MILESCFA

Don't Let Bulk Shippers Sink Your Portfolio... For Now

24 HRS after my comment, DRYS is down 20%+ because of an WS Journal article. Beware trying to catch a falling knife! DRYS hasn't traded long enough, but I looked at others to see the 2002-3 recession lows, Here they are ("watch out below!"):

EXM $9 recession low $0.90, or 90% downside !!!!!! (dry shipper)
NAT $31 recession low $10 or 70% downside (tanker)
FRO $31 rec.low $1.84 or 94% downside !!!!!!! (tanker)

NOTE: I looked at 50 shippers. Most are "recently" public (05-06... and I've read 90% are STILL private). AXB, TK are the only ones with a long enough history to see that they are CURRENTLY NEAR the '02 recession lows (ie, near a sustainable bottom?). Importantly, AXB is "HARDLY" volatile at all and carries a lower debt load; however, the trade off is a lower dividend and a lower "rebound".

What am I doing? Probably nothing (besides sitting on my buy-write).

Don't Let Bulk Shippers Sink Your Portfolio... For Now

I don't know much fundamentally about shippers, but the bullish comments here are a negative contrarian signal. Obviously not everyone has thrown in the towel yet, so I am hesitant to invest.

Further, comments about ALL the bad news already being priced in seems premature. How do you know? Forget the "E" in PE; academic studies show Wall Street analysts underestimate on the upside and overestimate on the downside. In other words, "E" goes down faster than WS analysts anticipate. These stocks could get a low cheaper, especially where there is heavy debt.

I've bought a small position in TBSI around $9, but had I done it the first time it was $9 (2005), I would have lost 40% at one point. How many people hold on to those type of losses? Some, but many eventually "throw in the towel". What if I had waited to $18? Well, sure I would have missed the first double, BUT I still would have experienced a quadruple (the same ratios exist on, say, DRYS). SO you can wait.

Also, I'm writing calls against my TBSI as a way to produce additional income. If it gets called away, fine - the return would be 20% annualized. If it doesn't, I'll keep selling calls. And I can keep doing this UNTIL a bottom seems a higher probability. (TBSI doesn't pay a dividend, but you could do this with DRYS, which pays a "realistic" dividend....)

Lastly, buying any stock for "unrealistic dividends" is a losers game. Trust me, I've played it often (and finally learned). Unrealistic dividends GET CUT. STOCKS GAP DOWN when dividends get cut. Like I said earlier, I don't know a lot about shippers fundamentals, but I would almost be willing to guess that you buy them when dividends STINK (?). THAT is when fundamentals are truly crappy (and bottoming).