MIB: Jim Chanos on Having an Edge

This week, we speak with famed short seller Jim Chanos, founder and president of Kynikos Associates LP, the world’s largest exclusive short-selling investment firm.

Chanos has identified — and sold short — many of the past 3 decades best-known corporate disasters. His celebrated short-sale of Enron shares was dubbed by Barron’s as “the market call of the decade, if not the past 50 years.” He also made bets against Baldwin-United, Commodore International, Coleco, Integrated Resources, Boston Chicken, Sunbeam, Conseco, Tyco International, and most recently, Valeant Pharmaceuticals.

He explains why he believes Elon Musk’s first love is SpaceX, and that “Tesla is a zero.”

Chanos said that when he launched Kynikos, there were a few 100 hedge funds, only 20 or 30 of which generating alpha. He presently sits on a number of boards where he helps to allocate capital. Market participants have gotten better, the landscape has become more competitive, and the funds have turned into large 300-person businesses. Despite 11,000 hedge fund choices, today there are even fewer hedge funds outperforming.

He asks, via Julian Robertson, the all important question “What is your edge.” Most managers lack a sustainable edge — trading, research, deviant perception — as reversion to mean is such a powerful process.

His favorite books are referenced here; our conversation transcript is published here.

The show is broadcast on Bloomberg radio all weekend; you can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Soundcloud. Our earlier podcasts can all be found on iTunesSoundcloudOvercast and Bloomberg.

Next week, we speak Ed Yardeni, Founder and Chief Investment Strategist of Yardeni Research, and former Chief Investment Strategist at Deutsche Bank.