Q3 2022 Investor Audibles: Third Point Capital, Ensemble Capital, Greenlight Capital

Episode Summary

Executive Summary: The transcript compiles major Q3 2022 investor letters from Third Point, Ensemble Capital, and Greenlight Capital, revealing a common theme: managers are navigating a volatile bear market by emphasizing high-quality businesses, selective value opportunities, and hedges. Across letters, they debate recession depth, inflation, and Fed policy, while highlighting specific longs in Colgate, Disney, PG&E, NVR, Schwab, and resource/credit positions as attractive risk-reward setups.

Main Topics: Macro outlook: recession, inflation, and Fed tightening (Priority: 5/5): Managers wrestle with whether markets have already priced in a mild recession versus a more severe downturn, and whether inflation is peaking. They broadly agree the Fed’s aggressive tightening is the dominant macro force, but differ on the long-term effectiveness and side effects of policy. Third Point’s portfolio positioning and capital preservation (Priority: 5/5): Dan Loeb frames the quarter as one focused on preserving capital and selectively deploying into high-conviction opportunities. The letter emphasizes defensive quality, event-driven ideas, and hedges while acknowledging gloomy market sentiment. Select equity ideas: Colgate, Disney, and PG&E (Priority: 5/5): Third Point details why it sees upside in Colgate’s defensive brands and hidden Hills pet business, Disney’s streaming and ESPN transition, and PG&E’s regulatory recovery, safety investments, and rerating potential. Structured credit and high-yield opportunity set (Priority: 4/5): Third Point argues credit is increasingly attractive due to elevated yields, limited forced selling, and improving technicals. The firm has shifted toward more senior, better-collateralized structures and shorter duration. Ensemble Capital’s quality-compounder approach (Priority: 4/5): Ensemble argues that recessions are difficult to forecast, so investors should own durable, high-quality companies with strong competitive advantages. It frames portfolio performance through the lens of resilient businesses and secular growers. Greenlight’s bearish stance and opportunistic shorts/longs (Priority: 4/5): David Einhorn says the market is in a bear market and that the firm has reduced gross exposure while holding bearish views on stocks and bullish views on inflation. The letter also reviews winners and exits across event-driven and cyclical ideas. Business-model case studies: NVR and Charles Schwab (Priority: 4/5): Ensemble uses NVR and Schwab to illustrate resilient business models: NVR’s asset-light land strategy and market-share focus; Schwab’s scale, efficiency, and rising net interest revenue in a higher-rate environment.

Key Arguments: Markets are already pricing substantial bad news, but valuations remain attractive if the economy avoids financial Armageddon; this creates selective long opportunities alongside hedges. Recession timing is nearly impossible to forecast; investors should instead assess recession depth, duration, and business resilience. High-quality companies with pricing power, strong brands, and capable management are the best way to navigate an uncertain macro backdrop. Colgate’s Hills pet nutrition business is a hidden gem that could command a premium valuation if separated, while the core business should benefit from easing supply-chain and cost pressures. Disney’s stock undervalues the long-term earnings power of its parks, streaming, and ESPN assets; management actions on pricing, content spending, and D2C monetization could improve profitability. PG&E’s regulatory and safety improvements support a rerating versus peers, with continued earnings growth and potential dividend reinstatement. Credit is becoming compelling as high-yield yields rise to levels that offer attractive breakeven economics even if defaults increase. In structured credit, moving up the capital structure, emphasizing collateral-backed loans, and keeping duration short improves resilience while preserving attractive returns. NVR is advantaged by its asset-light model, conservative balance sheet, and ability to take share during housing downturns. Schwab benefits from scale-driven efficiency and higher rates, which should expand net interest revenue and operating margins over time. Greenlight believes the Fed is intentionally depressing asset prices to curb demand, while supply-side reforms are being neglected, making it prudent to stay bearish and conserve dry powder. Greenlight views several holdings as event-driven or cyclical monetization plays, with exits driven by deal completion, valuation, or deteriorating macro conditions.

Data Points: Third Point flagship offshore fund return: -3.2% - Q3 2022 performance in Third Point letter Third Point top five winners: PG&E, Ventix Bioscience, Cano Health, Sentinel One, Short A - Q3 2022 winners listed by Third Point Third Point top five losers: Colgate-Palm Olive, Disney, Short B, Private A, Ferguson - Q3 2022 losers listed by Third Point Colgate organic sales growth: ~5% to 6% - Third Point notes recent multi-year organic sales growth at Colgate Hills organic sales growth: 11% to 12% - Third Point describes Hills Pet Nutrition growth over several years Hills operating margin: Mid- to high-20s - Third Point cites Hills profitability Hills share of Colgate sales and profits: About 20% in 2022 - Third Point’s estimate for Hills contribution Hills standalone valuation: $20 billion - Third Point’s estimated 2023 valuation at 25x-30x earnings Colgate valuation: Low 20x 2023 earnings - Third Point’s current valuation view Disney streaming loss: More than $1 billion last quarter - Third Point discusses D2C losses Disney Plus US price increase: 38% - Management action cited as a profitability catalyst ESPN linear affiliate fee: About $11 per subscriber per month - Third Point compares current linear economics to D2C transition ESPN household base: Over 70 million households - Current linear distribution scale PG&E stock performance in Q3: +25% - Third Point notes outperformance versus utility sector XLU utility ETF performance in Q3: -6% - Benchmark comparison for PG&E PG&E discount to peers: 6x - Third Point says it trades at a 6x discount on 2023 earnings Third Point corporate credit book return: -5.3% - Q3 credit performance contribution High-yield index yield to worst: 9.68% - Third Point’s bond math example as of Sept. 30 High-yield index spread: 552 bps - Third Point’s bond math example High-yield index duration: 4.1 years - Third Point’s bond math example Structured credit strategy return: 1.3% - Third Point Q3 structured credit performance Structured credit current yield: High teens - Third Point describes portfolio yield after recessionary loss assumptions Senior bond exposure change: 20% to 45% - Third Point increased senior exposure during 2022 First-loss paper sold: About $500 million - Third Point de-risking in structured credit Ventix original post-money valuation: About $20 million - Third Point describes early investment in Opilion Third Point flagship fund top positions/hiring: Bo Teal and Pranava Venkatraman joined in 2022 - Business update on new team members Ensemble relative return in Q3: -2.6% vs S&P 500 -4.9% - Third quarter letter performance comparison Netflix performance: +34.6% - Major contributor to Ensemble in Q3 Charles Schwab performance: +44.1% - Major contributor to Ensemble in Q3 ServiceNow performance: -20.6% - Notable detractor for Ensemble Nike performance: -18.4% - Notable detractor for Ensemble Google performance: -12.2% - Notable detractor for Ensemble Recession odds estimate: Above 50% - Ensemble’s view given current warning signs U.S. excess savings buffer: $1.5 to $2 trillion - Ensemble cites household cash savings supporting consumption Historical recessions since WWII: 12 - Ensemble’s historical framework Mild recession market decline: 15% to 30% - Ensemble’s description of typical mild recession drawdowns Severe recession market decline: 30% to 50% - Ensemble’s description of severe recession drawdowns 1970s inflation peak: 9.1% in June; 8.3% in August - Ensemble compares current inflation to the 1970s Greenlight Q3 return: 4.0% net of fees - Greenlight Capital Q3 2022 performance Greenlight YTD return: 17.7% net of fees - Greenlight first nine months of 2022 S&P 500 Q3 return: -4.9% - Benchmark referenced by Greenlight S&P 500 YTD return: -23.9% - Benchmark referenced by Greenlight Atlas Air exit IRR: Almost 80% - Greenlight’s realized return over two-plus years Green Brick earnings beat: $2.08 vs $1.24 consensus - Greenlight notes Q2 earnings surprise CEIX free cash flow: ~$50/share by end of 2023 - Greenlight’s expectation for Consol Energy Twitter deal price: $54.20/share - Greenlight discusses merger-arbitrage position Twitter quarter-end price: $43.84/share - Still below the deal price at quarter end Gold price move: $1,807 to $1,661/oz - Greenlight notes gold weakness during quarter

Pivotal Quotes: "we are seeing very attractive valuations, particularly assuming an economic scenario short of financial Armageddon, and are taking up exposures as we speak." — Dan Loeb (Third Point): Macro positioning and willingness to add risk despite recession fears "the best course of action for equity investors is to own high-quality companies that are protected by strong competitive advantages, have very capable management teams, and are prudent in their risk-taking" — Ensemble Capital Management: Core philosophy for navigating uncertain recession risk "it is now clear that we are in a bear market." — David Einhorn (Greenlight Capital): Central framing of Greenlight’s Q3 letter and bearish positioning

Implications: Listeners should expect managers to stay selective, favor durable businesses and collateral-backed credit, and use hedges or dry powder as macro volatility persists. The transcript suggests opportunities may be strongest where pessimism has already compressed valuations but business quality remains intact.