In Praise of Pessimism

As we come to the finish of 2020, thankfully I may add, we are apt to read many predictions: interest rates will stay negative forever; income is worthless; valuation is meaningless; and all you want is growth. We have been here before. I see parallels with the 1920’s again and again. We had the Spanish Flu in 1918 and 1919, and what followed was the Roaring 20’s. The ESG investment movement mimics Prohibition – by the way, it is the same social classes and their descendants this time as it was then. There are vast changes brought on by technology, then by radio and movies, and today by high-speed bandwidth. In the remit of this blog, it has created the shipping investor’s biggest ally – pessimism.

There are those who will make fortunes on correctly reading the environment. Radio transformed every aspect of American life.  RCA was the Tesla or Facebook of the 1920’s, with the stock rising from $7.00 per share in 1927 to $114.00 by mid 1929. They were right – Radio did change American. Unfortunately, the stock of RCA fell to $2.50 by 1932, and even 25 years later, RCA stock had only regained 33% of its peak price. 

In investing in shipping stocks, you make the most money buying at the maximum of pessimism. I added to my Tsakos Prefs in March at 23.00% yields. It means those Prefs double in value every 3 years in a Company that has long-term charters and is delevering. I bought dry bulk stocks in May when Capesize rates were $3,000 per day, and containership stocks in August when world trade was supposedly dead forever. While 2019 was a better year in shipping because of  IMO 2020, if you followed the industry closely, and paid attention to the wonderful conferences and materials available at Capital Link, 2020 was a decent year for shipping investors. As to 2021, it looks like the ingredients are in place for more upside. No one is talking about IMO 2020 right now, but the gap between HSFO and MGO is over $100 per metric ton, so all those scrubbed ships are in the money. The real order book is still low in many classes of ships, but not unfortunately in LNG. You may not see shipping CEOs on Mad Money – In fact, sell if you do – but have no fear, diligent shipping investors can and will find opportunities to do well.