Legendary short seller Jim Chanos recently started going long on certain shares. For the first time Chanos’ Kynikos Associates LP filed a 13F form that showed several long positions in common stocks such as Citigroup (C), NYSE Euronext (NYX), NASDAQ OMX (NDAQ), Focus Media Holding Ltd (FMCN), Rackspace Hosting (RAX), Terremark Worldwide Inc (TMRK). It’s well known that Chanos thinks there is a real estate bubble in China and he has been shorting it for the past 1.5 years. Yet, he had 159,000 shares of China Real Estate Info Corp (CRIC) in his portfolio. Did Jim Chanos give up shorting? Why did he suddenly start going long?
Brian F. Nichols, CFO of Kynikos Associates LP, didn’t respond to a message we sent him. We have three theories though. Short selling is a tough business. It is sometimes very costly in terms of time and money to locate and borrow shares. In certain circumstances it is more convenient to buy index funds to reduce the size of a short position. Chanos’ largest holdings were S&P 500 ETF (SPY) and Russell 2000 ETF (IWM). He was also long China ETF and Vanguard’s emerging markets ETF.
Our second theory is more radical. Chanos might have started accepting money from investors who want him to be market neutral. Chanos had only $83 Million in long stocks. Considering he manages about $5 Billion (not all of it invested in US securities), this may make some sense.
Our third theory is even more radical. Chanos may have started experimenting with a long strategy. Most long/short hedge funds are more talented on the long side of their portfolios because it is easier to pick winners. Chanos might have finally decided to do the easy thing and make billions instead of millions.