Kuppy,
Now we know why Tesla never bothered to put those solar panels up on the Giga-factory roof. Didn’t want to burn down his own facility. HAHA
Q2 hedge fund letters, conference, scoops etc
It’s odd, because Musk has never particularly cared about workplace safety. You’d think killing a few workers would give some martyrs for the cause. Maybe he couldn’t find anyone dumb enough to fund them?
Stock picking was famously compared to a beauty contest by economist John Maynard Keynes in 1936. Keynes theorized that it is not about which is the ‘prettiest’ stock, but rather, which stock investors believe other investors believe is the prettiest.
The bears’ argument on shipping stocks, particularly the smaller market-cap dry bulk stocks, is that most of today’s trading is not done by individual fund managers, but conducted passively, in connection with exchange traded funds, or by computer algorithms. Shipping equities are now almost completely off the radar of these primary trading volume drivers, which explains why shipping stocks have not been moving as they should be based upon improvements in fundamentals.
In light of the ‘beauty contest’ concept, potential investors who believe shipping stocks will remain off the radar of the primary volume movers would theoretically be reluctant to pick those stocks, and would instead opt for higher-volume equities in other sectors such as tech and health care, creating a ‘chicken or the egg’ dilemma for shipping stock momentum.
At least two other arguments are cited by bears. First, shipping equity investors in the hedge fund community have been so badly burned by losses over the past decade that they’re not interested in jumping back in.
Second, two major U.S. investment banks – Morgan Stanley and J.P. Morgan – have dropped their shipping analyst coverage in the past month and a half. If banks of this pedigree don’t care enough about shipping equities to pay a single analyst’s salary, what does that say about the stocks?
Do you think the algorithms will pick up on the good fundamentals of shipping & start driving volume, or do you think volume will come from elsewhere?
You’re overthinking this. If the sector recovers, investors will find it. If not, management teams will buy in all the shares. That’s what happens when cash flow explodes–then the charts look right and the computers will find it.
I too am long STNG in good size. I’m looking for others to compliment that so I’m not so big in one name but I’m having a hard time choosing. SEA (the ETF) looks uninteresting. Thinking about adding some ASC. STNG May be a bit unique (at least I think so) for a variety of reasons. Are there others that you like that have a similar risk/return profile? Or is it STNG at the top and a bunch of others way below? Thanks!
I don’t mean to dodge the question because I personally own a basket of names. I want to play the recovery in shipping, not just STNG. STNG is by far my largest. However, I don’t feel as confident about the individual sub-sectors to get out there and pound the table on anything besides product tankers right now. That said, I own bits of all the sub-sectors as the fundamentals line up well for multiple components, particularly VLGC and smaller dry bulkers.
Harris,
Just wanted to ask if you continue to hold TDW. It has traded down to a 16 handle and wondering if you’ve sold, reduced, added on this recent move lower. How do you see potential downside from here?
I sold all of mine as noted last fall with a mid $20’s handle. I still own a few of the long term warrants but it’s a tiny position. I have no desire to buy any back unless something good starts happening offshore. Right now, it’s a slow muddle forward, but too slow to matter to the equity of TDW.
Thanks much for the articles on shipping–enjoyed them. While the Baltic Dry Index has increased to new highs recently the Baltic Clean Index is making new lows. What do you account for the discrepancy and why focus on STNG when it would seem they are most levered to the decline in rates?
The two indices track two different shipping sub-sectors. Of course they will move with their own supply and demand fundamentals. I think it’s a huge mistake to track the indices instead of much more accurate data from a firm like Clarksons. If you don’t own capesize vessels but have a lot of handymax, do you really care what baltic dry does? You may be missing the important data even though capesize and handymax are both dry bulk. For that matter, LR rates are screaming, MR are up over last year but lagging a bit. However, we are about to enter the seasonally strongest period for product tankers, while IMO 2020 kicks in. Hence, I’m just ignoring what Baltic Clean says for now especially as Baltic Clean isn’t showing the increase in LRs so there may be some sort of tracking error.
Good timing as the shipping stocks got a goose this morning. Your natural gas stock, SD, is still taking gas. You still in it?
Yea, I still own it. Can’t win them all (I guess). I still believe it’s silly undervalued–especially with the clean balance sheet. However, unless gas prices recover, it’s sort of stuck in purgatory. That said, it’s amazingly cheap.
Hey Kuppy,
Another very enjoyable read.
I’m broadly on the same page as you regarding IMO taking out supply. But I struggle with your clean tanker thesis, and the Baltic Clean tanker has definitely not been touching new highs these last few weeks. Ultimately the amount of fuel consumed is a function of miles travelled. And the IMO switch won’t change that – sure some miles will now burn HFSO and some LFSO. But the overall amount of fluid that needs to come out of a refinery per unit time and then get into a ship’s fuel tank will not change. And any clean tanker (I presume) has multiple tanks enabling them to carry the right mixture of LFSO/HFSO whatever that turns out to be. So why is IMO so good for product tanker? Or is your thesis on STNG really more because they’re adding scrubbers to the entire (almost new) fleet, and will therefore have a cost advantage?
Scrubbers should give STNG an advantage (remains to be seen however). Demand for LSFO will increase after IMO2020, which is what STNG transports, usually as MGO. I’m expecting a 5-15% increase in ton-miles depending on the level of disruption involved. This is coming at a time when clean tankers are already lapping 2018 rates at a $10,000 average premium and minimal new supply is coming. IMO2020 will be somewhere between somewhat beneficial and a huge boon to clean tankers. You get to take a free look at what eventually happens from a highly discounted price to NAV. That’s why I own so much STNG. I suspect that something very positive will happen.
Kuppy,
You said you’d be adding Tesla on the bounce after deliveries but before second quarter. Did you get back in?
I never really exited. I cut the position down and rolled the rest forward to 2021 spreads as it has a much lower delta. On the bounce, I added a whole ton of exposure at about a 250 reference price. I don’t see how he can keep this scam going much longer, but I’ve said that many times already…
I read the General Electric short report. Do you agree with him? Any position?
I skimmed the report. I don’t understand the nuances of insurance and don’t feel like I have an edge there. I have no position
Kuppy
Funny you talk about shipping insiders screwing their shareholders by buying back undervalued shares and a few hours later, DRYS gets bought out at premium. How much do you think the real value is?
I don’t know that one well as I’d never own it, but if GE is buying it, he clearly thinks he’s getting an outstanding deal…
Hi,
Have a look at some of the Argentinian banks and even the etf …..there may be something to go long on after the initial election results ?
Certainly could be something interesting there. I don’t feel like I have any competitive edge though, so haven’t looked.
Kuppy
I know you are bulled up on shipping but won’t a global economic collapse kill the thesis? Thanks for what you do
Look, if I spent all my days worried about a global collapse, I would never make any investments. I actually suspect that a global collapse is coming, but I still own shipping as I think the IMO2020 impacts will outweigh whatever happens in the global economy. Could I be wrong? Sure. Happens sometimes. I’m buying these vessels at 50-75 cents on the dollar. Even if I am wrong, I may make money as they trade up towards NAV. Lots of ways to win here. A global collapse also cuts off new supply.
Loved the Azerbaijan article. NEver know what you write next. Have you ever thought of doing a travel investment series for TV? Or filming your travels and having a youtube channel?
Glad you enjoyed my vacation photos. I actually got a few requests like this. Glad you would find it interesting, but I have a full time job (2 actually). I don’t have time to run a youtube channel. Barely even find time to write this blog…
HK
Why not buy the shipyards if you want shipping exposure
I tend to think the shipyards do well when ordering starts up again. That’s still a few years out. You need these owners to make money for a change first. When I sell my shipping names, I probably should look at the shipyards then. Remind me
How concentrated is your portfolio right now? How does your portfolio normally look, from a concentration/cash holding perspective? Thanks in advance. On a completely unrelated note, how much liquidity do you need to build a decent sized position in a stock?
I usually have 6-12 core positions of 5-20% each. I rarely take positions that are less than 5% unless it’s buying options that decay or something else where I don’t have the protection of a balance sheet and may lose most of the investment if wrong. Sometimes a few names will make up a single “position” if I play a basket. I like to target 10%+ for positions I believe in. I believe strongly that if you have more than 20 positions, you’re not doing it right. You cannot possibly know enough about 20 different things and have an edge in each of them. In terms of liquidity, I rarely get involved in something that I cannot complete a position (buying or selling) in more than a month. Life is too short to get trapped and not get out. Besides, if it’s too thin, what other fund is going to go in there and bid it up so I can make money?
Article by Adventures In Capitalism
