Seeking Alpha

J Mintzmyer's Ride Through The Shipping Industry

by: SA Marketplace
Summary

It's exciting for us to see authors who rise on Seeking Alpha to become renowned experts both here and beyond the platform.

J Mintzmyer has become one of the leading analysts in the shipping industry, and we emailed with him to hear how that came to be.

We also asked how that plays out on one of our top Marketplace services, Value Investor's Edge.

by Daniel Shvartsman

We turn the Marketplace spotlight on J Mintzmyer. J has been one of the longest-running authors on both the site as a whole - since 2011 - and on the Marketplace with Value Investor's Edge.

The service stands out because most of J's focus on Seeking Alpha and VIE is on the shipping industry. That's not usually considered a popular sector. But J has built up a great deal of credibility both within the industry and on Seeking Alpha in specific.

It's also interesting to me because the sector has caught a lot of attention over the past few months. The looming regulations around IMO 2020, which will mandate cleaner fuel from ships, play a part in that attention as it creates dislocations and opportunities. This may also be a cyclical return after a few fallow years for the sector.

I note all that because while Value Investor's Edge has done well with this recent tailwind, as our second-fastest climber in October and briefly retaking the #3 spot on our leaderboard, it's even more impressive in my view that J's service has been among our top 5 Marketplace services throughout the downcycle. That's a credit to the hard work he's put into his service as well as the team Value Investor's Edge built out, as well as the ability to deliver value and good ideas even in a tougher climate.

I asked J to give more on his take of how things have gone and what's driving the efforts on VIE over the long haul.

J, congrats on your success over the years on Seeking Alpha and on the Marketplace with Value Investor's Edge specifically. What do you think has made the biggest difference for you?

J Mintzmyer: Thanks Daniel, I appreciate the opportunity to share some of our research methodology and market views with the Seeking Alpha community today! I think the biggest difference over time, in terms of our investment success, has been staying in our ‘lane.’ Although we are a deep value platform at heart, we specialize in the maritime shipping industry and related energy and infrastructure plays, and the vast majority of our research, investments, and trades are all tied to this area. Additionally, we owe a lot of our success to the phenomenal community, both here at Seeking Alpha, but especially at Value Investor’s Edge. Our community consists of hundreds of serious investors and traders, each of whom brings a unique approach and experience to the table. Our live chatroom in particular is very lively and our team has the ability to collaborate with lots of experts in the field of shipping.

What led you to the shipping sector specifically?

JM: The shipping sector is a niche area of the market that doesn’t receive a lot of attention from the biggest banks and the sharpest research and trading entities. It’s just too small. Furthermore, the sector is very cyclical and volatile, which causes a lot of heavy overvaluations at the peaks and extreme undervaluations when sentiment runs out. Additionally, the classic fundamental ratios like P/E or P/B are pretty much meaningless and sometimes totally misleading and dangerous in shipping. Valuing a shipping investment requires a heavy knowledge of the cycles, the global fleet profiles, and very up-to-date data on charters and ship valuations. I’ve been doing this for a decade as has our lead macro analyst, James Catlin, and we work with hundreds of other investors and affiliates, many of them with a lifetime of industry expertise. Simply put: we stay in our lane, we are the best at what we do, and we’ve proven this by dominating the sector for nearly 5-years straight throughout all types of markets. We can do this in shipping. We probably couldn’t do it in tech stocks or big pharma.

What does Value Investor's Edge offer for investors?

JM: Value Investor’s Edge is a collaborative platform for deep value investors and cycle traders with a heavy focus on shipping and related energy and infrastructure opportunities. We offer what I believe is the best maritime shipping research available and we have developed a formidable community of investors, traders, and activists. More granularly, we have a live chat platform and messaging system which gives real-time access to updates and commentary and we have an analytics platform which updates comparative valuations across the industry in near real-time. We don’t offer “investment advice,” but rather we do a significant level of research and due diligence and boil down decades worth of experience into a digestible format. We also offer a “Shipping Investor Series” guide, which consists of nine modules and could easily be a full college course worth of information and education. To make all of this easy to access, we have an interactive ‘coverage universe’ which includes all the firms we cover with the latest ratings and links to reports. We also have video guides which explain how to best utilize the platform.

How much does it cost to join?

JM: Our current rates are $219/m or $1499/yr, but we do have two-week free trials open for those who would like to try the platform with zero obligations. Our prices will be increasing towards the end of this year as well.

You've become a leading analyst in the sector - speaking at Marine Money and other investor conferences such as Benzinga and Traders4ACause. You’ve interviewed CEOs and top executives regularly and are often quoted in industry publications. What was the process of building a reputation and gaining access to the industry like?

JM: It might seem like it was a whirlwind and it all ‘happened overnight,’ but I’ve been writing on Seeking Alpha since 2011, coming up on nine years on the platform- Value Investor’s Edge turns ‘5’ in a few months! I’ve learned throughout the years, and especially from my military background, the importance of credibility, humility, and approachability. It’s also essential to always operate as a team. When I write or say something publicly, it’s not just J Mintzmyer going off on a riff (unless it’s something dumb), but rather the result of years of research and collaboration with anywhere from a couple to potentially several dozen other investors.

Despite the best efforts, I also make mistakes, a good degree of mistakes. In those, we need to acknowledge the mistake, learn from it, and move on. I try to engage as much as possible on the public platform, which includes over 15,000 public comments over the years and thousands of emails, messages, and calls. Finally, although certainly not perfect, I try my best to be respectful to everyone we work with. I don’t always agree with companies and sometimes I have quite negative views on management performance and strategy, but the candid access and dialogue stems from the mutual respect we have across the industry.

What do you think investors don't properly understand about shipping?

JM: We could write a novel on this, but it all boils down to understanding this is a violently cyclical industry and the majority of these names (with a few key exceptions) aren’t ‘buy and hold’ type investments. Most investors either get burnt because they have a total lack of understanding of the industry metrics or they are using flawed fundamentals.

Digging into just one example, folks often conflate the “Baltic Dry Index,” which is only useful for current dry bulk market spot rates (i.e. today’s rates to move coal, iron ore, and grains), with their research on totally unrelated prospects like LNG or containerships.

Another example would be obsessing about current spot rates with no clue on forward demand or supply changes. Current spot rates might be terrible, but next year looks amazing; conversely, rates might be booming, but it’s time to sell and run away!

Additionally, as I mentioned earlier, metrics like P/E and P/B are often meaningless in this space and can be dangerously misleading as well. As one example, I remember investors piling into stocks with P/B ratios of 0.3-0.4 and then being shocked when the firm went bankrupt or there was massive dilution and they lost 95-99% of their funds. Conversely, I’ve owned firms which are cash flow powerhouses yet could barely report positive earnings due to legacy overhangs and writeoffs.

I’ve mentioned a handful of examples above, but there are hundreds of these types of dislocations. We haven’t quite ‘seen it all,’ but it’s close!

What do you do to help Value Investor's Edge members avoid those mistakes?

JM: My team provides the best possible research on the supply/demand prospects for each sector and we also dive into the specifics of each company including qualitative things such as management credibility and competence. Our motto is “We Research; You Decide,” so there’s no ‘party line’ or anything like that, and we hope to get better together. Even with our level of experience, there are still mistakes, but the winners have been exceptionally lucrative in 4 of the past 5 years (Q4-18 was very rough).

What do you do to stand out or be different from other shipping investors or analysts? Are there specifics to your process that allow you to identify opportunities, or any other edges that you look for?

JM: Our work is differentiated primarily because we ‘eat our cooking.’ If I’m bullish on a name, I often have a stake in the company and have already done a lot of the background work, I’ve spoken with the management team, reached out to major holders, chatted with other hedge funds and advisers- this isn’t just a research report or ‘homework assignment.’

We have access to the best data in the industry, from Clarksons to VesselsValue to TradeWinds, and we know almost all the executives and key investors, most on a first name basis. There’s a sort of misnomer that we’re an ‘underdog’ or running a more amateur shop since we host our content on Seeking Alpha, versus a bigger bank, but don’t mistake the choice to be independent with our level of access and credibility. If you track the performance of our picks and views dating back to 2012, there’s a clear track record of outperformance, which has been picked up by independent sources.

As I said, our motto is “We Research; You Decide.” We have the market data and can see which firms benefit under which scenarios. I share the stances and convictions of our team and we’re looking for feedback. What did we get wrong? How can we do better? Where do you think the market is headed? If you believe that, here’s the positions that might make sense.

This isn’t a platform designed just to copy our positions. Instead, we take members' opinions in account to construct a better portfolio together. Anyone who is decently educated in finance can throw you a 5-year cash flow model, but if you look into the assumptions it might be totally worthless. Let us show you how to build that model and how to start thinking about the assumptions. That’s a key difference.

Where else do you invest in the market, sector-wise?

JM: I try my best to stay in my lane, so I pretty much only self-direct my speculative investments in shipping and related energy and infrastructure angles. The majority of the rest of my assets are in cash, property, index funds, and some occasional blue chips. I also hire several others on the Marketplace to provide me research. For example, in REITS, I don’t know anything there, so I’ve signed up for several platforms.

How do other sectors or value investing at large fit into Value Investor's Edge?

JM: I’m a deep value investor at my core, so most of my approach is from a fundamental angle. The closest other sector that fits into what we do is the energy space, both because it is practically linked to most shipping industries, and also because it is also a very cheap space with huge cash flow potential if things improve. I’m not an energy expert at all, so we hired Michael Boyd to join our platform and I’ve also partnered with his service, Energy Income Authority. We collaborate a lot. He’s the best at what he does, by far, on Seeking Alpha and I’m very happy to have him here.

What awaits members when they initially sign up to Value Investor's Edge?

JM: We have a phenomenal community of deep value investors and traders and offer the best analytics available on the internet. You can jump into the live chat right away and ask questions, quickly review our latest research updates, and send me a message at any time for detailed follow-ups. To make the transition easy, I’ve added a welcome/tour video as well as a video explaining how to best utilize our analytics platform. There are also FAQs, how-to guides, glossaries, and a clear research coverage index.

What led you to the podcast approach with Value Investor's Edge Live?

JM: Audio is a great format. I wish we’d gotten into this medium faster, but certainly better late than never! What I really enjoy the most is the real-time interaction we have with other investors and the companies and sector experts we are chatting with. The best part of our ‘VIE Live’ series is that members can listen live either digitally or by calling into the conference call and they can ask questions and follow-ups in real-time on that platform. It’s challenging sometimes, but I do my best to weave everything into the discussion as it unfolds. What we get is almost like a group meeting with the company, all done in a digital environment, and recorded in an easy to consume format. Lots of our members listen on their commutes, at the gym, or in various pieces. The most dialed-in folks of course are there live and asking questions themselves.

What has surprised you most in your time on the Marketplace? As a leading shipping analyst?

JM: The first question as a standalone would be a pleasant surprise at the absolute professionalism of everyone I’ve dealt with over the years. I’ve met over 50 of our members in person and have developed significant friendships and industry connections. Out of over 1,000 people we’ve worked with, we’ve only had two very minor incidents and even those were just minor misunderstandings. It’s really a blessing to work with this community!

The second part probably alludes (assumptions are dangerous) to the fact that we’ve been often a top 2-3 service out of over 150 platforms despite focusing on such a niche sector. I believe that’s a testament to the strong community on our platform and the established global credibility of our research team. Over the past year we’ve seen a couple retail-focused services with far lower price points pass VIE on the ‘revenue board,’ but that’s totally fine with me! The goal is to build a top-notch service and excel at what we specialize in.

Shipping seems to be hitting a turn. What do you make of recent interest in the sector?

JM: When demand exceeds available supply, rates will run. When the disconnect is wide enough, rates will skyrocket! We are seeing a lot of that now. The increase in sector interest is good, but I hope investors will be responsible with their allocations and I’m hopeful for a more informed institutional and retail base.

Realistically though, with more investor and trader interest I expect we’ll see more volatility. We are likely to see even more areas of value disconnect and some excellent trading opportunities as markets start to get skewed by newly arrived and uninformed participants. On one hand, this can be depressing as some markets might lose some efficiency, but on the other hand, we historically make huge profits on volatility and skews. 2016 and 2017 were both very profitable years for example, even as the sector overall was tough, heavily because of the huge volatility in key names and our fundamental-driven pair-trade approaches.

How do you address the concerns of investors who think the space is volatile or full of governance problems?

JM: Again, volatility is a tough one because yes, it scares investors away, but it has also made us a LOT of money by knowing how to ride the cycle. If shipping was stable and boring, yes valuations would be way higher, but we wouldn’t consistently make outsized profits either… Volatility isn’t a ‘bad’ thing, you just need to be on the informed side of things. Shipping is very asymmetric and without good research, you’re flying blind.

Governance problems have been a substantial drag in the past, but the industry has significantly shaped up over the past decade. There are still a few offenders, and I flag these in our research reports, and I advocate for improvements, but shipping is far tamer in 2019 than in any other previous year. Total night and day situation compared to say 2011-2012 when I was newly joining the sector.

Do you view yourself remaining focused on the shipping sector for the foreseeable future, or how would you adjust if your views on the sector change?

JM: I definitely expect to remain research-focused on the shipping sector, but that doesn’t mean I’ll always be heavily invested in the sector. I eat my ‘cooking’ at Value Investor’s Edge and across the public site, so if the sector becomes richly values, I’ll likely have a lot of firms on the ‘Watch/Avoid’ listing and there will only be a few solid long ideas. We’ll also lean more heavily into pair trades and short ideas like we did in late 2015 through 2017.

What is the Value Investor's Edge community like?

JM: We have assembled a group of some of the sharpest deep value investors and traders, but most importantly, we all have unique angles and viewpoints. I learn something new every day from fellow members and there’s definitely a collaboration approach to our research efforts.

What type of investor signs up for Value Investor's Edge, in your experience?

JM: There’s a plethora of types of investors ranging from buy and hold income folks who benefit heavily from our preferred and fixed income sector coverage (over 25 vehicles offering 8-10% yields and we’ve never had a bust) all the way down to day traders who simply want to be informed on sentiment and underlying expectations. Overall though, given the price point and the level of research our team provides, I would argue this is a very sophisticated base and this can be witnessed in our live chat and comment stream dialogues inside the platform. Very high signal-to-noise ratio.

Why should I or any other readers consider signing up for your service instead of all the other options out there for value investing?

JM: There are some phenomenal research services on the Marketplace and I currently subscribe to seven others myself and I’ve sampled nearly two dozen. There’s lots of great stuff out there, and it’s all about finding what is the right fit for your research needs. If you would like to learn more about a deep value fundamental approach to investing, you are interested in any facet of the shipping sector, you like the idea of trading in a volatile segment with huge information asymmetry (which I believe is clearly in our favor), you like the fixed income coverage we provide, or you are looking for an excellent community of informed investors, then Value Investor’s Edge might be a great fit. If you would like “buy this now” and “sell this now” type robo-guidance, then that’s not a good fit. If you’re primarily interested in blue chips and indices, want to buy 20 names and hold them for 20 years, then that’s not a good fit. We can’t be all things for all people and that’s just fine. I would invite everyone to try a free two-week trial and see if it’s a good fit.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Neither J Mintzmyer nor I have any positions in any stocks mentioned in the article. J Mintzmyer hosts Value Investor's Edge on the Seeking Alpha Marketplace, and Seeking Alpha is a partner with him and 170+ other authors on that platform.