From 1993: Jim Chanos Down As Short-Sellers Take It on the Chin Again

Kynikos Associates’s Jim Chanos fell 15% in 1993 short-sellers reduced their bets in over-valued stocks. Also see: Jim Chanos’ Testimony On Coalition Of Private Investments

Jim Chanos Down As Short-Sellers Take It on the Chin Again

June 29, 1993

Seth Klarman’s Collective Wisdom: Risk Analysis Is The Key To Investment Success

Please note this article is based on publicly available information, however ValueWalk just received Baupost's 2018 letter moments ago and will have exclusive coverage shortly. Seth Klarman is widely regarded as one of the best value investors the world has ever seen. Over the past few decades, his hedge fund, the Boston-based Baupost, has achieved Read More


The big short-sellers may be taking smaller positions this summer than usual, but they haven’t suffered defections from investors large enough to put them out of business. Like bullish “value” investors, people who short stocks insist that the practice will pay off eventually. Jim Chanos of Kynikos (which comes from the Greek for “cynic”) thanked his investors for their “continued support and forbearance” in his recent letter. He is said to be flummoxed that trendy steakhouse and video-game stocks continue to trade at high valuations , while large, well known companies like Wal-Mart Stores, Inc. (NYSE:WMT) “are savaged by the marketplace on the smallest of disappointments.”

Jim Chanos says Ursus Partners is about 86% “net short,” suggesting he hasn’t thrown in the towel and started betting solely with the bulls. But he has covered “virtually all”  his remaining commercial real-estate shorts, including some put on as far back as 1986, the letter says.

Where has he been hunting for stocks to bet against? There’s a clue in the letter. It predicts that the credit-card industry “is on the verge of a major shakeout” that could bring accelerating declines in credit card interest rates – and plunging profits for companies dependent on the credit card business.

The card companies’ price war has been masked up to now by a “once-in-a generation drop in short-term interest rates,” says Jim Chanos’s letter. He doesn’t urge short-selling any particular company but mentions a number of “pure play” credit-card stocks such as MBNA, First USA and Advanta. While these stocks are “priced for rapid growth to continue,” the letter says, the industry now faces an “inexorable decrease” in profit margins and returns on equity.

He concludes the letter with a prediction: “Record valuations, a hot new public offerings market, heavy insider selling and massive public buying keep us optimistic that our time will come!”

Via woodstonemanagement

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