I'd like to make a post about the kind of short Chanos is. I see him mentioned at lot here, and often in a very negative way, so I'd like to share my perspective as someone who likes the kind of investing he does.
If anyone has access to an hedge fund database and could provide actual perfomance numbers for his three funds - short only, long short, 190/90 - that'd make things more clear/interesting. Unfortunately I don't have that kind of access.
I realize this post is kind of misorganized; sorry. But I think it's helpful to understand what actually happens at a fund like his. I think this is the reason it's unlikely there's any sort of short conspiracy to make the stock go down. Very few people are as concentrated as someone like Spiegel, which manages a very very small fund.
Many already know what Chanos' business model is, but some don't - not the least because promoting your hedge fund to the general public is actually illegal.
Kynikos main product is a short only fund, that typically doesn't really make any money. Making money is not actually the purpose of this fund. The purpose of this fund is to not make money
while being short. This short only fund typically has a max position of 2-3% per stock. What this means is that tesla going up or down by even 30% like it has recently occurred is not actually a big deal for a fund like this. That's less than 1% up or down for the whole short portfolio.
Making no money being short only is actually a lofty goal when you consider that picking 20 stocks by throwing darts at a list and equal weighting them, you will probably do about as well as the benchmark. If you were to do that as a short seller, you'd have made -20% in 2017, -12% in 2016, -23% 2019 YTD... the list goes on.
The product that is actually designed to make money is, like many other hedge funds, a 190/90 long/short fund. That means, roughly, that if you give chanos $1M, he will short $900K worth of stuff, and go long $1.9M worth of stuff. This product is actually 100% net long, like a typical mutual fund might be - but it has 280% gross leverage. The $1.9M worth of long stuff is usually just the US market; something like just buying $1.9M worth of SPY. The short book is the aforementioned short only fund.
You can't just go long the market with a 2x leverage, because events like the great financial crisis or the dotcom bubble are going to potentially wipe your fund completely. It doesn't matter how well you do in the rest of your investing career if you have a -90% year.
But if you have a short book, what happens with events like the great financial crisis? Well, you lose a ton of money on your long side, but you also make a ton of money on your short side. You might actually have your short book perform better than just shorting the market during these periods - after all, if your short book is about breakeven when everything else goes up, when everything else goes down your short book is probably going to perform very, very well. While you're exposed about 2x to the general trend of equities going up, you're still losing around the same amount of money (or less) during these events where equities go sharply down.
Finally, what would happen if 100% of Chanos' short book was Tesla (remember, Tesla is actually a small portion of that portfolio), and as we said he was 1.9x long SPY?
He'd still be doing just slightly less well than holding the market. (For what is worth, the same backtest started from 2016 has him about breakeven, but again it's not representative of his actual short book).
I hope this kind of post is OK and cleared up some confusion.
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