Simple question. If you want to focus on just short-selling as an institutional money manager/PM at an institutional money manager, what should be your career trajectory?
Heard the CEO of Eminence Capital say that their short team is paid twice their long team. But, this is not just about the pay - in the long run, short-selling seems like one of the few places where active managers have can have an edge against the quants.
On the other side, Chanos seems to be the only guy who has survived at scale while being primarily a short-seller, even though he is long the market. This also seems to be the time where short-selling is getting back in fashion. Even in a market like Canada where activist short campaigns barely crossed 12-13 campaigns in a year till 2019, the number has crossed the 75 mark in 2020.
Besides the usual scepticism of the markets, what are the common traits, career paths, formal training, personal attributes you have observed among short-sellers?
Can you name the three short-only funds you talked about, assuming not all of 'em are as popular as Kynikos?
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Massive balls.
You must get comfortable completely ignoring management commentary and guidance as well as street consensus. It is scary trying to tune out the constant "hype" out there but man is it fun when things start moving your way and everyone else piles on after you.
There was a good thread on short selling here just several weeks ago
The FT has a podcast where they interview Chanos (think it was back in 2018). Well worth a listen as he answers all of your questions!
Persuasion and charisma. A lot of the firms that have generated the best returns on the short side are the ones who are the best at explaining, publicizing, and even marketing their positions. A critical extension of this is identifying and paying both journalists and research firms to publish and amplify indications of accounting and outright fraud.
Plenty of people can find "overvalued" securities, the common trait of the best short sellers is making it clear to the world there is an unknown massive chasm buried within a public company and calling it out.
Really easier said than done. To me, first prereq is an investor base who is willing to wait with you. If the LPs expect the shorts to work in 3 months, and the thesis takes one year to work, money is pulled before the return is realized.
Rest is access to quality information (not the Axe Capital type) and have exceptional understanding of inflection points because seeing shorted stock going up 300% before it goes down 500% is very painful.
Last is very crucial too: temperament. A lot of people had the "big short" trade on during Great Recession, but only Paulson / Eisman / Dr. Burry were lauded as heroes because they held on to the trade.
Again tho, everything I said is easier said than done. Ask David Einhorn.
I want to see the stock that goes down 500% hahaha
That's what happens when I am typing without thinking haha #fail #notashortseller
3 words and an interview slot on CNBC
HELL IS COMING
A few thoughts:
1. There are almost no dedicated short funds at scale. Jim Chanos' Kynikos is the largest... and it's not that large (also, lots of its AUM is long/short, as you noted). Short funds always have a drawdown too deep to be survived and go under; LPs don't have the patience for them, and don't know how to use them. Working at a dedicated short fund isn't a great job (though it might be fun).
2. Numerous long/short funds have dedicated short analysts. This is a "real' job, and a good one. They tend to hire from other long/short funds, and also places like CFRA (which does some good short-oriented research). These are good jobs, and exist at a number of funds of all sizes.
3. Being very good at accounting and a close reader of financial statements is more important on the short side than the long side. The best shorts I've done often involved finding subtly "stretched" financials that indicated underlying results were really coming to pieces.
4. No one aside from Jim Chanos has gotten all that rich off short-selling. It's structural; the best shorts can absorb less capital than the biggest longs. I remember a bunch of funds found an incredibly fat trade shorting reverse Chinese mergers around 2012-14. They had tremendous % returns, but made small dollars. That's how it goes.
Jesse Livermore prob greatest short seller of all time. Go look up his books
For reference, here is Ricky Sandler's (Eminence) interview:
;It's a good watch, and he does mention that short alpha is comp'd at 2x the long alpha, but this does not imply the PMs make more money off shorting since the shorts are smaller than the longs, and this multiple compensates for that. He wants PMs to spend roughly the same amount of time on shorts and longs.
why are the shorts smaller than the longs?
To echo someone else up here: so much will be mentality (in addition to patient LPs/strong accounting/sales skills etc).
In the long run, stocks generally go up. The world wants them to go up. Regular people, employees, management, investment banks, your fellow (or rival) hedge funds... It can be super duper lonely and hard. Not just from a work perspective, but personally. Since you are literally swimming against the tide. Every. Single. Day.
For those who have posted stuff on Eminence... Sandler hasn't made decent returns in years. Literally. A classic example of a fund that has been around forever and was much better in a different (ie. less crowded and less competitive) market... Literally living off of fees. Ricky may be smart and much richer than any of us, but at this point he's just a good looking talking head who makes some nice points. But he ain't making his clients much money.
And that's what really matters (unless you are him of course).
"A small loan of a million dollars"
Surprised nobody has mentioned Carson Block yet? He's a pretty active activist short-seller yeah - Luckin Coffee comes to mind immediately.
Apparently, there's an entire community:
Carson Block from Muddy Waters, Andrew Left from Citron Research, Nate Anderson from Nikola, Dan David from Wolfpack, Fahmi Quadir from Safkhet, Roderick Boyd from FFJ, Marc Cohodes, and a few more. There's a kid from Stanford who has started a newsletter dedicated to aggregating new short positions coming from the activists. Cohodes has endorsed it and it's called The Bear Cave, if I am not wrong.
I have been working on a spreadsheet of 40 dedicated short-sellers, research providers, and funds with significant short bias. If there's ever a forum question looking for a list of popular names, would be glad to share it. But, the names here were the more common ones in 2020 for their work against Luckin Coffee, Nikola, Wirecard, MiMedx, and a few other ideas.
Would love to have a look at the list if you're happy to share!
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