Safe, Debt-Free, and Rich! by Andrew Packer

Author:Andrew Packer
Language: eng
Format: epub
Tags: BUS036000 Business & Economics / Investments & Securities / General, BUS027030 Business & Economics / Finance / Wealth Management
Publisher: Humanix Books

Chapter 10

Shipping

Always Make Money No Matter What Markets Are Doing

By 2006, I was feeling a little wary about investing in the commodity space. I had made money in copper, natural gas, timber, and the precious metals. Those investments had all seemed like fantastic bargains at the time, and my returns had certainly shown that to be the case as well.

But there didn’t seem to be a new bargain among those areas. That’s too bad, since a rallying commodity stock can make huge returns in a short space of time. Of course, when commodity prices are falling, those companies are the last place you want to be. But what happens when the space is no longer a bargain but it also doesn’t look like it’s going to fall anytime soon?

While many investors just focus on one area, like commodities, I prefer a jack-of-all-trades approach. It provides a lot more flexibility. As the old Wall Street saying goes, “There’s always a bull market somewhere.”

That got me thinking about another saying: “picks and shovels.” Specifically, I was thinking about the California Gold Rush. The forty-niners who went out west to find a mother lode often ended up being disappointed. But merchants who went out west to supply the miners thrived as the population boomed.

In other words, sometimes as an investor, you need to look beyond where you’re currently investing and think about the ancillary companies: those that provide services and goods to the companies that you are interested in. Doing so can allow you to find bigger and better bargains.

In my case, by 2006, I’d come to the conclusion that the best place to put my profits from investing in commodity stock was to buy a company in the shipping sector.

Again, it was a pretty simple decision once you got down to it. Demand for steel, iron, copper, and oil (among other commodities) was strong and rising. That’s why those shares were doing well. But once those commodities were dug out of the ground, they needed to get to where they’d be used.

The shipping companies made sense as a result. Thanks to the increased demand for commodities, shipping rates had been heading higher, and most companies had already booked out their fleets. In fact, the industry was caught unprepared for the demand in global shipping, and there was a serious drought of ships. While many firms were contracting out to build new ships, it appeared that the world’s needs wouldn’t be fully met on that front for another two years. After all, this isn’t World War II’s command economy, which could build a Liberty ship in a day. Today’s ships, specifically designed for the transport of cargo, can take upwards of a year to build.1

Shipping stocks were already starting to form an uptrend, something that I like to see when buying for the first time. After looking over the industry as a whole, I decided to put my money on Diana Shipping (DSX). Besides being in the right sector, the company had a great valuation.

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