Jim Chanos, founder and president of Kynikos Associates, became a celebrity investor after being one of the first to spot fraud at Enron. As I will discuss, Chanos has been correct on nearly all of his major calls of late. Given Chanos's recent track record, I believe he is one investor that everyone should listen to before making investment decision.
The problem is that consumers are less and less of this economy as this property bubble has gone on and a large amount of consumption that the consumers are embarking on is real estate related, it's furniture, it's appliances, these sorts of things you buy when you're buying a new house or condominium, Any time you try to take something that's 70% of your economy and reign it in and transition history tells us that usually the risks are to the downside. (February 2011)
Since Chanos's call, as shown by the chart below, the Chinese stock market and anything tied to it has been among the worst performers over the past few years. Currently, the Shanghai composite is trading at levels not seen since the depths of 2008. I think it is fair to say that Chanos has been spot on with his negative call on China.
^SSEA data by YCharts
Chanos has been negative on shares of Hewlett Packard (NYSE:HPQ) for a while, calling it "the ultimate value trap." In addition to spotting HPQ's exposure to the eroding PC & laptop business, Chanos was also able to spot the recently announced accounting fraud at HPQ relating to its Autonomy acquisition-- long before HPQ itself. Since Chanos's negative call on HPQ in mid July, as shown by the chart below, HPQ shares are down more than 40%. Clearly, Chanos has been right about HPQ.
HPQ data by YCharts
In addition to HPQ, Chanos has shorted two other notable technology stocks in 2012, Dell (NASDAQ:DELL) and Coinstar (CSTR). Chanos has argued that CSTR's exposure to the DVD business will prove fatal as more content becomes available online from providers such as Netflix (NASDAQ:NFLX). Regarding DELL, Chanos argued that DELL's exposure to the PC business would prove to be a major negative, as consumers switch more and more to mobile devices such as smartphones and tablets. As shown by the chart below, once again, Chanos has been proved correct.
DELL data by YCharts
Just days ago, at the Ira Sohn conference in London, Chanos called Petrobras (NYSE:PBR) and Vale (NYSE:VALE) two of his favorite shorts. The massive declines suffered over the past few months by both VALE and PBR have led some to call them value plays.
Investors should pay particularly close attention when Jim Chanos makes a move. While every investor needs to make decisions on his or her own, I would view Chanos's opinions as highly relevant investing advice.