Jim Chanos isn’t going to tell you exactly what he’s researching at his world renowned short-selling firm, Kynikos Associates, but he’ll give you an idea — a small one — of what he and his team are thinking about.
He did that today on Bloomberg TV’s “Market Makers” with Erik Schatzker and Stephanie Ruhle.
Chanos says he’s looking at large companies that are growing by making a lot of acquisitions.
“Some of them don’t even have profits, they’re having to do bigger and bigger deals,” said Chanos, adding, “They’re trying to buy their way into growth and it’s fooling this generation of analysts.”
That’s when Stephanie Ruhle brought up Apple, a company Kynikos uses as a hedge. Unlike some of the companies Kynikos shorts, Chanos pointed out that Apple actually researches and develops its own products.
Large tech companies that get their new products through acquisitions, on the other hand, are essentially “capitalising their R&D,” said Chanos.
And, as Bloomberg reporter Corey Johnson said breaking in, “The knuckleheads that don’t consider acquisitions a part of free cash flow think free cash flow still looks good.”
Chanos closed saying, “If you start to look at acquisitions as capitalised R&D, suddenly these companies look a lot more expensive.”
Don’t be a knucklehead.
Watch the video below: