I’m reviewing my blog post of 18-Oct-2012
Regarding GME, Joel Greenblatt had it as a buy, and Jim Chanos had it as a short. Over 1 year, S&P500 +19.8%, GME -6.9%. So Chanos is still in the lead. GME has been making a remarkable recovery since August of this year, though.
A reminder of Jim’s shorting themes:
* booms that go bust, debt-driven asset inflation
* cyclicals that become secular, e.g. autos, airlines
* overly dependent on one product e.g. renewable energy
* illegal does not equal value – “they often look deceptively cheap”. Online poker * consumer fads
* technological obsolescence “probably killed more value investors in last 20 years than any other”. Minicomputers, Eastman Kodak, Video rental. The cash flows drop off faster than you think they do. At some point, cash flows hit a tipping point, and drop precipitously.
* structurally flawed accounting. Be “triply careful” whenever management pulls out some metric that they define – such as cash flow. Be careful when they keep pointing to a metric they like. * selling $1 for $2
* rapid prior growth. “Law of large numbers” Telecom build out example. When tech shift occurs, old metrics that value investors use are totally irrelevant * marquis management – new CEO as saviour
* famous investors: in every disaster, there is usually a great investor in it all the way down * growth by acquisition
* buying low growth low PE businesses with expensive high PE stock –
huge red flag. Be careful when you see big write-down because management is claiming to be conservative