We had the rare opportunity to sit down with the world-renowned, President and Founder of Kynikos Associates, Jim Chanos. Read our full interview with him in the latest edition of the Capitalize for Kids Investor Series.
Capitalize for Kids: When you look at the current makeup of Kynikos, how does that compare to what you originally envisioned when you started the firm?
Jim Chanos: Well I mean the original ethos of the firm hasn’t changed, it’s basically through a portfolio of good fundamental short ideas that we provide a hedge for our clients which enables them to basically stay long or be more long secure than they otherwise would be comfortable with. So, I joked way back in ‘85 and to this day, that I’m in the insurance business, and so that hasn’t changed. What has changed of course is the actual make up the firm in terms of number of partners, capital employed, you know the size of the operation. But what we do and how we do it hasn’t changed since it was just me and a secretary in 1986. So, I think that’s the one nice thing about the firm, its continuity. The other aspect that I’m very proud of is the fact that the core group of partners, as well as several employees, have been here a very, very long time. So, I have 7 partners and we have over 150 years on Wall Street but 100 of it under this roof, combined. My oldest partner, Chuck Hobbs, has been with me since 1992.
Capitalize for Kids: That’s incredible.
Jim Chanos: And the head of trading, they’ve been with us since 1993, and the next group kind of all came around 2000. So, that’s unheard of in our industry, really, to see people say at one shop for so long.
Capitalize for Kids: You must be very proud of the loyal culture you’ve been able to build.
Jim Chanos: Well I think it gets back to what we do and it’s not a business model for everybody. So, I think that that’s another thing that sort of sets it apart.
Capitalize for Kids: When you founded Kynikos, you mentioned it was just you and a secretary. Since then, your resources have grown meaningfully. How has your ability to detect frauds or bad actors in the financial community changed as a result?
Jim Chanos: Well, it’s always better when you get a little bit more support than when you’re the only person doing it. So, I think that certainly has made a difference. I like to tell people, my analysts and my students, that back in 1985 really for a good 10 + years the problem was getting the information. So, I used to spend a lot of time in the SEC micro-feed rooms in New York, just looking at 10-Qs. Today, it’s completely different. Today it’s filtering the information that comes at you in a firehose. Everybody has instant information in their pocket. The question is what do you do with it?
So, I think that the core problem for a research-oriented shop has changed from obtaining the information that gave you an edge to now being a better analyst of said information. So, we really have begun to change our focus, it’s really not about going out and going to the collegial factory up in Albany to check on their out of home computer production. Or, going to some parking lot and counting cars. You can do that by satellite today right. Again, there’s no shortage of things like Glassdoor or whatever that will get you inside a company in public forums.
So, those sorts of things that short sellers were known for in the 80’s and 90’s are much much less important today than actually understanding the way that businesses work, understanding how the numbers are flowing and when bad actors are playing games with you.
To continue reading download the full interview in the latest edition of the Investor Series.
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