Chanos Long on Marlboro Man

Chidem Kurdas

Who can live on short selling alone? Not even renowned short seller James Chanos, who manages a long/short fund alongside short-only pools.

He typically buys and holds index tracking vehicles, possibly as a hedge. Aside from those, two large positions in the portfolio (as of 2015) are notable: $9.6 million worth of Reynolds American shares and about $9 million in Altria Group.

You may recall that Altria, previously called Philip Morris, is the maker of Marlboro brand of cigarettes famous for the cowboy ads.

Whatever Mr. Chanos’ rationale for buying them, these tobacco stocks have done relatively well—they’re up for the past 12 months.

He’s had less trouble with Reynolds and Altria than with his short selling of Chinese banks.

Starting in 2012 he predicted a financial meltdown in China. This was several years too early.

Amazing thing about Mr. Chanos is his ability to survive. In my 2014 book Ponzi Regulation, I told the story of a short seller who correctly identified the late 1990s stock bubble but did so prematurely. He made steep losses as the bubble grew ever bigger and he added to the misfortune by concealing the losses from his investors. The resulting fraud case was a great boon for government-appointed lawyers, who paid themselves liberally from the remaining assets for a decade.

Mr. Chanos escaped the common short-seller trap of losing your shirt by betting against a still rising market and having to go out of business. But the China shorts landed his funds in the red for three years, driving away clients.

Now Chinese reality has largely aligned with his prediction and markets in general have become volatile. When markets look ominous, investors are drawn to strategies like those practiced by Mr. Chanos.

Meanwhile, his long/short fund seems to have received a boost from the Marlboro Man. Sin stocks are comparatively safe in recessions, they say.

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