MITSY - J Mintzmyer Unpacks Cyclical And Fickle Shipping Sector

2023-10-02 07:00:00 ET

Summary

• Shipping industry is cyclical and volatile, with different subsegments experiencing independent cycles.
• Tankers are currently in the middle innings of the cycle, benefiting from geopolitical events and strong demand.
• Scorpio Tankers (STNG) and Tsakos Energy Navigation (TNP) are two shipping companies with potential investment opportunities.

Listen to the podcast below or on the go via Apple Podcasts or Spotify .

Shipping expert J Mintzmyer catches us up on the cyclical and fickle sector (1:00), why he likes tankers, specifically Scorpio ( STNG ) and Tsakos ( TNP ) (17:30), and how macro concerns are weighing on stocks (25:35).

Transcript

Nathaniel Baker: Welcome to the Investing Experts Podcast by Seeking Alpha. I am Nathaniel Baker, Senior Editor here at Seeking Alpha. Joined today by J Mintzmyer of the Value Investor's Edge investing service that we have here on Seeking Alpha. J, thank you so much for rejoining the podcast. I know you've been on before. It's great to have you.

J Mintzmyer: Hey. Thanks for having me back on it. It's great to return and talk a little bit about our investing process, the shipping market, and we'll see what else comes up.

NB : Yeah. Looking forward to all of this because you're an expert, as you mentioned on the maritime industry, oil tankers, things like that. Now, this industry is notoriously sickle [cyclical]. At least that's the understanding I have. Maybe there's some inaccuracies there. You can clarify, but assuming it is cyclical, assuming that this is accurate, where in the cycle do you see us right now?

JM : Yeah. I know you're definitely correct that it's a cyclical industry, and it's also a bit of a commodity. So, you get even extra volatility in there. You can see rates move up three, four times, and it doesn't necessarily impact the markets a lot, which makes shipping very interesting. And you said cyclical, which is correct. And when you first said it, I thought maybe -- I think you have misspoke and said sickle, and I thought that sounds a lot like fickle. And, so…

NB : Well, maybe it is fickle, is it? You tell me.

JM : Yeah. I thought maybe it was a Freudian slip, some of these stocks can be a little bit fickle. And even my predictions can be fickle. So, we’ll talk a little bit about where we are in the cycle. But take it with a grain of salt, right, because I don't have my hindsight bias equipped yet. So…

NB : Fair.

JM : Look, shipping is really -- it's not really one big segment. I think that's one of the common misnomers. There's really about 5 or 6 subsegments of shipping that each have their own kind of independent cycles.

And so, I need to make that caveat before I kind of talk about where we are. So, with containerships that was the big one, right, with post-COVID, the whole supply chain crisis, that one is pretty much played out. So, I mean, we're -- the world series has ended. There's like a player strike going on. I mean, things are bad in that one.

If you look over to dry bulk, people are warming up for the game. I mean, we're talking first any at this point. But there's a question of whether or not, I got to stop with these awful baseball analogies, but whether or not the game is going to get rained out early because China just can't effectively reopen. Right. So that's where dry bulk is at.

Dry bulk is a 100% -- it’s warming up. I mean, we're definitely not top of cycle. We have a very promising supply demand outlook ahead of us. But we're so dependent on China's reopening and so far, it's been lackluster.

On the tanker side of the business, we're mid game here. We're -- I think we're somewhere between the 4th and 6th inning. I'll keep – sorry, I said I wouldn't, but I'll stay with the baseball analogies.

NB : Hey. They work. So, yeah, let's run with that.

JM : Yeah. 1 to 9 folks, nine is the end of the cycle. One is the start. So tankers, I feel like we're somewhere between 4 and 6. We got a little bit of a boost. We started the cycle early because of the Russian invasion of Ukraine.

And what that caused? It caused the European markets to scramble to get extra diesel, distillate, stock up on everything, because they knew two things. One, they couldn't trust the Russian supplies anymore. And, two, they knew sanctions were coming. So they kind of front ran those sanctions. They supported them out of one side of their mouth and front-ran them out of the other. So, it was a dynamic tanker market.

And then finally, the gas markets. Think of LNG , LPG, and those are different markets, but they're similar in structure. And those are probably -- yeah, those feel like 7th to 8.5 inning to me. There's two different dynamics. In LNG, the same sort of Russia, Ukraine dynamics that I talked about with tankers. Europe wanted to make sure they were secure on their energy, so they stocked up on a lot of that.

There was a big order book, which means there's a lot of new ships coming. But they're not arriving yet. They're mostly arriving in mid '24 and onwards. So, that's when things are going to -- that's when the game is over kind of for that market.

For LPG, very similar, but the Panama Canal, it has a drought ongoing, which is restricting the amount of ships going through. And that's a temporary thing. I don’t like the market, but the rates today are insane, and it's only because of the Panama Canal.

So, very long answer. Sorry about that. But we're all over the place depending on what segment you want to talk about.

NB : That's really interesting. Maybe let's focus on the ones that are a little more divorced from China, which sounds like it would be the LNG one. Is that a fair statement?

JM : Well, in this world and in China's involvement, nothing's really divorced. I think the segment that is most promising to me regardless of China is probably the tankers.

And then I also think -- I think LNG has potential outside of China, but the massive order book, which is forward supply. Right? New ships coming online. I think make that segment really difficult to invest into.

I mean, every segment depends on China to some degree, but I think the oil tanker demand story has a lot more of a global support base. It's not just a China story, whereas something like dry bulk, it's really heavily China based. And even LNG, it's very heavily based on Asian, winter consumption for heating and in the summer a little bit for cooling, and electricity.

But electricity is kind of your base load. You see these seasonal swings, and it's really dependent on Asian weather patterns and Asian economic strength. And so, even LNG Nate, I agree with you. Europe is becoming a bigger part of that story. But I think everything at some point connects. So you have to understand and follow China's economy if you're going to do much in shipping.

NB : Okay. So, on the tanker side, obviously the ship -- oil, right? And so yeah, where are we in that cycle? You mentioned at the top we're kind of in middle innings, you think? What are the dynamics going on there?

JM : Yeah. And of course, I reserve the right to correct my answer in the future.

But I think we're somewhere between inning 4 and inning 6. Right. It’s kind of smack in the middle there. And tanker has kind of come up with two components. There's product tankers, which carry the refined stuff. So gasoline, diesel, jet fuel, right? They call it clean. Clean, but that's the industry term.

And then there's the dirty tankers, which carry crude oil and distillates, the fuel, heavy fuel oil stuff, kind of tarry, nasty looking stuff. And so those tankers are a lot larger. In fact, the main crude tanker is called the VLCC, very large crude carrier, carries 2 million barrels of oil. So, we're talking about a behemoth on the ocean. Whereas some of these product tankers carry 200,000 barrels or 300,000 barrels. But still a pretty sizable ship, but much larger in scale.

Both of those sides, both the clean products and the dirty and the crude side really benefited. And I’d be careful when I use a word like benefited, or celebrated, or something. But the Russian invasion of Ukraine really upended the dynamics of that market.

And the market was already pretty tight. I think a lot of people come away with the wrong -- they say, oh, well, it's only strong because of that. Well, that's not necessarily true. The market was already pretty tight before that happened, but that was sort of the match that lit the gasoline, or the tender, or whatever you want to call it.

And that fire has been raging. And the sanctions alone on product tankers have caused a lot of inefficient routes to develop. Because a lot of Western Europe cannot trade directly out of Russian ports, which are right next to Western Europe, right?

So they have to get the refined products either from the Middle East, which is a lot further. U.S. Gulf, which is even further yet, or even from China, which is just like baffling the fact that, you know, like, well, we're going to stiff it to the Russians, but we're going to buy all the stuff from China. So it's like, it's a really interesting dynamic in the market. And it's making it less efficient. And anytime you have a market that's less efficient, that's like artificial demand increase right, because of the ships being routed inefficiently.

NB : Right. And so, then the industry has to catch up and create new ships and do that stuff. And you're saying that -- but that's already started seeing how it has been two years.

JM : Yeah. They finally. Well, the funny thing is... not funny, but the weird thing is, they didn't really respond in 2022. They were all kind of like shell-shocked and they just sat on their hands and nobody really ordered any ships, which was amazing. For us as investors we thought this was incredible.

And they finally started ordering ships this year, and they have ordered quite a few ships this year, but none of them really arrive until 2026. Some of them even 2027.

If you look at it. Yeah. And I just -- some charts we went through in recent webinars , but one of the charts looks at the age of the fleet. Like how many ships are in the water and divided by each year. We have some really granular data. And this is the oldest fleet balance for tankers in modern history.

The average age of the fleet is like 11, 11.5 years. Tankers usually last about 20, until they need to be recycled, or refurbished, or replaced. And the average age of the fleet is around 11. 11.5, I believe. So that's the oldest it's ever been in modern history. I mean, this dates back 50 years, 60 years, oldest fleet. And you have the smallest order book in modern history. Never been smaller.

The order book in some segments, like in VLCCs, which are those 2 million vessels we talked about -- 2 million barrel vessels. We're talking like 3%. We have one VLCC arriving in 2024. And we were projected to have one VLCC arrive in 2025. And I think they pulled some like, strings at the yards, and now it's 2. And just so you can put that in perspective, Nathaniel, or do you go by Nate?

NB : Either one.

JM : All right, Nate. So just to put that in perspective, a normal average year of VLCC is, if I go back 20, 25, 30 years, the average delivery year is anywhere from like 20 to like 35 or 40. And so, you're going from 20 to 35 per year. And you're getting one next year, and you're getting two in 2025. At the same time, the fleet is the oldest it's ever been on record.

Oh! and we haven't even gotten into environmental regulations yet. So, I mean, it is, like, it's heating up.

NB : Yeah. No. Did I hear that right? You said 20 to 25 of these things are produced a year normally?

JM : Normally, that's correct.

NB : And this year, there's one? Or next year...

JM : Well, for next year, there's one, and I'll pull up the chart. As we start talking later, I'll pull up the charts so I can actually pull up direct numbers. And I don't know if this is going to be posted as an article. You can even put a snippet of the chart that we have, but these are pretty incredible numbers.

NB : Wow. And why is that? Are people -- are they expecting that the economy is going to fall off a cliff? I mean, why else would they not plan for this?

JM : Well, there's such a lag effect when you order these vessels. And so usually it takes anywhere from 2.5 to 3, 3.5 years to build one of these vessels.

So that when you look at 2024 and you see that there's only one ship coming, those would have been ordered in 2021. Or even 2020. And so we were still in the midst of COVID, and some countries like China were still under heavy lockdowns, uncertainty abounded right, and tanker rates were very poor. And not only that, there was such a focus as there still is on environmental change and climate stuff and all that sort of regulations.

And so people say, I don't want to invest in this huge $100 million asset that has a 20-year lifespan. Because I don't know what the oil market is going to look like in 2035. And so that makes sense. Right?

But now we're here, and it's like, holy cow. We need 50 of these, and we have 2 or 3 coming. Yeah. So, it's definitely a dislocation.

NB : Interesting. So this kind of opens us up for the next question, which is the opportunities. Now, you know, my first thought is who produces these tankers? Because it sounds like they would be, like, who builds these things? It sounds like that might be an opportunity. But yeah, talk us through this. Where are the opportunities?

JM : Yeah. Yeah. No. It's a good question. I get that a lot – who – can I invest in the shipyards themselves? Unfortunately there's not really any -- I don't want to say reputable, because these are reputable companies. But there's not really any great publicly traded listings for these companies.

Most of them are -- a lot of them now are in China, and most of them are like state-backed or pseudo-state owned or controlled. And they're subsidized. And so like they're actually making a profit for like, the first time in 20 years. Like times are actually finally good for shipyards.

But they're like government pseudo agencies you can’t really invest. There's a couple Korean stocks that are kind of illiquid, that are kind of conglomerates, if I can get that word out of my mouth.

NB : Conglomerates, yeah.

JM : Conglomerates. Yes. And so you can maybe look into that, or there's like a Japanese firm, Mitsui ( MITSY ), I think. And there's a couple of them. But there's no real direct easy way, especially for U.S. or European investor. So long answer short, no. You can't really invest in that.

NB : Hang on. Let me ask you. I have to ask you something here because if you say they're in China, and the whole supply chains. Has that happened with the shipyards? Or it sounds like it's such a massive thing that they haven't really had a chance to even think about it?

JM : Well, the shipyard story is interesting because for decades, ship making has been kind of a loss making business. And it's been sort of an industrialization, national pride. The country subsidizes the shipyards to gainfully employ their workers. It hasn't necessarily been economic.

So, the U.S. got out of the ship making business 50 years ago. And then Western Europe got into it in kind of the late 80s, 90s, early 2000s. And then Japan just took over and dominated and then Japan and Korea kind of fought back and forth over it.

And then about 15 years ago, 2005, 2006, 2007, 2008, 2009, China got into the game big time. And they subsidized bigger than anybody else. They built yards bigger than anybody else. And now China dominates the global ship making business. But it's never been about – it’s never been commercial. And that's why, people say, well how did we let China do this?

Well, it's a total commodity thing. It's pretty basic, labor and it's usually loss making. So, good for them. Right? But now I understand Nate. Now it's like, well, this is kind of a national security thing and like uncertain economic conditions, but that is what it is.

The order books are all going to come from mostly China, a little bit Korea, and a little bit Japan, and I agree. I mean, that is kind of, as an American citizen, that's kind of a little unsettling.

NB : Yeah. I guess building these things maybe isn't one of these high touch things. It's not like building a chip or something like that. You're building a boat, which people have been doing for thousands of years, right? So it wouldn't be that difficult to re-shore it if you had to, it would just be a question of finding the space, which we have...

JM : The issue in United States is – the two big issues in the United States are, the first one's like regulations in space. And you can get around that if you really want. Space is always hard because you need a lot of space. But regulations, you can get around that in an emergency.

The real issue in the United States is the cost of labor. And we see that with some vessels. The U.S. doesn't make VLCCs, we don't make these 2 million barrel behemoths. But we do make smaller containerships, for some of our Jones Act domestic lines.

Like, if you live in Hawaii, or Alaska, or Puerto Rico, you're probably familiar with companies like Matson ( MATX ) and Pasha and those are these, like, nationally-protected companies that can only -- they have, like, a monopoly, duopoly on these lanes. And they can only use ships that are made in the United States that are crewed by American crew members and so forth.

And let me just give you an example on cost. So during the container ship boom, a lot of the international companies were buying container vessels for roughly $60 million, $70 million apiece. And some of those had LNG dual fuel, they were more future proof and all that sort of thing.

Well, Matson, a U.S. company, decided we need to renew our fleet as well. And they bought very similar ships. LNG capable, nice, nice vessels, high spec, but they're built in the United States, and everyone else is paying $80 million. Matson was paying between $250 and $300 million all-in per vessel. Same. I don't mean any offense to those shipyards, but it's pretty much the same ship.

NB : Wow, okay.

JM : Yeah. And that's the issue there, Nate.

NB : Interesting. Alright. Sorry for the sideway there. Just kind of piqued my curiosity. But alright. So moving on here, opportunities, yeah. So okay, so you can't invest in the shipyards themselves or only very difficult, but where else? Where does it go from there?

JM : So, for me, being part of Value Investor's Edge , which is our overall research platform, we founded that back in 2015. So, we have more than 8 years of experience now, exclusively in the maritime shipping sector. We cover 44 different stocks.

And so, we follow them all across the cycles. And of course at any given time, a handful of those are avoids, a handful of those are maybe watched for later, and maybe a selection are buys. And so, I just put that into context, so folks understand that we are looking at the cycles and we are looking at the different timings of things.

I mentioned tankers as something I really like, and I mentioned that I think we're in inning 4 to inning 6, somewhere between there. And when I look at the valuations of these stocks in the market, they're not deeply depressed, right? These aren't like, total bargain basement stocks. And they wouldn't be because the cash flows are strong and earnings are strong and the balance sheets have improved, but they also don't trade with much enthusiasm.

In fact, some of these stocks trade at 20% to 30% discounts just to the NAV, which is the value, net asset value, which is the value of all the ships minus the debt. And that's a pretty, like, kind of pessimistic valuation if you trade below just the carrying value of your ships. I mean that’s pretty disappointing if you trade below that. And most of them do.

And I think the broad market is just more skeptical. I think the broad market is more focused on macro things. I think they're more focused on China specifically. And I think they're a little bit less dialed in than we are about the fleet profile, the upcoming deliveries. Like I don't think most folks really pay much attention to that until it matters, right? And so that’s – I am professing that by saying, like, these aren't the biggest bargains in the world, but I do think there's a dislocation.

And one of the stocks I've talked about a lot, and it’s a big position of mine. I'm publicly long. I also have some options. I'm talking my book here. Hopefully that's transparent, it’s Scorpio Tankers, ( STNG ). And they're U.S. listed, and they have one of the largest product tanker fleets in the world.

And it's all modern, and that's one of the things I like the most about Scorpio Tankers. Because they don't need to replace any of their vessels anytime soon. I mean, they don't even -- they can get all the way up to like 2030s before they have to talk about fleet replacement or renewal. And so, all they need to do is operate the ships and collect the money, pay off debt where they need to, and then return the rest to shareholders. And I think that's what they're going to plan on doing.

And Scorpio Tankers over the last year and a half has completely revitalized their balance sheet. Year and a half ago. And if you go back and look at the stock year and a half ago, it was like, $15 or $13. But the balance sheet was a disaster. I mean, it was borderline.

We used to put in our research notes, like, be careful. There might be an equity raise, like these guys are in trouble. And they have completely revitalized their balance sheet. And now it's pristine. It's about 30% debt to assets. Over 500 million in liquidity. So, all they really have to do now is operate the fleet.

And they're doing steady share repurchases because of that 30% plus discount that I just mentioned, right, because it's like an arbitrage. You can repurchase your shares at $0.70 on the dollar. It's basically like investing in your own fleet or growing your fleet, at $0.70 on the dollar. And thankfully, their management understands that, and they're doing that. They've raised their base dividend a few times as well. I think there's probably special dividends in the near future.

So that's number one, Nate, and I'm talking my book. I'm very long with this company, very much believe in that.

One other company, I've mentioned it publicly once or twice. It's a little bit more risky yet. This one has a little bit, I would say, of management concerns.

Not that management is going to do anything nefarious, like, there's no question of the accounts of this company. There's no question from -- there's nothing like that. It’s just that it's a family kind of backed and operated firm. And so their capital allocation priorities aren't the same as, like, I would say, like, a regular company.

So, don't expect, you know, if they make a lot of money -- I'll give you a few examples. Expect them to renew their fleet. Expect them to grow a little bit. I don't expect them to pay out more than, like, 30%, 40% of cash flow. They're going to reinvest. It's a family business. They're going to reinvest in it. They're going to grow in it. They want to be in tankers for another 50 years.

And that's what I mean about, like, family concerns and related parties and that sort of thing. Nothing nefarious that I've seen. I’ve followed this company for actually more than 10 years at this point. It's called Tsakos Energy Navigation, ( TNP ). And I also have a very big position in this company as well.

One of my largest stock positions, I also have some options. March 2024 is one of the strikes I'm really into right now on the options chain, but this company trades at like $20 per share. And their net asset value is $60. So, one-third…

NB : Wow. That's a huge discount.

JM : Yes. And the only reason it trades at $20 and not $50 is because of those concerns about the family and the management and all that. And I think a 60 to 70 actually, it's closer to 70 at this point. I think a 70% discount, is just way too high.

If considering the issue is more that they want to grow the fleet. It's not that they want to -- they're not incinerating money. They're not doing anything illegal. They're not doing anything nefarious. If they're doing nefarious things and other things, then yes there should be a massive discount. But I would say, in my opinion, there should be a discount, Nate, but I think it should be maybe 20% or 30%, not 70%. And so, I think this is a fantastic opportunity for investors.

We've ran some cases on this company, TNP. And in an average market, next year, they're going to be worth $70. In a strong market, they're going to be worth over a $100. This is NAV. I'm not saying where the stock's gonna trade.

But in an average market, their NAVs can be about $70. In a great market, their NAVs can be over a $100 and in a terrible market, like I mean, batting down the hatches, everything goes wrong, their NAV is like $35. And the stock is $20 today. So, I just think that's an amazing thing.

So those are my two favorites. They're both in tankers. They're both on theme. We can talk more about other stuff as well, but you asked my favorites, and those are the two.

NB : Yeah. No, that's a good one. Yeah. So we got, Scorpio Tankers, STNG, and Tsakos. I believe the T is silent. Not up on my Greek. I believe it's Greek. Right?

JM : Yeah. Tsakos. Yep.

NB : Yes. TNP. Yeah. It's a couple interesting, names there. Now Tsakos, TNP it is up 20%, 21% or 22% over the last year, as well as the year to – year-to-date, it's actually done better. It's up 28. And Scorpio is only -- it was pretty much flat over the last 12 months. I'm sorry. Year-to-date, it's flat. And over the last 12 months, it's up, like, 30%.

JM : It just like baffles. It really baffles me, Nate, that it's flat year-to-date. But Scorpio was more of a mainstream, it's U.S. listed. Well, they're both U.S. listed, but Scorpio is much more known. It has much more liquid of the stock float. And so, I think Scorpio got a lot of interest earlier on.

And I think that folks are just skeptical about this tanker market -- they don't believe it has legs. And I think that's what you're seeing in that year-to-date performance. And I hope, because I'm invested very long, I hope that if we look back in 6 months, or a year from now, we'll see that outperformance resume.

NB : Yeah. I mean, to give you an idea, they announced a stock repurchase plan, which is a buy signal for anybody, back on August 15th, and the stock barely moved. I mean, it was up a drip and then it dropped, like, a week later.

Granted that was during August, which was a bad month as was September. But yeah, anyway.

JM : If you go through their PRs and and we don't have time to do it live here on the podcast, of course, but if you go through their PRs in the last 18 months, they've done, like, 7 different huge buybacks. They bought back about 15% of their float.

These are big buybacks that are not just token. And the market is just shrugging it off. And that can't last. That's not going to last.

NB : And so these, you think these are all macro concerns that are weighing on it. The China reopening the story chiefly.

JM : Yeah. The persistence of interest rates, the weakness of the economy in Europe, China instability. Yeah. I think that's all weighing on it. I don't think it's really related to tanker market fundamentals because it doesn't make sense. Because if you were basing this on tanker market fundamentals, Scorpio Tankers would be 75 today and not 52. Right? And Tsakos would be 40 and not 20. I mean, so there's obviously bigger picture macro concerns going on.

NB : Yeah. And on that, I mean, stocks are forward-looking indicators, I guess. And what if the economy does fall off the cliff here, or at least enter a recession over the next, 6 months to 12 months to 18 months, which seems like a lot of people are talking now could happen. What does that do then?

JM : Yeah. That's always going to be a risk. And not just for the operating performance of the company, but as investors and traders, we're looking at the price of the stocks, right?

And I'm not going to BS anybody like, if the whole market comes down significantly because of a recession, then almost all or all of the shipping stocks are also going to come down just by nature of the stock market coming down.

In terms of how much we're concerned about that, the first thing we look at is balance sheet strength. And the shipping company balance sheets on average, we cover 44 companies right now. On average, they are the strongest we've ever seen, and that's in our 8-year history.

We've also back-tested the tanker and some of the bulker companies, and they are indeed, like, the best of all time, or at least in modern history. And so right now, just to give you an example, we have one firm that has negative net debt -- net cash, which in a capital intensive industry like shipping, having net cash is totally unheard of.

We have one company that's net cash, and we have three additional companies. So, it'll be four in total that we project will be net cash by Christmas. And the average debt-to-assets across our companies is like 28% or something like that. And normally in shipping, the average is over 50%.

Which makes sense. You know, you finance a ship half debt, half cash. That's 50%. Right? And that's healthy. 50% is fine, but right now it's, like, 28%. And so the loans on these vessels are very small. And, yes, interest rates are going up, and that's a pressure, but the balance sheets are stronger than they've ever been.

So, I am not worried about, like, company ending events. If macro goes down the toilet, yes, the stocks are going to fall. That's inevitable, but none of these companies are going to have to go bankrupt or restructure or dilute their equity.

And that's what I think investors - because everybody understands, right, the rising tide lifts all boats and so forth. But what people are really scared of is bankruptcy and things like that. And that fear in my opinion is completely off the table for the next few years.

NB : Okay. Wow, that's really bullish. All right. So, you mentioned that you've been doing this for 8 years. One of the questions that we like to ask is, how you got into this? And how you came to focus on shipping of all things? So, yeah, talk to us about your kind of origin story in investing?

JM : Yeah. Of course. Well, you know, growing up as a young kid, I was always interested in transportation and trucks and airplanes. And where's that thing going? What's in there? And so, I think, subconsciously, that kind of carried through as I went through college. I studied economics, and I took a couple electives on, like, international trade.

When I got my Masters in public policy, I focused on international security and economic policy. And a lot of that focus, I actually studied the, emerging trans specific partnership, which of course didn't happen, but that's what I studied for my masters. And so, I had that educational background that I think stemmed from a personal interest even as a kid. Right? And I think that kind of came through on that process.

On the investing side of the house, I was always kind of a self-taught, sort of value based investor, sort of almost like Ben Graham, almost a little bit of Warren Buffett type stuff. And when I started my blog, it was really a hyped up. It wasn't even like a research platform. It was like a super blog. I called it Value Investor’s Edge, which I'm glad I picked that name. I love that name, but there's nothing about shipping in Value Investor’s Edge. Like, shipping wasn't a focus. And I had a value oriented blog for about a year.

And I realized the stuff that I'm talking about was shipping is a stuff that people are the most interested in. And it's the stuff that's the most unique. Like, you can't find this in anywhere else, and this was before Substack and all that. But you can't find any of this anywhere else on the internet. Or if you can, it's like, very low quality and ours is better. Right? But like, if I was covering Apple ( AAPL ), or Walmart ( WMT ), or Caterpillar ( CAT ), or something, like, there's other 10 other people that could do that.

And so, I think the personal interest combined with the ability to outperform in a segment has really driven us in the shipping. And over the last 8 years, we have long only model portfolios on Value Investor’s Edge . And the first couple of years, we had frac trades where I would say, hey I'm going to buy this at this price and I'd sell it at this price, and I would track the averages of that. That got a little complex. It's harder for people to follow. So, we switched to a long only model portfolio in 2019.

So, if you take the first 3 years of the track trades and you take the last 5 years of the model portfolio, that gives you 8 years of performance tracking. It's not audited by the SEC. This isn't managed money, right? It's just a portfolio, but people can see in real time and I give updates of like, what's in there once a month. And our IRR over the last 8 years is 43%, which is 16x over 8 years. And it's all verifiable and tracked on the platform.

I'm not selling a financial resource product, the standard disclaimer in so here. But my point is that we've proven our ability to outperform in this niche, and I don't think it's anything super special about myself or even our team. Like, I think if you plucked us out and put us into, like, tech or something, we wouldn't do anything. We'd be average at best.

I think it's because of our sector expertise, and we stay 100% in our lane. Like, if you asked me today about, like, Amazon ( AMZN ) or Tesla ( TSLA ), like, we might joke about it for 10 seconds, but, like, I don't have a serious opinion for you.

NB : That's really interesting. That begs the question, what your research process is like? I mean, without giving away too much of the farm, I guess. I mean, you do have a team there of folks that help you out. But, yeah, what kind of like, what is it that research process like?

JM : Yeah. We have a team of 6 right now, 4 front facing sort of analysts and 2 guys who work kind of behind the scenes, and we're actually expanding, we're adding three people into our team, between now and Christmas. So, yeah, no, we're in a growth mode. I'm really excited about that.

In terms of the research process, a lot of it is having that, it's almost like a moat because we have that 8 year or 9 year experience. I have a couple of guys that worked with me that have 15 years of experience in shipping. And so, we have that moat of expertise of, like, we kind of already know what's going on. We don't have to -- every time a new press release comes out, we don't have to spend 6 hours, 7 hours researching what it meant or like what – if someone buys a new ship we know instantly what that means, right? We know immediately how big the order book is. We know what kind of impact that's going to have.

We have what's called a live analytics platform, and this is available for all of our members on Value Investor’s Edge, and this tracks all the metrics of every single company that we follow, whether or not it's cash break evens, EBITDA break evens, earnings projections, leverage debt to assets, number of ships, age of ships, we have a tabs that have every single company's fleet. Every single ship, the age profile, where it was built.

So, we have all this data at our fingertips, and that's shared with our members as well. So, I think when you combine the expertise, which I actually have some of the least, I have 8 years – well, I have 8 years formally with VIE and I have about 14 in total if you include the stuff before then. But if you include all of our team's expertise, you include the live analytics platform, and I think the third one is being well known in the industry and having that access to management.

So I was just in Oslo this summer, this June for Nor-Shipping, and was able to attend the conference there and had several meetings with companies in Oslo. In June, I was in Marine Money, in New York City. We had, I think it was 22 or 23 company meetings, myself, and Clement who is our main shipping analyst.

And having that – and we're about to host, I don't know when our podcast, Nate is going to go live, but in early to mid-October of 2023, we're going to host what we call a live interview series. And we're hosting 11 or 12 interviews with the CEOs or CFOs of companies that we follow. And those are going to be live, and our members can join on the call immediately. They can ask questions during the call. And then we'll get some transcripts and recordings out later.

So, I think the combination, right? That experience, that understanding, that live analytics platform that we've built out, and the access to these companies to be able talk to them point blank and ask them what's going on and ask for their insights. I think those -- I think there's probably more than those three, but I think those three things are really -- would give us an edge. And really go into our research process.

And the rest of the stuff, it's the same as anybody else's. I'm not going to bore you with it. We read financial statements. We read SEC filings. We do all that kind of stuff. That's all a given, but those three things are kind of the extra.

NB : I mean the fact that you're -- so you're doing this interview series, and obviously, the CEO has agreed to do this, even though it's behind a paywall so that I mean, just from a media industry perspective, that's an interesting model there. This is the first one -- this is the first time you're trying this, right?

JM : No. Actually well, we started it in 2020 right before COVID. And because of COVID afterwards that sort of -- and people saw that it was a professional product and stuff and because of that that kind of ignited the product. And we do it now about twice a year.

So, I haven't -- I should count and see how many have done, but I'm pretty sure that when I kick this series off in a few days, it will be triple digits. It'll probably be my 105th interview or something like that, but the companies agree to it for a couple of reasons. We don't have to unpack this too much. But first of all, they've seen them before, and they've seen that the questions are, I would say tough, but fair. I don't -- there's no gotchya questions, but I'm not trying to embarrass anybody.

But they see that their questions from genuine investors who are asking, I hope they're intelligent questions, but they're asking more deep intelligent questions about the industry. Whereas on a quarterly conference call, which is what these executives are used to, the questions are all very, like, modeling, or like what might impact your earnings by $0.04 next quarter? What was that? Like these really in the weeds things that don't really matter.

And I think our interviews are a little bit more focused on the big picture dynamics of the industry. And then we drill down into capital allocation. And we say, well, what are you going to do with this money? Where is this going? And I think they like to talk about, I think companies like to talk about themselves.

You know like, they like this, I'm going to share our strategy, and I think they like that. And the second thing is, it's you're right. It's behind a paywall. It's exclusive for our members . But Seeking Alpha has been such a great support as well. They get us the transcript that goes with it. I edit and curate the recording, and then if we have some good ones that I think are timely, then they become public later on, like a podcast.

And so that benefits everybody. Benefits the wide audience. It benefits Seeking Alpha, and it benefits the companies that are so lucky to have been selected to go public. And so, maybe I'll do 12 interviews, and I'll bring 5 or 4 or 5 public. And so that's kind of, I would say, like, it's kind of unspoken, but that's kind of the carrot at the end of the stick.

NB : Yeah. That's really interesting. It kind of begs the question. What other industries might be right for this type of thing, but that's not -- we don't have into that.

JM : Well, just to say, I think a lot of them would be, but I think the team -- the marketplace teams, I think the Investing Groups at Seeking Alpha, some of these investing communities are best positioned to do this. But it takes a lot of time. It takes a lot of passion. It takes a lot of effort. And so, I'd love to see it. And one thing we do, Nate, and I know we're venturing off the path a little bit, but I think this is relevant to our research process.

Either myself, or my main shipping analyst Clement, is on every single earnings call. And we actually ask questions on most of the earnings calls. So, there's a couple companies that are uncomfortable with that and so we just listen. But I would say almost 90% of the companies that we follow, we cover. We're on the earnings call live asking questions, and I think that's so important.

NB : Yeah. Alright. So you mentioned that these -- you track every vessel that every one of these companies has. How many -- what is that typically? What's the total number of these vessels that we're talking about?

JM : Yeah. So all-in-all, it's around 2,500 vessels. That we track. And we pay and subscribe to a service that gives us real time vessel valuation data for every single one of these ships and we actually have it set up as an API. So, it's like automated updates in our models and everything.

And then we also have a tab, which we don't necessarily share the exact value of our single vessel because that's exclusive proprietary. Like, that's from the API, but we have the information on every single vessel. And you can go -- you can click. We have it's like bulk tankers, gas ships, and you click the tab, and it's all these charts and all these lists of every single so you can quickly, I mean, in 2 or 3 minutes, you can figure out, like, basically who's who in the entire industry.

NB : Is there, like, a live map there where you can see that the tanker is kind of moving around on the…

JM : Vessel's value, which is a fantastic product that we subscribe to, has something like that.

We don't have it. Because we'd have to have enterprise data sourcing. And so, but such a map does exist and it's really cool. I don't know if it has much investment value, but it's really cool to click on it and be like, there's my ships.

NB : Yeah. Yeah. I guess if something goes wrong, it has investment value. Well, whoever can get that information first, like if a tanker runs, but how often do accidents happen, like, in these, I mean we know the big ones...

JM : No. I mean, it's actually a very, very safe industry. Now there's not very many accidents now.

NB : And weather doesn't affect it, like, whether if there's, I mean, I guess if there's a hurricane, maybe they have to stay away. But otherwise…

JM : Yeah, the storms slow things down, which if anything is kind of bullish because it kind of artificially slows down the supply, right? But storms, you know that there's such good prediction and projection of storms now, and the ships are very well built, and well trained and crewed. And so you don't really hear about these big storm disasters anymore.

Most of the ships are moored in a safe port or they stay a hundred miles away or – so we haven't -- there's not really -- it's a very safe industry. And it's kind of like when an airplane crashes, is like national news, right? It's similar with shipping. Anytime there's a big shipping disaster, like, it's all over the news.

But it's like, I told you we track 2,500 ships roughly. Those are just the publicly-traded companies that we follow. Globally, we're talking 30,000, 40,000 ships. And so even if there's, like, 5 pirate hijackings and 10 groundings and 4 explosions and I mean, you're talking about percent of a percent of a -- I mean it's like -- it's like when you fly with an airline, it's the safest way to travel.

NB : This is a fascinating conversation. J Mintzmyer, thank you for joining the Seeking Alpha Investors Edge Podcast -- I'm sorry, Investing Experts Podcast. Your thing is called the Value Investor’s Edge, and it is available on Seeking Alpha. And find J Mintzmyer's Articles and I'll put a link to that in the show notes. And how else can people find you and follow you and find out more about your stuff?

JM : Yeah. Fantastic, Nate. Thanks for having me on today. The number one way to follow me for free is on Seeking Alpha. You can just follow my author page there. I'm also very active on, formally known as Twitter. On the X there. So you can follow me on @mintzmyer . And then finally, if you want to learn more about our research platform, I've made it simple for you. I got a website that redirects right to the landing page. It's mintzmyer.com . So, if you can spell my last name, that's the challenge. But if you can spell my last name, mintzmyer.com , that'll take you straight to the Seeking Alpha landing page, and it'll give you all the information you might want to know about our research platform.

NB : Awesome. Well, thank you for listening to the Investing Experts Podcast. Nothing on this podcast should be taken as investment advice of any sort. At times, myself or the guests may own positions in the securities mentioned, J disclosed all his positions. I do not have any positions in any of the stocks that were mentioned today.

And you can follow J Mintzmyer’s Value Investor’s Edge and Investing Experts on Seeking Alpha, where you will also find full transcripts of all podcast episodes. To take full advantage of Seeking Alpha become a premium subscriber, learn more at Seeking Alpha Subscription Plan Pricing . Check it out. We'll see you there.

With that, thank you all for listening. Thank you again to J for coming on. We'll speak to you next time.

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J Mintzmyer Unpacks Cyclical And Fickle Shipping Sector