We’ve explained what short-selling is in our previous post: but the gem is not how it’s done, but on what you should short-sell?
Our suggestion? On someone’s misfortunes (and we think the visionary Jim Chanos would agree with us).
In October 2001, the Enron Corporation accounting scandal finally hit the fan: billions of dollar in debt surfaced on the balance sheets as profits, deals and accounts proved to be empty bluffs. The company filed for bankruptcy months later; the two CEOs involved were sentenced to prison time; shareholders lost US$74 billion; investors lost their retirement accounts, and numerous employees lost their jobs.
One man who hugely benefitted from their loss was none other than visionary trader, Jim Chanos, who, though famed for his short-selling positions including Baldwin-United, Tyco International, WorldCom and homebuilders like KB Home, remains most distinguished for his rewarding predictions of the demise of Enron.
Having been suspicious of Enron as early on as 2000, Chanos followed the crumbs, dug deeper and found more discrepancies. He eventually put in a short-selling position and reaped a fortune.
Lauded for his thorough research and his role as a whistle-blower, Chanos profited from one of the biggest scandal in history, one that collapsed auditing giant Andersen – who was found guilty of deliberately destroying evidence of its relationship with Enron; as well as pushed then President George W Bush to pass a new bill at cracking down corporate fraud and to review existing US pension regulations after Enron employees lost billions of their pensions because their scheme was heavily invested in the company’s stock portfolio.
Who is Jim Chanos?
Founder and managing partner of Kynikos Associates, short-selling guru Jim Chanos is renowned for his intensive research as well as a sharp eye for fundamental market failures in valuation and underestimated or previously unreported failings in companies or stocks.
After his success with Enron, Chanos currently has a long-running bet against China, believing that the country’s credit bubble burst will eventually lead to a weak RMB.
February 24, 2015
January 5, 2015