Third Point CEO Dan Loeb said the short-selling environment is now much more challenging, and, as a result, his firm continues to reduce its single name short selling.
In the second quarter investor letter, Loeb stated his firm sees a "healthy upside" in the valuations of its portfolio, with favorable economic conditions "driven by declining inflation, which should eventually lead to less hawkish monetary policy."
"We are finding many high-quality companies trading at reasonable valuations, especially when considering their prospective growth or specific transactions they are undergoing to unlock value," wrote Loeb.
However, "the short selling environment is much more challenging than it has been historically," he stated.
"Fundamental analysis is increasingly taking a back seat to monitoring daily option expiries and Reddit message boards, as evidenced by the numerous short squeezes and manipulations of heavily shorted stocks such as AMC and Gamestop in 2021 and others this year," Loeb explained.
The firm hasn't abandoned short selling but continues to reduce its single-name short exposure in favor of market hedges and short baskets.
"We have also increased diversification and reduced position sizes of single name shorts, limiting our vulnerability to short squeezes," the Third Point CEO added.