Tuesday, April 19, 2011

A Short Talks His Book On CNBC

It isn't always portfolio managers with long positions who take the opportunity to cause a stampede in their favor by talking their book on CNBC.

Last week, Jim Chanos appeared on the network's morning program to discuss a range of topics. Asked for information on his current positions, he concisely explained why his fund is short First Solar Energy (FSLR).

Chanos cited the departure of several senior managers in the past year and the CEO and other senior officers unloaded much of their own positions in the company's equity, as well. Taken together, he said, these were very bad signs..

The stock was down about 2.3% by mid-afternoon.

As it happens, FSLR was a minor-weighted selection in one of my recent portfolios. At the time, I thought it interesting that an alternative energy issue had exhibited sufficiently good and lengthy performance to be selected by my quantitative process. But it only appeared in one portfolio, and, then, with a relatively light weight.

Every equity manager, every selection process, makes mistakes, and this would evidently be one in mine. The good news is that the solo appearance of FSLR suggests that my process is rigorous enough to limit such damage. A similar phenomenon occurred last year with the inclusion of McAfee and Intuitive Surgical, neither of which proved to be a stellar performer. Fortunately, Priceline was included heavily in a series of portfolios, and it was stellar selection.

Thus proving that portfolio management is, in the end, about the collective performance of the selections, not how much was lost by the worst one, or gained by the best.

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