Marc Cohodes is well known among those brave enough to consider shorting the market. After making a name for himself as a General Partner at hedge fund Rocker Partners around the dotcom boom and bust, he’s dedicated himself to running his own money.
That doesn’t stop him from getting into scrapes, though. As he told the crowd at this year’s Grant’s Interest Rate Observer conference: “Some people like to spend their money on publicists. I spend my money on lawyers.”
So we asked him some questions.
Linette Lopez: You’ve seen a bunch of them — what makes a good short?
Marc Cohodes: I always say “Bet the jockey not the horse.” So I look for inept and/or dishonest, management that has a track record of running companies into the ground. Telling a lie or two along the way also helps. I also look for balance sheet stress, and financial engineering to make the business’ look stronger than it truly is. Low quality activists involved in the name, along with a “strategic review” in process is also a plus in my book.
Lopez: Can you us a little bit about the investment landscape as you see it now? Are you having a hard time finding shorts in this market? Have you ever seen an environment like this before?
Cohodes: I think the investment landscape is a “landmine.” Low rates have kept a lot of marginal companies around and that’s not a good thing for investors. It’s easy to find shorts, but harder to find ones that will not blow your arm off before they blow up. Its an art as to timing and in this speculative time, you have to be very diligent and focused.
I have seen a lot over the years. Investors seem drunk on very cheap money, and are in the market because “where else can you put your money?” My answer is THE BANK… Unusual times to be sure. Somewhat 1987-like with a mix of 2000 sprinkled on top. Kevin O’ Leary as a stock market commentator should make people very very nervous.
Lopez: 2016 is almost over, is there anything you regret doing (or not doing) as an investor?
Cohodes: I regret not buying any stocks this year, but I never own stocks, and looking back oil was a bit overdone in January-February. It’s been a lot of fun for me this year. I never have regrets, just have learned not to underestimate people’s stupidity or greed.
Lopez: You’ve been around the market for quite a while. Are there any classic mistakes you’re seeing these days that seem to be making a comeback?
Cohodes: Thesis drift seems alive and well and that’s a mistake that people are making. Folks are buying bad companies because they think the outfit will get bought out. You can only go to the well so often for that. Way too many “activists” who have confused a Bull Market for brains and that’s not really that surprising with the market at all-time highs, but something to be wary of.
Lopez: Do you have any post-election plays in the works? Or will you be watching anything specific at the start of 2017?
Cohodes: I view the election as a non-event. Hillary will win and it will be more of the same. I am sure Christmas will be “disappointing” for the eighth year in a row and either cold weather or Christmas falling in December will be to blame. I do think rates will have to and should go up and people will probably throw a fit. I think next year my focus will continue to be on those financial engineers who will no longer have the money for their silly buybacks. Tempur Pedic and Signet come to mind. I think Vancouver and Toronto mortgages go into the soup next year and this bears careful watching.