An interview with famed short seller and founder of Kynikos Associates, Jim Chanos. In this interview, Jim discusses how he got into short selling and why short sellers are important to the market and economy. Jim also talks about risk management, China and public v professional traders.
Charlie Munger: Invert And Use “Disconfirming Evidence”
Jim Chanos: Importance of Short Selling, Risk Management and Career
Well Wall Street was was a difficult place in 1979 1980. Nobody won to war. So I ended up going back to West and got a job in Chicago for a firm called blithesome and Dylan and I pointed out to people that my first full year I earn more in two months working in a steel mill in between my sophomore and junior year in junior and senior year as a union pipefitter than I did working on Wall Street with bonus. That's how bad Wall Street was. So why did you stay. I was fascinated with the stock market. My dad had turned me on to the stock market I was a kid and was always intrigued by it and was intrigued by it even in the 70s and the dad was what was your first job. You were an analyst analyst at investment bank for a couple of years and then I moved over and became an analyst at a retail shop in nineteen eighty two. How did you go from those jobs into what you're doing today. Well very first company I looked at was a well-known company called Baldwin United which everybody remembers as the Baldwin Piano Company. It was a high flyer in the 80s and morphed into financial services insurance. It turned out to be a giant fraud. And I wrote it up. The company collapsed in late 82 early 83 and it was from that point on that our clients at the firm said well what else does he like.
And I had no predisposition to be a short sighted analyst but I figured maybe I could make a living that way. I mean did it liquidate. It was the largest financial bankruptcy United States history. Up until that time and so it was a big deal. A number of large brokerage firms had huge exposure. It changed regulation in the insurance market. So it had some far reaching implications well beyond just the bankruptcy itself. So did you use that to springboard into your current firm or how did you get your current firm start from there. I went from there New York came calling and I took a job with the Deutsche Bank's brokerage arm which at the time was called Atlantic Capital. And for the next couple of years I worked I worked in New York doing sell side research and writing up lots of companies. And then from there I started my own firm in the fall of 85 are about to have our 30th anniversary. Congratulations on that. Tell us the significance of the name Kynoch Grossberg group of ancient Greek philosophers who lived outside of Athens during the golden era and they believed that self-discipline and independence of thought was the way to a true democracy and they would challenge any demagogues who basically you know were saying stuff that wasn't true and that you would recognize it as the root of the word sitting there with the cynics. Are you a cynic. I think I'm a cynic. In the classic sense of the Greek definition which was which was not a pejorative as I think we see it in English today. The cynics were there to sort of keep people honest.
And I think that that's one thing short sellers do in the marketplace I know were often vilified and people think we wear the black hats but in fact we're the only real time financial detectives and I like to say that short sellers are the financial detectives and the regulators are the financial archaeologists. They're more than happy to tell you what happened five years later you know but doesn't really help your viewers or are my investors. I constantly invest in Wall much like you thinking that short selling not only is it relevant it is it is sacrosanct to the investing world because without it you've got this one directional thing but expand further in terms of what the role of a short sellers is so that the general public understands why short selling is so important in the capital markets. Short selling occurs all the time in commerce and everyday life. Anybody that receives cash upfront for delivering goods or services in the future is engaged in short selling. So if you think about a lot of businesses that we hold near and dear as part of our everyday lives their short selling schemes insurance is a giant short selling scheme. Sure insurance companies collect.