Loeb played it safe in October, missed out on rally

(Reuters) - Hedge fund manager Daniel Loeb, known for his string of big and successful investments, said he was too cautious in October.

Last month's rally ranked October as the best month for stocks in nearly a decade, but Loeb's much-watched Third Point LLC failed to get any lift, he said in an investment letter.

Turning his notoriously sharp tongue on himself, Loeb wrote "We only gradually increased our exposures near the market bottom and thus underperformed during the dramatic rise in October," in the letter that was seen by Reuters.

But Loeb also underscored the benefits of this year's more careful strategy. "While we have not generated significant gains this year, we have protected capital and exhibited materially lower volatility than the markets."

The missed opportunity in October followed one of the worst three-month periods in the $2 trillion hedge fund industry's history. Loeb's flagship Third Point Ultra fund declined 6 percent in the third quarter, but less than the broader stock market, which dropped 9.5 percent.

While many rival hedge fund managers floundered in 2011, Loeb has been in the black despite ugly market volatility through the year, especially in August and September. Some of the industry's biggest names, including John Paulson and Lee Ainslie, saw fund returns plunge into double-digit losses during the third quarter.

(Reporting by Katya Wachtel in New York; Editing by Svea Herbst-Bayliss, Tim Dobbyn)