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Search Process–No Hope: Dry Bulk Shipping


From 1975-2001: ROI for T-Bills was 6.6%, S&P 500 14.1% with a 15% std. dev., Bulk Shipping 7.2 with a 40% std. dev., and Tanker Shipping 4.9% with a 70.4% std. dev! (Source: Maritime Economics, 3rd Edition)

Who in their right mind would invest in the shipping business? Well, if you can buy low, then fortunes can be made.  Recently, the Baltic Dry Index (BDI) hit a thirty-year low of 291BDI Index and note the long-term chart below.  Always look at MANY years of past data. The boom of 2007/08 will probably not be seen again for many years.


See a deep contrarian investor discuss the dry bulk shippers (March 2016):Deep Value Inv./Operator Discusses Dry Bulk Mkt.

“Dry bulk is a screaming buy; one of the best entry points in the cycle in the last thirty years. But be prepared to sustain a prolonged period of poor freight market conditions and have plenty of cash reserves and low leverage. In other words, you have to have a longer-term perspective than most investors–three to five years at least.

Isaac sowed seeds into the land during a drought.  –Leon Patitasas

“That’s the funny thing about ships. They are actually more attractive to buy at 20xs EBITDA, or even negative cash flow, than they are at 4xs EBITDA,” Coco said.

“So you are telling me that investors should seek out money losing shipping deals?” she asked incredulously.

“Correct. And sell the ones that are making lots of money. Itis like that little Napoleon said….”Buy on the sound of cannons and sell on the soundsof trumpets.”    (Source: The Shipping Man by Matthew McCleery).

John Chew: Here is where I wonder if this post helps readers’ understanding of investing because is this investing or speculating?   Note as much as what Warren Buffett does NOT do. He doesn’t invest in mining or shipping stocks. He has already had poor results with the airline industry.   So why even mention an industry in massive distress with historically sub par returns and huge volatility? I would prefer businesses with great reinvestment opportunities or great capital allocators at the helm like Markel (MKL), but a horrific business going from a distress price to a bad price may give much better returns depending upon the price paid.  Also, the worst bear market in freight rates in the past 30 years for dry bulkers means unusual opportunity just as the worst bear market in gold miners in the past 100 years offered bargains galore.

Readers know that I ventured into the miners in mid-to-late 2013, subsequently suffering back-to-back declines of about 25% before seeing the portfolio rally about 100%. So I still do not have a great return (12% after three years), but I bought miners with a five-year-to-seven year outlook and I am only three years into the investment. With Junior miners you can expect to see a 50% decline before they rally five to 10 times (assuming you chose the ones that survive! –Rick Rule).  In a land of negative-to-low interest rates, I have to look further for bargains.

Readers can pipe in what they would like to learn in future posts–let me know.


Five years of declines in gold mining stocks and then…..


Are you investing or speculating by dry-bulk shipping stocks?  These are stub stocks where the equity is a small fraction of the enterprise values due to the shrunken market cap and the large debt taken on to finance ship purchases. But if you buy a few well-managed and relatively well-financed shipping companies that can survive the trough of the cycle–two to four more years?– you can tolerate a few going to zero if the ones remaining multiply many-fold. Not for the weak-kneed. Scorpio Bulkers (SALT) has ALREADY diluted shareholders and has taken drastic action to survive. Note management buying shares at $3.00 Scorpio Bulkers Inc. Announces Financial Results for the First Quarter of 2016. An ugly past, but we invest for the future in terms of mean reversion. I have not yet invested in any shipping stocks!

Here is what I love about the shipping business.   10 ships and 11 cargoes, then a BOOM. 11 ships and 10 cargoes, then a BUST.  You are also on the SAME footing as the most experienced ship owners in the world. NO ONE knows when the cycle will turn.   This is like a poker game where the investor that has the ships when others have thrown in the towel takes a lot of the marbles.  The worse the freight rates and the outlook, the better IF you can carry the costs until the cycle turns, and it WILL turn due to the laws of supply and demand.

I view this as intelligent speculation.   I allocate five tranches of investment into five shipping companies.  Say $5 units each.  One unit goes to zero (ouch!), the next to $2 (Boo!), the next to $1 (Damn!), the next to $3 and the next to $50 (Homerun!) and it takes three years.  There is a 31% compouned return.  Though I have no idea if this is realistic because I must study the shipping industry thoroughly.  I am just formulating a possible strategy IF I find the right companies at the right prices.  But I am drawn to the shipping companies because some companies are trading below depressed net asset values. As Mr. Templeton suggests, look where the outlook is most dire.

The best source to learn about shipping is Maritime Economics. And a must read:


Meanwhile keep reading………………..

RISK Management Video – Be prepared for the unexpected.

The Stock Market Is Expensive? So What’s A Value Investor To Do? Buffett Videos


Is the Market Expensive?

Profit Margins

Margin Debt

Q Ratio


Where The Cheap Stocks Are—Come Hell Or High Water

Is “value investing” dead? Far from it, says Jon Shayne, whose bargain-hunting style will likely endure no matter who wins the presidential election or what horrors Mother Nature might whip up.

If you follow the stock market, Jon Shayne is worth a good, long listen. Especially now. (Also, check out his blog: http://www.jonshayne.com/2013_04_01_archive.html)

A disciplined buy-and-hold guy, Shayne manages $180 million for high-net-worth individuals, corporations and foundations, mainly in Tennessee. Like all value investors, he thrills at unearthing solid companies trading at below-average prices. The kind of companies that, as Warren Buffett said, would still be around if the market were to shut down for 10 years—let alone for two days after a devastating hurricane.

This game takes patience, and Shayne’s has served him well. Since his firm’s inception in March 1995, his stock picks have returned a smidgeon over 13% a year (net of a modest 1% annual management fee), versus 8.4% for the S&P 500 index. Including cash and Treasury bonds, Shayne has clocked a net 10.2% annualized return, with less than half the volatility of the broader stock market.

Trouble is, truly good values have been increasingly hard to find. While the market retreated a tad after a rash of weak corporate earnings reports and ominous pronouncements by the International Monetary Fund, stocks are still very expensive by historical measures. And as for finding safety on the sidelines, the Federal Reserve’s tireless printing presses have done to Treasury yields what Hurricane Sandy just did to the northeastern coastline.

Shayne’s dilemma and ours: Get in the game—even if you have to pay up for the privilege—or watch your capital get gnawed by inflation. “There are periods when it’s easy to find stuff, and periods when it gets pretty hard,” says Shayne. “The environment is more difficult than it has been because it is more uncomfortable to hold cash.”

Read More…….Where the Cheap Stocks Are

Top 5 Videos on Warren Buffett

Warren Buffett is primary shareholder, chairman and CEO of Berkshire Hathaway, and ranks amongst the world’s wealthiest people. Warren Buffett made much of his billions through applying his keen business sense and his value oriented investment style – he sees his core talent as being a skilled allocator of capital; and owes much of his investment success to picking skilled managers and letting them get on with running the business. Clearly as one of the world’s most successful investors, his methods and path to success have been closely studied by many aspiring investors around the world, and in a game where knowledge is power it makes sense to learn from this master of investing. The following 5 documentaries provide an insight into the life of Warren Buffett, how he made his money, what he thinks about, and how he invests. 1.
Warren Buffett Revealed This Bloomberg documentary provides an interesting look at this legendary investor, telling how he became interested in stocks early in his life and became a disciple of the ‘father of value investing‘, Benjamin Graham (author of the book “Securities Analysis”). Buffett mastered the style of value investing and with instincts and gumption made a strong start, but he really took things to the next level when he orchestrated the takeover of Berkshire Hathaway; later focusing the business on insurance – allowing him access to a sizeable pool of investable assets.
2. The World’s Greatest Money Maker This BBC documentary offers an intimate look at the life of Warren Buffett, how he made his money, how he operates, how he came to operate in the way he does, and how he thinks about his wealth. It also takes you on a tour of his office and the annual shareholders meeting of Berkshire Hathaway, not to mention a peak at his many eccentricities.
3. Biography – Warren Buffett This biographical documentary takes you through the life of Warren Buffett; how he developed his value investing philosophy, how he came to be majority owner and CEO of Berkshire Hathaway, his frugality, his upbringing, his key choices in life, his mentors, the turning points and defining moments.
4. Warren Buffett – Going Global This video is more about an applied look at how Warren Buffett operates, the CNBC show follows Warren on one of his rare trips overseas, including a look at one of his first offshore acquisitions – ISCAR. This video shows how folksy, old fashioned, and down to earth the billionaire investor is, but it also shows how he is quick to realise a good deal and his talent for allocating capital. It also shows his brilliance for identifying great companies and strong capable management teams and letting them get on with the business for him.
5. Warren Buffett MBA Talk Finally we get a talk from the man himself, with some key messages for the MBA students he is addressing on the importance of integrity, intelligence, and energy for success; but that there is more to it than intelligence and energy – without integrity a person can become dumb and lazy. He also opens the floor to some interesting and thought provoking questions, providing an eye opening look into how the man thinks and what he sees as the key issues in business and investing.
Thanks to www.financedocumentaries.com for finding all these documentaries (and others!) Source: http://www.alleconomists.com/2012/10/top-5-videos-on-warren-buffett.html

What about Using Screens? Question from Readers


A reader asks what type of screeners do I use to find ideas.  I do not use any other than reading.

I have used 10-K Wizard (bought by Morningstar) to do word searches and alert me to form-10 filings (Spin-off report), so I am aware of special situations.  I also have Google alert me to any news of corporate liquidations, spin-offs, restructuring, emergence from bankruptcy, etc.  That is one tool for searching for special situations or corporate restructuring.

Mostly I have 150 to 200 stable franchise-like companies that I have followed for many years, I follow capital allocation type companies like Markel, Loews, Enstar that have good investors at the helm so you buy when the price is at or below net asset value so you get management for free. Like being invested in private equity without the fees.

Reading is the main way. The problem is not enough time to handle all the ideas, so the key is to quickly focus on the best opportunity–the biggest discount to future cash flows.

Capital IQ is too expensive and Yahoo is unreliable. I can have access to a Bloomberg terminal but rarely use it. Just let me read my 10-Ks.

I will do a post on search at another time. Perhaps then there will be ideas to help in finding opportunities.

 Thanks for the question.

Improve Your Search Skills; Become a Google Master

Improve your search skills by drilling down: http://mjperry.blogspot.com/2011/11/tips-and-tricks-to-become-google-master.html