TAMSanity and the Golden Age of Fraud
Jim Chanos, president of Kynikos Associates, is one of the most legendary investors of all-time, short seller or otherwise. Even after an incredible bull run that has taken many short sellers out back behind the woodshed to be put down, he’s still generating incredible alpha for his investors. In this interview with Mike Green of Logica Capital Advisors, Chanos explains why we are in a golden age of fraud where the market fails to recognize frauds until the last minute. He also highlights the dynamic of growth-starved investors willing to throw money at any company that can demonstrate a large total addressable market (TAM) even if there is no demonstrable chance of profit. He cites business models like Uber and Grubhub as examples of the market’s TAMSanity. He also touches on two of his highest conviction shorts, IBM and the commercial real estate sector, with IBM being described as the ultimate example of a COVID loser and commercial real estate being described as a “slow motion train wreck.” Filmed on November 11, 2020. Key Learnings: Investors wanting to get short must be cautious and manage risk as the market is not pricing in fraud until the last minute. As well, IBM should serve as an example of the types of companies who have failed to innovate and whose death has been accelerated by COVID. The writing is on the wall for commercial real estate and the debt and leverage in the industry can help investors determine the timing of its slow death as obligations will eventually have to be met.