Jim Chanos, Kynikos Associates founder & CEO, says valuation is the least important determinant when looking for ideas on the short side. “We’re looking for flawed businesses; we’re looking for flawed accounting [and] technological changes,” he says.
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David Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More
markets is squawk masters of equities, neel kashkari. find the next short, if you will, what are you looking for? it can be a combination of things, andrew. valuation is probably the least important determinant when we’re looking at ideas on the short side. we’re looking for flawed businesses, we’re looking for flawed accounting, we’re looking for technological changes that — a big theme for you now is technological changes. i has been for 15 years. the internet has been a leveller. it’s been a great, great economic tool and it’s created great wealth but it has also made a lot of businesses obsolete. one of the companies you’re short and you talk about is coin star? yes. why? we don’t have the graphic unfortunately but the graphic showed total digital entertainment spending in the u.s. is declining. peaked about four years ago. and dvds as a percent are now beginning to do what vhs cassettes did ten years ago. they’re beginning their decline. and coin star has, unlike netflix, which has transitioned out of — or is trying to — of the hard dvd copy, coin star is in the business of renting you dvds out of a kiosk. the red box. yes. and cash flow margins in these types are business are very high because you’re the last guy standing and everybody who wants to rent dvds come to you but inexorably you reach a tipping point where dvds are supplanted by streaming. how long are you willing to be patient for? our typical holding period has historically been about a year. but we’ve had shorts on for three, four, five years. remember, a professional short seller gets paid while you wait. we earn interest, though in this environment that’s ligiblenegligible. you’re also focused on mobile computing. what does it mean? smartphones took off three years ago. up saw the hockey stick sort of growth pattern and tablets are just interestingly, are just beginning to do that now. if you go into board rooms or conference rooms around america right now, the only thing you pretty much see are tablets. you don’t see people lug notebooks in anymore. even the class i teach at yale, most of the kid now have tablets in front of them as opposed to putting notes into a notebook. so it’s happening before your eyes and it’s a declining business. ultimately margins will compress and there will be some casualties on the road i think of — but do you look at a company like dell, which i think you are short, do you ever look at a technology company and sap they can reemerge? a company is going this way and then you look that which and then bam — yeah, but for every company, there’s ten that doesn’t get out of their core competence. people tend to view them as value stocks, they’re very cheap, they’re going to distribute cash to the shareholders. that almost never happens. kodak, which was selling patents. what did they do? they entered the printer business. your views on rim for example? we were short. we covered our short. we have no position. when did you cover your short sp. last year in the 20s. we were short in the 60s. you see these happen a long time in advance. we remember a lot of computers. remember dec? yes, i remember data general. at that time you heard the same story, they’ve got an installed base, they can generate — harvest the cash. it never happens. i remember eagle computer. do you? flew off the cliff, drove it off the cliff. at’s the whole 128 stories, the whole intellectual property route in massachusetts. still to come in the next hour of squawk, we have robert shiller, the co-founder of the