particularly on the short side, I mean, there's so much humor in it when you detect these companies, especially in the 90s. I mean, it was really unsupervised. There were some incredibly fraudulent companies out there, and it was just fun to uncover them and kind of taunt the management teams and ultimately prevail.

**Chamath** (2:26)
You have one story above others that kind of stands out in that era?

**Dan Loeb** (2:31)
I mean, there were a bunch.
There was a company called Actrade that I remember run by a guy who was like a repeat fraudster. And we uncovered it. And I know we really got under this person's skin. And ultimately, it was really just a factoring company trading at five, six, I don't remember what it said, some large multiple of book value. And they had created a new technology called TADS. I don't remember what TAD stood for, but they were basically repackaging factory securities and saying that they had some special technology. They were financing refrigerators and things like that.

**Chamath** (3:18)
Tell us your evolution as an investor. When you started Third Point, I mean, you started with very, very little capital. Now it's almost 30 billion of AUM.
You're multi-strat, but you learned at Jeffreys. I think you learned helping people like David Tepper allocate capitals. Just walk us through how you learned to invest.

**Dan Loeb** (3:39)
Well, I started really fascinated by investing and wanting to do it.
I remember when I was 10 years old, my dad was a notoriously bad investor himself, so he didn't give me any good examples. He was a great lawyer, not a great investor. But he took me to meet a broker and I started investing. Then in high school in the 11th grade, I got a job at the branch office of Payne Webber, working for a guy named Alan Crown, who let me post his books and make cold calls. I think we broke certain securities laws, but I think the statute of limitations has passed. I would trade options on oxidized petroleum and teledyne. There was a lot of volatility and I think I had flurries of making money and lost all of it a couple of different times, but it was a good lesson. I continued doing it in college and then my learning started really formally at Warburg Pincus, where I really learned to value enterprises as my first job, kind of across the spectrum of private equity and venture capital. I worked at a risk arb firm, which was really invaluable, and then skipping forward, I had way too many jobs in my 20s, but I got really serious at Jeffries. I had an amazing opportunity to work on the distressed debt desk there. I started out as a research analyst and I was just drinking out of a fire hose. There was so much activity. The securities were so cheap coming out of distressed.