In this article, we presented short selling legend Jim Chanos’ top 10 stock picks. Click to skip ahead and see Short Selling Legend Jim Chanos’ Top 5 Stock Picks.
Short selling is a tough business. The upside is 100% at most whereas the downside is infinite. Jim Chanos is among the most successful and longest lasting short sellers in the world. He launched his fund in 1985. According to Institutional Investor between 1985 and 2017, Chanos’ short stock portfolio lost 0.7% annually. That means if you invested $1 million in Chanos’ short portfolio in 1985 (keep in mind that Chanos is one of the most successful short sellers ever), your investment would have shrank to $725 thousand by the end of 2017. So, how is this an accomplishment? Why is Jim Chanos considered to be so successful? How did he become a billionaire by losing money shorting stocks?
The answer is relative performance. A short seller is successful if his short stock picks return less than the market. If the S&P 500 Index returns 15% in one year and a short seller’s stock picks gain 10%, professional investors still consider this short seller “successful” even though he loses 10% of this capital. Why? Because short sellers don’t just short sell. That’s what Chanos did. His Kynikos Capital Partners is actually 190% long and 90% short. His net market exposure is really around 100%. Even though Chanos lost 0.7% annually on the short side of his portfolio, these short positions allowed him to lever up on the long side of his portfolio. Overall, Kynikos Capital Partners returned 28.6% annually between 1985 and 2017, thanks to its 190% long exposure which was enabled by its 90% short exposure.
Labeled as one of Wall Street’s best-known stock pickers on the short side, Kynikos Founder and President, Jim Chanos sees a ‘Golden Age of Fraud’ in the speculative market. In an interview with Bloomberg, he said, “They begin to believe things that are too good to be true,” talking about the willingness of the public to ‘buy’ even if there is evidence of fraud laid out.
Aside from being Kynikos’ Founder and President, Jim S. Chanos is an American Investment Manager and a Certified Investment advisor who is an expert in short selling and specializes in looking for legal frauds. Kynikos Associates on the other hand is an investment advisory firm that he founded in 1985.
“The longer a bull market goes, the more sense of disbelief erodes”. Chanos, like the other investors, assumed that 2020 will be a write-off. It certainly is easier to find good shorts in 2020 but for him, they’re just not working. He said that there are companies that have large problems and are ‘mind-numbingly’ expensive but the market just ‘does not’ care about the facts. According to Jim Chanos, the ‘zero-interest-rate’ made it worse for the short sellers to make a profit. But he warned the bullish investors to not feel so ‘relaxed’ about the Fed’s effort to help raise the economy. “That’s a very…