In his interview in the book – Efficiently Inefficient, Jim Chanos reflects on the challenges of short selling, emphasizing that it’s not simply the inverse of going long. He highlights the behavioral difficulty of staying short in a market that overwhelmingly promotes positive news about stocks, making it emotionally taxing to maintain negative positions.
The constant positive reinforcement from Wall Street can wear down short sellers, causing many to abandon their positions. Chanos concludes that successful short sellers are born, not made, as they must possess the mental resilience to ignore market noise and stick to their research and convictions.
Here’s an excerpt from the interview:
When I first started doing this, I thought that being short would just be the mirror image of going long. I don’t believe that anymore. I believe that there’s a behavioral aspect of shorting that’s very difficult for most people, and this is the most important effect.
Wall Street exists to sell securities to people. So most of the stuff you’re going to hear all the time is positive. Buy recommendations. I come in every morning, and I check my BlackBerry.
Of our 50 domestic stocks, probably 10 of them are going to be commented on that morning by someone, raising earnings estimates, going from “buy” to “strong buy,” the CEO is on CNBC, there’s a takeover rumor, or whatever it might be. Ninety-nine percent of the time, it’s just noise with no new information, but it’s a positive drumbeat.
When you’re short, that drumbeat is negative reinforcement. You’re coming in every day and being told, “You’re wrong. You’re wrong. You’re wrong. You’re wrong.
This company’s going to do well because of this, this, and this.” And most people just say, “Life’s too short. I don’t need this. I don’t want to hear this about my shorts every day.
I’d rather be long and just hear the positive, happy things every day.” Human beings are human beings. Even most hedge fund managers worry much more about their short positions, and some very, very good traditional long managers are terrible short sellers.
So I think that good short sellers are born, not made, quite frankly. I never used to think that. But I do think that now, after 30 years of doing this.
That is, you have to have some mental makeup that allows you to just drown out that positive noise, disregard it, and just focus on your work, your facts, and your conclusions, based on that.
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