Jim Chanos: The Best Investment Strategy For Speculative Markets

During his recent interview with Bloomberg, Jim Chanos observes that the current market is as speculative as early 2021, the most speculative period he’s seen in 45 years. He points to the resurgence of meme stocks and SPACs as evidence.

Chanos notes Wall Street’s ability to generate financial products irrespective of Federal Reserve actions. Since the mid-1990s, his strategy has involved being long on equity markets and short on specific companies, which he believes remains sensible given most companies’ underperformance.

He emphasizes the importance of portfolio insurance, highlighting its current affordability compared to insuring other assets like homes and cars.

Here’s an excerpt from the interview:

And right now, what we’re seeing in the universe of companies we follow is probably it’s as attractive a time as it was in the first half of 2021. And I’ve said publicly that 2021 was the most speculative market I’ve ever seen in my 40 years of… 45 years of investing. And we’re getting back to that.

Not quite there, but it’s close. And you’ve seen it with things like the meme stocks again. And my God, we’re starting to price SPACs again in investing. There’s 3 billion, 3 billion, in SPACs.

People have always said, well, what about the Fed? And per your first question, and I always said, well, give Wall Street enough time. The Fed is not the only one with the printing press.

Wall Street does a pretty good job at issuing pieces of paper when people really want them.

Well, since really the mid nineties we ran our business where we were long equity markets, we were long indices, and then short our names. And I still think that makes a lot of sense. And where the stock market’s going, I have no idea.

I started my firm back in 1985. The Dow was 1300. So I mean, that should tell you something about timing. But the fact of the matter is, is that with the exception of the far right group of companies on the bell curve, most companies underperformed the stock market over time or fail.

It’s the Nvidia’s or the Tesla’s or whatever on that far right end that that go up quite a lot that give you your returns. So the strategy of being long equity markets broadly and short idiosyncratic names I still think makes a lot of sense.

And then finally, insurance is really cheap right now. I mean, you know, people insure their homes, ensure their cars, insure their loved ones. It’s pretty cheap right now to insure a portfolio.

You can watch the entire discussion here: