Before beginning this week’s blog, we returned to our year-end letter from January 8, 2020. In the Pre-pandemic world, our expectations for 2020 were far different than the reality we experienced. What we thought would happen didn’t occur. Scrubbers for example, made little difference in terms of returns. What did happen we could have never predicted, such as negative oil prices. We exited 2020 with significantly higher quality names that we entered. We sold stocks when the theses changed or there was bad governance and took advantage of opportunities as they presented themselves. According to Stifel, average returns for shipping names look grim with tankers down 45.5%, LNG ships down 29.2% and dry bulk down 26.9%. We are reminded of the man who drowned in a river that was on average 2 feet deep. In another words at points it was 1” inch deep, and at others 6 feet.
However, an investor could have made money, selling at times of peak euphoria and buying at times of peak pain. All you had to do is look at the underlying trends in various sectors. These were evident if you participated in Capital Link conferences and read the various blogs on this website. Container shipping, dry bulk, and recently tankers for a second time presented wonderful opportunities. We should be grateful and I am. It wasn’t hard if you paid attention.
As to 2021, if you have to ask the question, “Are we in a bubble?” we are clearly in a bubble. Yet when I look at the valuations of many shipping names in the portfolio, they are rationally priced or still inexpensive. The majority of my holdings are still selling below their 5-year average price earnings ratios, or well below their net asset values. We are seeing commodity inflation, which is positive for our names. If I had known how well shipping stocks would have done after the Georgia Senatorial elections, I would have gone to Atlanta to ring door bells to bring out the Democratic vote. In a world of more stimuli and growth, and a return to normal, shipping equities should be viewed by the general public as more and more desirable, at least for the moment.
