Legendary short seller Jim Chanos may be winding down his hedge funds, but that doesn't mean he's out of the game entirely.
"I'm not dead yet," Chanos said during a wide-ranging X Spaces interview with Pensions & Investments Editor-in-Chief Jennifer Ablan on Dec. 13. "We're still very much out in the field, just with a different set of players."
Chanos announced plans to wind down his hedge funds last month, and said he plans to return client funds by the end of the year. He will continue to operate his company, Chanos & Co., as a family office and research and advisory firm for select clients.
His decision to close his funds was "simply a business decision," he said, citing the firm's dwindling assets under management and financial losses from running the hedge funds. The firm, which managed $6 billion in 2008, manages less than $200 million today.
"We were willing to run it at a loss for a number of years, (but) I think it's just not fair to my partners to keep asking them to do that," Chanos said. "The fun side of the business is just not profitable at this point."
Though he's best known for being the first to spot fraud at Enron, Chanos said the "defining moment" in his career which launched him as a short seller was the collapse of Baldwin-United in late 1982.
Chanos recounted writing "a couple of long detailed reports" about the accounting issues of Baldwin-United, which he described as "fraud at the insurance company level."
The reports did not immediately have an impact on Baldwin-United's stock price, but the company eventually filed for bankruptcy after state regulators began an investigation, he said.
"That, to me, was the defining moment about how I view markets and how I view companies," Chanos said. "Markets are pretty efficient — but not always."
Chanos has long been bearish on the stock of electric vehicle maker Tesla, and still maintains a short position despite the stellar performance of the stock since December 2019.
The short seller described Tesla as the current "it girl" of the bull market, borne aloft and kept high largely by retail investors.
"When it comes to Tesla, he's the narrative," Chanos said of Elon Musk. "Every big bull market has one iconic stock — the stock in which investors can pin their hopes and dreams on …t hat lets investors paint any picture of the future."
Chanos compared the boom of Tesla to RCA in the 1920s, IBM, Xerox and Polaroid in the 1960s, and America Online (known colloquially as AOL) and Cisco in the dot-com era.
"(America Online) ended up going parabolic in 1999, in early 2000 — as people said, there was no price that you couldn't pay for the future," Chanos recalled. "I think Tesla is a lot like that — it's EVs, but it's also energy. It's robotics. It's, you know, the guy doing SpaceX. If you analyze it like we do, it's a car company with car company margins and all the other issues that other car companies have, but that's not the way investors see it. They see it as a vessel for the future."
He said didn't close the hedge fund due to Tesla bets, saying it represented only 2% of his portfolio. He is still bearish on the stock.
Chanos' bearish position on Tesla has drawn the ire of many critics, who cite Tesla's performance compared to Chanos' own over the last few years. But Chanos says he finds the criticism "kind of amusing" – "There's just a cognitive dissonance in a lot of these situations," he said of meme stock rallies.
"And short sellers get the blame for it," he said.
"Short sellers were seen, politically and (socially), as heroes after Enron and the dot com era," Chanos recalled. "A little less so in '08-'09 … but now, post-meme stock world, short sellers are again the evil conspiracy to derail retail investors from making their profits in stocks like AMC and Bed Bath and Beyond."
Chanos said that the meme stock rally was "probably the best example in modern financial history" of cognitive dissonance in the markets.
"Despite evidence staring you in the face about the declining business prospects of AMC or Bed Bath and Beyond, the cult members want to continue to believe in things like naked short selling or phantom shares and what have you," Chanos said. "I just keep saying 'Guys, if you do spend all this time on this nonsense, instead, learn how to read a balance sheet – you'd be far better off'."
Asked what he was most concerned about for the future, Chanos said the thing keeping him up at night was not the markets but politics.
"People are believing crazier and crazier things. They're believing it in their everyday life. Social media is isolating us more than bringing us together, because we're all in our silos talking to like-minded people," Chanos said.
Chanos, who said that he recently became a first-time grandfather, the growing radicalization of people is worrying him "more than anything else."
"People are talking past each other in this country in a way we – it's getting worse. Whatever your politics are, it's getting worse," Chanos said.
A replay of the full interview with questions and answers can be found at this link.
