When I first started writing this blog, five years ago, I was determined not to fall into the trap that most shipbroking reports, and indeed market reports of any type, tend to end up in. These are usually in three broad categories:
1) We are on the way to paradise!
2) We are on the way to hell!
3) I don’t care, I’m going to bore you to death anyway.
I took a different approach. I wrote what I wanted, and what I felt, and continue to do so. One thing was for sure: I was never going to write something that was tailored to any particular deal we were doing at the time, at least consciously, because it would sound fake, and read badly, and if nothing else I do care about good writing. More than that, I had a feeling that the capricious and malevolent shipping gods would trip me up sooner or later, as they surely always do.
It is hard to convince many people that this is not part of a super devious marketing plan. Some even think I am trying to plant subtle messages in their brains, somehow or other. I don’t think I am that cunning to be honest, or even that desperate. And in any case there are many more of my brother and sister brokers out there who seem to think that they can do that, so I just leave it to the competition.
I suspect however that a lot of effort by brokers is wasted. It is a fact of life that a buyer generally wants to hear of reasons why they should buy now, and a seller wants to know why they should sell now, rather than later (and hopefully not sooner). They will usually, consciously or unconsciously, filter out the evidence that does not fit their beliefs. This is not a criticism, or an implication that everyone is stupid, it is simply saying that everyone, at least as far as I know, is human.
So what do I do when I have a number of deals in the air, and am acting for both buyers and sellers? This is the situation I am facing now, and face regularly. I could go the way of category 3) above and (intentionally) bore you into submission, but I do not wish to do so, for your sake or mine. So, the easiest route, and the truest too, is to tell it how I think it is.
Whether this is of any help to investors in dry bulk shipping, which is who my clients, dry bulk carrier owners, are, is questionable. Timing of entry and exit matter a great deal, and as the strength of the freight market is maintained, and prices continue to rise, the window for entry gets narrower, at least until it can be jammed wider again by an influx of new money, either in the form of OPM (other people’s money for the uninitiated, or the capital markets for the financially sophisticated) or increased freight income.
But perhaps obsessing about the detail obscures us seeing the bigger picture. The bigger picture I would like to stand back and look at is one of investor behaviour rather than the numbers we see in front of us, frightening or gladdening us as prices continue their remorseless rise.
I am very kindly asked to lecture at a number of universities, both here in Greece and in the UK, to talk about shipbroking, the markets, and ship sale and purchase in particular. In normal non-lockdown times I like to play an investor-type game with the students. I divide them up into groups of a minimum of three to a maximum of six, and ask them to decide who will be their spokesperson. I give each of the teams three ‘ships’ – 5 year old panamax bulk carriers, and US$ 50 mill in cash. Using real data from August 2003 up to the present day, they have an option at the end of every two year period to buy a ship, sell a ship at the prevailing market value at the time, or do nothing. Buy one, sell one, do nothing. They are given the freight market and value history for the ten years previously. They have to discuss amongst themselves what they will do, and the spokesperson will announce their decision to me, in front of the rest of the class. The results are then calculated based on what actually happened in the intervening period, shared with the rest of the class, and then – after much fist pumping or groaning, the next decision has to be made.
It is, admittedly, a very simple game. The ships do not get older, there is no finance involved, the options are very simple, and certainly do not include going on a roadshow in the United States to buy a fleet subject to an Initial Public Offering. Special surveys are not included and neither are long term timecharters fixed at the top, or bottom, of the market or all points in between. It does however reflect the hyper cyclical nature of the market.
The results are always intriguing.
Firstly, doing nothing is not a bad option if you have a fleet of ships in your hands. As selling and buying at the same time is not an option, in the game at least, timing is important, but as the students are vaguely aware of what happened between 2005 and 2008, and less so about 2009-2013, there are some surprised smiling faces around the more cautious players. If you were a shipowner who didn’t play much in the sale and purchase market between 2003 and 2015 you made a hell of a lot of money anyway. If you topped it up with a couple of sales as well, you were doing brilliantly. But you still needed to have ships, and when you bought them again was not always straightforward, or rewarding.
Secondly, fortune does not always favour the brave. Spending all your money on continually buying ships does not bring in the results you may expect, especially when you hit the doldrums of 2015-2017.
Thirdly, the attitude of the students debating their next move depends completely on the make up of the group, and who their spokesperson is. Psychology plays a huge, if not dominant, part of the decision-making process. The bitterness against over vocal team members that recommended the wrong choice was genuine and in some cases almost overflowed into outright contempt.
Fourthly, the competition between the groups was also fierce, and who ‘won’ mattered. This went to ridiculous lengths especially considering that there was nothing at stake, and all the winners gained was the grudging respect, if any, from their co-students. People cared about winning, and some, obviously, cared a lot more about it than others.
Finally, having observed a number of these games now, I can safely report that there is no perfect model for the ideal team, either in size, gender, background or method, whether it was democratic or dictatorial, whether the spokesperson was power mad or collegial. Experience helped, even more knowledge of the markets in the last 15-20 years, but it turned out that people that thought they had an accurate memory were proven wrong – their memories were about what they felt had happened. You cannot create a good team, you can only develop one over time.
The point of the game is to show students that however much investors know, or think they know – even if they are shown a graph of five-year old panamax timecharter rates and values before they play the game (without being told the details of the game beforehand) – they still make choices influenced by other factors. Psychology, the influence of other players both inside and outside the teams, and the excitement generated in the meantime had much more effect on the results than anything else. The game shows not necessarily what choices were made, but how they were made, and the nature of the discussions that took place in arriving at them. Those that took a great deal of attention on the historical data presented did no better, and in fact usually fared worse, than those who ignored it. This is not surprising, as past performance is no guide to future performance.
There is a lot more at stake in the real world of investment than in a classroom exercise, but I have learnt a few lessons:
– Past performance, whether last week, last year or 20 years ago, is no guide to future performance
– Noise is distracting, try and filter it out, or at least control the volume
– Discussion is a means to an end, not an end in itself
– Decisions should not be made by the loudest or most confident, and there should be doubt lingering about whether you have done the right thing, otherwise you haven’t thought enough
– Measuring risk is not the same as being risk averse, and having a stronger risk appetite is not the same as being reckless, as long as the risk is acceptable
– Losing is part of the game; the only way to not lose is by not playing the game at all
– Buying or selling a ship is not the end game, it is just the start of the next stage of investment
I doubt whether any of this is helpful to those in the sale and purchase market at the moment. I should also add that there are probably clients of mine reading thiswho think it applies specifically to them. I can assure them – and they include buyers and sellers – that this is not the case. But I can say that people who ignore psychology – both during negotiations and when making strategic decisions – do so at their peril because the hardest person to analyse and criticise, the most stubborn and cocksure person to persuade, the most difficult person to convince otherwise, even when they have nagging doubts, is yourself.