Why Loeb's Move Is Different

 | Jul 23, 2013 | 3:15 PM EDT
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Laura Martin of Needham & Co. downgraded Yahoo! (YHOO) today after upgrading it last week following its earnings and disclosure of how Alibaba did in the first quarter. Martin cited Dan Loeb selling a majority of his holdings in the company as the reason for the downgrade.

It's important to keep a few things in mind. Loeb sold 12 million shares of Yahoo! in February when the stock was around $20. At the time, there was similar handwringing as we're seeing now as some wondered why he sold and if he had a change of heart. Five months and $9 later, we know that argument was wrong.

It's also interesting to note that the maximum percentage ownership of Yahoo! stock by hedge funds occurred one month prior, in January. It's gone steadily down since.

So much for the smart money.

Loeb's selling is different from all the other hanger-on hedge funds. He is an impeccable fund manager and his team is first rate. Everything he did as an owner of Yahoo! has been right on, and I appreciate that. But he has his own reasons that might have guided his decision to get out that say nothing about his long-term views. The chief ones I think would be valid include:

  • A desire to focus his activism fully on a different target, e.g., Sony (SNE).
  • A desire to close out a profitable trade after two years.
  • As an insider and board member, he could only sell at very specific times. He's now under no such limitations at current levels.

I'm not saying it was wrong for Loeb to sell, even though I continue to hold the stock and think it's heading higher. I am just saying that you need to understand that every investor has different criteria for buying, holding and selling a stock.

When you own 6% of a company worth well more than a billion dollars, anytime you sell, you are going to send a signal to the market that you've lost confidence in the company and the stock is going to be affected.

In this case, Loeb went to the board, offered to sell directly to them and get the overhang mostly out of the way in one fell swoop. The board probably believes that the market will digest this news and move on in a few days -- just as it did in February.

The large volume today and yesterday are likely mutual fund buyers who are in the stock for three to five years, believing that CEO Marissa Mayer has the goods to turn the company around. That's a stable base to build on.

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