Here’s a great recent interview with Jim Chanos on the Masters in Business Podcast. During the interview Jim spoke about a number of topics including how to maintain short positions in the teeth of a raging bull market. Here’s an excerpt from the interview:
RITHOLTZ: Let’s talk a little bit about the challenges of being short in a market that seems to want to do nothing but go up except for very brief periods. What have we, quadrupled from the lows of ’09 to the highs of 2020?
CHANOS: I think that …
RITHOLTZ: How do you maintain short positions into the teeth of that?
CHANOS: Well, so, there’s a big misconception about our business and that we run most of our accounts either actually hedged or benchmark long. So again, it gets back to the whole idea that we’re providing a hedge and not necessarily being directional for most investors.
So — and we started doing this in the mid ‘90s, and the idea being that we’re long the market in effect and short our stocks. And so, we’re relatively market-agnostic. And just generally, we’re trying to create alpha from our short positions either going down in actuality or underperforming relatively. So the idea …
RITHOLTZ: And …
CHANOS: I assume that the market will go up over time as most investors do. The problem is the failure rate among individual corporations is quite high. And so the idea is to try to win all those out from a broad portfolio.
RITHOLTZ: Quite interesting. So given that, what do you use as a benchmark?
CHANOS: Well, for the most part, for our U.S. funds, it’s the S&P 500. It’s simplest and still at the end of the day most indices will track it one way or the other with variations in certain years and then we use the MSCI for the global portfolio.
RITHOLTZ: That’s really, really interesting.
You can listen to the entire podcast here:
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