Masters in Business: James Chanos
Early in his career as an equity analyst at Gilford Securities, he discovered that Baldwin Piano had morphed into a seller of insurance annuities and was also becoming a serial acquirer of other insurers. But the numbers didn't add up. Chanos kept asking questions, eventually leading to the discovery that earnings were being pulled forward, creating very misleading numbers. Chanos published his research, and the company's stock price doubled, before finally unraveling. At $9 billion, Baldwin was the biggest bankruptcy of its day.
Chanos eventually wound up at Deutsche Bank. Despite his successful track record, some of the firm's clients complained about the young analyst's criticism. After a negative Wall Street Journal article, his contract was not renewed. In 1985, he created Kynikos Associates, a hedge fund that now manages billions of dollars for institutional investors. Kynikos is the Greek word for "cynic."
Chanos has helped to uncover fraud at companies including Enron and Tyco and profited from them by short selling their stock. Other shorts included residential home builders KB Home and WCI Communities during the housing bust and bond-insurance firms Ambac and MBIA. He has also shorted companies that he deemed to be overvalued such as Sotheby's Auction House and Australian investment bank Macquarie Group. A 1980 Yale grad, Chanos currently teaches a course at the Yale School of Management.
This is the sixth episode in our "Masters in Business" series that I've created with Bloomberg Radio and Bloomberg View. You can listen to the show on Bloomberg AM on weekends and nationally on Sirius XM channel 119, stream it on SoundCloud, or download an MP3 at Bloomberg.com. Next week I speak with Sheila Bair, former Federal Deposit Insurance Corp. chairperson.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Barry L Ritholtz at email@example.com