Source: Dec 2017 Newsletter of Old Bridge Capital Management
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Category: Excerpts
Source: Annual Report 2016-17 of GE Shipping
Shipping, as we know too well, is a truly
global business in every respect as well as
a cyclical and volatile one in which many
moving parts across the world has a bearing
on earnings as well as asset values. It is
not unusual to see swings of 50% or more
in earnings and swings of 30% or more in
values within a period of twelve months.
The natural outcome is that shipping is not
a linear result oriented industry and hence
issues such as quarter-on-quarter growth
of revenue or profit are of little relevance
This therefore begs the question as to the
most prudent strategy for a management
team to follow towards creating long term
value in such an industry.
At its core, success in the commodity
shipping business can come by doing two
basic things well: buying and selling the
right ships at the right price and time, and
running the ships well in the interim.
Let us discuss our approach to both of these.
Shipping is a highly capital intensive business
where allocation of capital is one of the key
determinants of long term profitability.
As you may have noticed, interest and
depreciation, which are directly affected
by the capital cost of the asset, constitute
almost half of our operating cost base.
This shows the key role that the acquisition price
of ships plays in our profitability.
This leads to critical decisions that the
management needs to take on when is
the ‘right’ time to buy and whether long
term returns are better served by being
diversified or focusing on a single sector
of the industry.
On both these issues we
have had intense internal discussions. On
the issue of diversification within shipping,
we believe that staying diversified is more
beneficial as shipping cycles across
sectors do not move in tandem and thus
we gain more trading opportunities across
assets whilst also reducing the time we
need to sit on ‘cash’. This is of course not
to say that moving across asset classes
will be seamless and therefore there will be
periods of time when cash is the best bet
for building long term value.
Source: DRHP filings of LemonTree Hotels
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Top Buys & Sells by MFs in December 2017
Source: IDBI Capital Research
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Some learnings from an Investor Meet
Had attended an Investor Meet yesterday.
Some learnings from the Meet:
- Look for headwinds and tailwinds…with the right tailwind, the entire sector can give multi-fold returns.Many sectors in India have given 25x-100x returns with the right tailwinds.On the other hand,when there are significant head-winds,wealth destruction happens
- Look at promoter hunger.“We are in the markets to make money, not give integrity certificates”.The perception of the Promoter being a chor or not changes with the share price.
- Look at opportunity size.If the size of the opportunity is big,a hungry promoter with good execution skills can make you buckets of money.On the other hand, if the market size itself is small, then its difficult for earnings and hence valuations to grow.
- “Chalane Wale, Chal Base” – don’t buy a stock, just because a big name/broker is buying it.Don’t have false expectations that these big names will make the stock price go up
- Watch out for story tellers-Some managements are master story tellers…watch their quarterly results carefully.If they don’t walk the talk, then exit.
- Watch out for the word “next”. If someone says, this is the next TCS, the next Page,the next L&T , the next….then a story is being told to you
- There are two types of people in the markets-“Jo paise gavake rota hain, jo paisa jeetke rota hain” i.e. investors have two regrets-regret of losses and the regret of booking profits too early.Always try to be in the second category. Leave money on the table, its impossible to get the very last dime
- Look for “insight information, not inside information”.More money has been lost on trading on inside information than anything else.On the other hand, after talking to management,trade etc, you get insights on the industry,sector,competition,emerging technologies etc, that can be very valuable
- “Be a shana, don’t be a dedh shana” -Be smart, but don’t be over smart.Avoid leverage,avoid selling quality to go for optically cheap stocks etc
- It’s an exciting time to be in India.As India grows from a $2.5 Trillion economy currently to $10 Trillion in next 20 years, more wealth will be created in India in the next 20 years as was created in the last 5000 years.Think about it.