I just finished reading The Shipping Man by Matthew McCleery. If you are involved with the oil tankers stocks, this is a must read. It is a novel about a hedge fund manager who became a shipowner of a single ship and later became the CEO of a Norwegian shipping company.
The novel is packed with information about the sector. Many of us who are new to the sector might not be mentally ready for it. This sector is extremely volatile. This is what this book will help you understand. I believe that it will prepare you mentally to deal with uncertainty and volatility. If you are not prepared, you will likely lose because you will be shaken out of your positions at the worst possible time.
Anyway, here are some quotes from the book that I found helpful and want to share them with you.
“You generally don’t get a good price and good cash flow at the same time.”
“There is no justice in shipping. There is only the market. If your timing is not correct, you will never make money even if you are very smart.”
“There are only three ways to get an advantage over your competitors in this business. Pay less for your ships, pay less to operate them or pay less for your capital. In a commodity business like shipping, the only thing that really matters is price.”
“When capital has the desire to go into the shipping industry it will always find a way.”
“According to the Financial Times, the unexpected surge in the demand for industrial commodities that resulted from China joining the WTO in 2002 resulted in the world being caught short on ships. With no alternative methods of transporting low value commodities around the planet, the imbalance of the supply and demand of ships sent shippers scrambling for vessels which pushed charter rates and ship values to heights never before imagined. Almost overnight, anyone who owned a ship, any ship, became rich.”
“When you added the effect of financial leverage to the operating leverage, Robert quickly recognized the owning ships in a strong market was like printing money.”
“You do not get anything for free or even cheap, at least not at the time you buy it. The market is too efficient. The sale of every single cargo ship is equivalent to a competitive auction held on a global basis among thousands of buyers more knowledgeable than you. If you want to make money in shipping you must pay the market price for your asset at that time and hope the market goes up. There is no other way, not while I am captain of the ship.”
“Everyone knows everything these days. Everyone knows what a ship was worth and everyone thinks they know what a ship will be worth in the future. It is a market comprised of experts, but the experts are not always right. In fact, the experts are often wrong. The experts are often wrong because they know too much about a market that is inherently unknowable.”
“Everyone has the same information, which means there is no hidden value; there is only the market. If the market goes up, you win. If the market goes down, you lose. And the moment you think there is no risk, that is the same moment you have failed to recognize the risk. At least the market doesn’t lie.”
“Only time will tell if you make a good deal in the shipping business.”
“The thing is, my friend, that there is an infinite amount of money available to the shipping industry. Governments have money, oil companies have money, grain houses have money, traders have money, ship owners have money, private equity funds have money, and capital markets have money. There is no shortage of money.”
“There is too much money. Money is a commodity just like the ships and the cargo. Even the people who say they are broke have money available for a good deal. Money hides when there is danger, but pops out whenever there is value. Money is what drives away value.”
“Charter rates are not the same as asset prices.”
“The value of a ship is determined by the cash flow that people perceive it will generate over a period of time. Charter rates must remain at very low levels for a very long time before the confidence and psychology of ship owners is affected. And don’t forget, not every ship is open at any given time. Many are on charter or even just on a voyage. So just because charter rates drop today doesn’t mean every ship owner will be resetting his revenue based on that lower rate. It is like a bond portfolio.”
“Things are always changing in shipping, like the tide. And even if they do not change, that is a change for the people who were expecting a change.”
“Robert, my friend, as an investor, you should know that supply and demand alone does not determine freight rates. The movement of cargo has a certain intrinsic value, but the cost of moving cargo is determined almost exclusively by the perception of the direction of the freight rates.”
“In shipping it does not matter how much you pay for an asset, or how much money the seller is putting in his trousers. That is not relevant. The only thing that matters is how much money you believe she can earn in the future, and only you can make that decision.”
“In the shipping business everything is negotiable all the time. A word is only a man’s bond if the market is moving in his direction.”
“He learned that no matter how smart you were, or how much analysis you did, it was basically impossible to predict the shipping market.”
“This is what makes the shipping market so interesting. Someone is always wrong and its often the guy who knows the most.”
“Real shipping men always have problems. That is the nature of the business. No man is smarter than the shipping market. You think you cannot afford to be in the spot market, but in reality you cannot afford not to be in the spot market. Time charters are for weaklings.”
“Risk management? Now you really sound like my banker. Listen here, if I wanted to manage risk, do you really think I would be a supertanker owner?”
“Shipping is like bullfighting; you either bask in glory on the cover of Tradewinds, or you get gored in the gonads and live your life as a eunuch.”
“What are your expenses?
I don’t really know exactly. I never count the money when I am losing the money. It makes me really sad. I only count money when I am making the new money.”
“But doesn’t a larger shipping company provide economies of scale? Doesn’t it allow you to increase your margins?
The spot market does not care if you are big or small. And there are no economies of scale in the shipping business, not beyond a fleet of 10 ships. That is the perfect sized fleet. You can capture the rest of the efficiencies by being the big client of a third-party ship manager.”
“Without volatility in the market, shipping is as boring as it gets.”
“That’s the funny thing about ships. They are actually more attractive to buy at 20x EBITDA, or even negative cash flow, than they are at 4x EBITDA.
Making the real money in shipping depends on how much you pay for the ship. When a ship is losing money, or breaking even, the valuation is likely to be attractive.”
“Now in New York on a rainy day, there are more people who want taxis than there are taxis. On days like this, people would pay more for a taxi. But, when there are too many taxis and not enough riders, then drivers would accept less. Oil does not talk, thank God, but it is the same thing. As long as people want the oil, OPEC will produce oil and, if OPEC is producing oil, that means everyone is producing oil and, if everyone is producing oil, then oil will be loaded onto ships and we will all make lots of money together.”
“When it comes to shipping, investors only lose money when they lose patience.
Yeah, well not everyone thinks like a shipping man. Some people think that when things get bad they are likely to get worse, so they cut their losses and move on.”
“When a man stops trying, then he is really in trouble.”
“There will always be many good reasons not to do things in life, but people who achieve the great things are the ones who believe in themselves and find reasons to do things even when sometimes they do things that are not so smart.”