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Jim Chanos On Short Selling: The Power of Negative Thinking

  
Analysis, Education
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Short selling and Jim Chanos go hand in hand. Whenever you see his name, you instantly think of Enron and how he unveiled the fraud there. The Kynikos Associates hedge fund manager is worth following due to his success but maybe more-so for the fact that he makes so many public appearances. If hedge funds operate behind a shroud of secrecy, then short sellers typically operate behind a shroud ten times as secret. Yet Chanos deviates from the norm and can often be found on television, doing interviews, and sharing his ideas. While talking his book might help some of his positions, it also means he’s more often than not cast as a villain. Chanos argues that good short sellers are born, not trained. Many would take issue with that statement as numerous hedge funds recommend their analysts read Kathryn Staley’s book, The Art of Short Selling

to really gain an edge.

In late May, Chanos delivered a presentation at the CFA Institute’s annual conference. You’ll remember that Baupost Group’s Seth Klarman also spoke at this event and we previously covered his thoughts on the markets

as well. This time around we present you Chanos’ speech entitled, “The Power of Negative Thinking” which focused on his bread and butter: short selling. (more…)

4 signs of out of control trading

  
  Education
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1) Overtrading:  This is a very common problem for an out of control trader.  If you find that your size is much bigger than normal or you are trading at times that you don’t usually traffic, then make sure you slow down and write down a plan and stick to it.

2) Comfort in bigger losses:  When I hear a trader feeling comfortable about larger than usual losses that scares me.  This comfort tells me that the trader is not thinking rationally as losses should never be tolerated and especially outsized losses.

3) Trading new securities:  If a trader deviates at all from the strategy that made him successful, especially when he is a down streak, this concerns me.  

4) One sided trading:  This sign is correlated to having an opinion on the market.  If I see a trader constatnly focused on one side, regardless of what the broad market is doing, this person is so focused on being right that nothing else matters.  It is so important to be right that even if they make up 20% of what they lost it will seem like a victory to them.

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