US short seller Jim Chanos has enjoyed one of the most profitable months in his firm’s history, thanks to bets against a food delivery company that warned Uber was eating into its market and the California utility partly blamed for the state’s wildfires.
Mr Chanos’ Kynikos Capital Partners posted returns of 5.3 per cent in October for a year-to-date gain of 20.4 per cent, according to two investors in the $1.3bn fund.
“October has been one of our best months, both absolutely and relatively, in a long time,” Mr Chanos told the Financial Times.
Shares in the food delivery company Grubhub plunged 43 per cent in a single day this week, after a gloomy profit forecast it blamed on “promiscuous” diners picking other services such as Uber Eats, DoorDash and Postmates.
Meanwhile, the bankrupt utility Pacific Gas and Electric, whose shares still trade, fell 29 per cent and 30 per cent on consecutive days as it shut off power to nearly 3m people to prevent falling wires from igniting further fires.
October has been one of our best months, both absolutely and relatively, in a long time
Mr Chanos argued that there was “almost no margin” in the food delivery business when he hinted about his Grubhub position in a CNBC interview in September.
As for PG&E, he predicted its equity would be wiped out by claims from last year’s fatal wildfires. “We also question whether PG&E will be able to exit bankruptcy-court protection in the foreseeable future,” he said in a memo to investors.
The short seller most famous bet was against energy company Enron before its collapse in 2001. He took his position against Grubhub in the middle of this year at an average price of $70 and PG&E in February at an average price of $17, according to two people familiar with the matter. The two shares were $34 and $6, respectively, as October ended.
Both stocks are popular shorts. Grubhub short sellers collectively made paper gains of $521m on Tuesday alone, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, a research firm. PG&E short sellers are up $134.2m in mark-to-market profits in October, bringing their year-to-date profit up to $606.1m.
Mr Chanos is still short both GrubHub and PG&E, and bearish on Edison International, another California utility, whose shares were sharply lower in October.
Short sellers bet against a company by borrowing stock to sell, hoping to buy it back at a lower price before returning it, thus profiting from the decline. It can be a risky proposition: if the stock rises, losses can build very quickly, and in a bull market as now, short sellers are operating against powerful headwinds.
Since its inception in 1996, the Kynikos Capital Partners fund had a net annualised gain of 26.9 per cent as of the end of September this year — more than double the S&P 500. But while recent hits have helped the overall performance of his fund, Mr Chanos admits “we have a long way to go to erase some of the pain from the past few years”.
Mr Chanos has been a lightning rod for criticism of short selling because of his outspoken bets against high-profile companies such as Tesla, the electric carmaker. Tesla shares, which were up 30 per cent in October, were a drag on Kynikos performance in the month.
Earlier this year, Silicon Valley venture capitalist Chamath Palihapitiya, a longtime Tesla bull, launched a stinging attack on Mr Chanos.
“Jim Chanos makes money once a decade. While the market rips up, the guy just bleeds money,” Mr Palihapitiya said in an interview on CNBC in April.
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