Why Chanos Is A Bear On The PC Sector: 3 Past Leaders To Watch
Hedge fund manager Jim Chanos is president and founder of Kynikos Associates. As an investment company focused on short selling, it is not a surprise Chanos would target the entire PC sector. Chanos cites the risks of technology disruptions as one of the key reasons to dislike the PC market, adding that it is hard for a company to be prosperous, by cutting costs. (Full video of interview below)
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Chanos specifically cites Hewlett-Packard (HPQ). HP’s problem is that it did not property, or adequately, invest in research and development over the last 10 years. The impact on HP is apparent: HP is not a leader in cloud or mobile, two sectors that continue to grow significantly. Chanos said to look at Kodak as an example of a company falling behind because its technology trailed competitors.
Technology Generally a Disruption
Digitization and the Internet changed the landscape for companies. Business environments are changing faster than ever. The PC sector is now considered a value-trap, because it was healthy 10 years ago, but now the sector offers little upside.
Technology is also impacting retail. In the retail space, Chanos predicts that there will be lots of “road kill.”
Short-Selling Still Risky
Chanos learnt from experience to be cautious in the art of short-selling. He mentioned that AOL (AOL) was a short-sale in the 1990’s at $8. Chanos finally covered his last short share of AOL at $80. The bearish bet was at the time, based on an analysis of AOL’s financial statements. At that time, he thought the business was not sustainable based on what the financial sheets were saying.
Chanos is currently more cautious on US equities. Indices are near multi-year highs, so investments are not as attractive as it was before.