A famous short-seller and passionate art collector, Jim Chanos created benchmarks that other short sellers need to fulfill to have an above-average investing career. He founded his hedge fund Kynikos in 1985 which is one of the most successful short-selling oriented funds in history. Jim Chanos’s Portfolio is currently valued at $4.21 million, and he announced that he will reorganize his business into a family office.
In his portfolio are 6 holdings, and all his investments are based on ETFs and Trust funds. His biggest holdings are in SPDR S&P Regional Banking ETF, and Invesco QQQ ETF. Chanos also holds 24 options, and from those 21 are put, and 3 are call options.
Chanos’s biggest success was the shorting of Enron before it declared insolvency in 2001. On the other hand, he made some bad predictions like the crash of the Chinese market in 2009, and his recent short bet against Tesla. In any case, his impact on the investment sector is enormous, and Chanos’ short-selling strategies are still being analyzed. Stay with us while we go through Chanos’ current portfolio, performance analysis, and investment strategy.
Key Holdings
- SPDR S&P Regional Banking ETF (NYSE:KRE) with 57.55% of the portfolio
This fund aims to replicate the performance of the index based on the regional banking segment of the United States banking sector. It uses a passive management strategy and tracks the performance of the KBW regional banking index. Chanos owns 49.8 thousand shares and their value is at a reported $2.43 million. He invested in this fund $2.04 million resulting in a gain of 19%.
- Invesco QQQ ETF (NASDAQ:QQQ) with 21.8% of the portfolio
This is an ETF based on the NASDAQ 100 index, and in it are usually the companies from the index. The securities of the fund are rebalanced every quarter while they are reconstituted every year. Chanos owns 2.13 thousand stocks valued at $919 thousand. He invested $791 thousand resulting in a gain of $16.
- iShares Short Treasury Bond ETF (NASDAQ:SHV) with 7.14% of the portfolio
This fund aims to follow the results of the ICE Short US Treasury Securities Index which measures the performance of public obligations of the United States Treasury that have a remaining maturity equal to or less than a year. Chanos owns 2.73 thousand shares valued at $301 thousand. He invested a total of $300 thousand.
Besides his portfolio holdings, Chanos holds 24 options, with the most significant being:
- Digital Realty Trust Inc (NYSE:DLR). Chanos holds a put option over 1.49 million shares. In Q3 2023 he sold 26.8% of options
- Equinix Inc (NASDAQ:EQIX). Chanos has a put option for over 125 thousand shares. He increased his options by 22.6% in Q3 2023
- Vertiv Holdings Co – Class A (NASDAQ:VRT). He has a put option and 393 thousand stocks. In Q3 2023 he sold 34.2% of his options
- Digital Bridge Group Inc – Class A (NASDAQ:DBRG). Another of Chanos’s options. In Q3 2023 he sold 56.3% of his options and now has 326 thousand shares.
Sector
His entire portfolio holdings are based on ETFs and Trust companies. They are doing the diversification part of the investment widening the investment reach to all major publicly traded companies.
Jim Chanos Portfolio Performance Analysis
Historical Portfolio Performance
Due to his often risky strategies, Chanos’s performance varied. If we take a look at available data dating back to 2013 Kynikos Associates cumulative gain in the last decade is 180%. That is significantly higher than an average hedge fund portfolio gain of 43% in the same time frame.
But, when compared to an S&P 500 index, the returns are modest, with the index beating the Kynikos with a gain of 339%. From the last 13F filing the return for Kynikos Associates is at a reported 15.68%.
Risk Management Practices
Before Chanos decides to short the company he conducts extensive and deep analysis of the company’s fundamentals. He is looking at financial statements, movements in the industry sector, and among top competitors.
Other things he factors in are the management and its operational performance and other economic metrics like cash flow. While conducting all these analyses he is looking for the weak spots in the companies.
He avoids concentrating his bets and looks to diversify his investments. This is especially important in shorting strategies because a few bad calls can destroy potential gains on other sides.
But, unlike most short sellers he is not always willing to conduct fast shorts. Sometimes he holds positions for years to wait out the market volatility and to have all elements fall in place. He frequently uses hedging tactics, like options to protect his portfolio against broader market risks.
Jim Chanos Investment Philosophy and Strategies
Like all short sellers Chanos is betting against companies, and hoping for their value to decline. In comparison to value investors who are looking for the good sides in companies, Chanos is looking for the weak spots that he can capitalize on when they come into full effect.
While conducting analysis he focuses on going through the company’s fundamentals, like their financial statements, industry trends, and the competence of the management. His final aim is to find the so-called shorting themes. He prefers three shorting theme types:
- Consumer fads. Companies that fall into this category are on the rise because of their current consumer habits. They do not have the potential for long-term success and will lose value once they are not a fad anymore.
- Debt-fueled asset manias. Companies that are heavily in debt because they want to generate growth, but have become unsustainable are the second category.
- Accounting issues. While going through the company’s finances he is looking for a trace of accounting irregularities. Those can often hide or mask other issues in the company that will resurface at some point.
Take A Look At 5 Short Selling Strategies | Billionaire Jim Chanos Interview:
FAQs
How Did Jim Chanos Make His Money?
Throughout his three-decades-long investing career, Chanos made the majority of his money by short-selling. Some of his best investment decisions were:
- Shorting of Wirecard. He was one of the first critics of Wirecard basing his distrust of their accounting methods and their business model. His predictions came through and Wirecard filed for insolvency in 2020. Chanos made $100 million from this short-selling stint.
- A major shorting win over Luckin Coffee. Chanos pointed out that there are several irregularities in this Chinese answer to Costa Coffee. He saw that the company was using unethical methods to obscure expenses, like paying their employees in equity. Their stocks crashed by 75% making this a big win for Chanos.
- The decline of Enron in 2001. Chanos found several issues in this giant in the energy sector. The crucial ones were accounting irregularities and other unsustainable practices. He began shorting their stocks in 2000, and in 2001 they filed for insolvency. It is rumored that Chanos made $500 million from this bet.
Did Jim Chanos Short Enron?
Yes, Jim Chanos did short Enron. He pointed to their suspicious business practices in 2000. That is when he decided to bet against them. A year later, once a giant, a company filed for insolvency. This is the single biggest win of Jim Chanos’s shorting career.
Final Thoughts
At his prime Chanos was a shorting legend. During the 90s and 2000s, he made some bold bets that brought major returns. His reputation as an investor who can spot inconsistencies in business operations was remarkable.
But, as time passed by, he lost his edge. Some of his recent bets, like against Valeant Pharmaceuticals and Tesla Inc (NASDAQ:TSLA), didn’t pay off to his investors. That is one of the reasons why he decided to close his shorting fund. But he is not leaving the investment world and already has a plan to organize a family office. There he is going to manage a narrow selection of investors and their portfolios.
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