Tuesday, May 7, 2013

Why did Mohnish Pabrai recommend The Shipping Man?

It’s worth paying attention when a popular value investor such as Mohnish Pabrai recommends you read a fiction novel.

And that’s just what he did.

The Shipping Man is about, well, you guessed it: shipping.
And what’s interesting is that Mohnish has a history of successfully investing in shipping, having profitably invested in Genco Shipping and Frontline. So he knows the industry fairly well.

It starts off as my kind of book.
“The Greek laughed. “There are only three ways to get an advantage over your competitors in this business.

“What are they?” Robert asked.

Pay less for your ships, pay less to operate them or pay less for your capital. In a commodity business like shiping, the only thing that really matters is price.
It’s not often you find investing wisdom in a fiction book.

The basic premise of the novel is pretty simple. Robert Fairchild watches the Baltic Dry Index plunge 97%, registering an all time high and 25-year low within the span of 6 months. He gets excited. He gets drunk and ends up buying a ship and receiving an education.

The book is full of interersting nuggets. Let's look at a few, shall we.

Consider this one on information:
“... another problem is that everyone has the same information, which means there is no hidden value; there is only the market. If the market goes up, you win. If the market goes down, you lose. and the moment you think there is no risk, that is the same moment you have failed to recgonize the risk. At least the market doesn’t lie.“
Or this one on expertise:
“Robert Fairchild knew full well that he wasn’t an expert on shipping, but expertise, like everything in life, was relative. At that moment, all he needed was to know a little bit more about bunkers than John Harris and the other investors funneling out of the New York Yacht Club — which he did.”
And this advice: Never sell when things are bad.
“You know something, Robert, you should never sell when things are bad. You should only sell when things are good. This is what I tried to explain to Alex. When you want to cry really you should buy,” Coco said with his characteristically elegant simplicity. “When it comes to shipping, investors only lose money when they lose patience.”
Let’s end with this philosophical snippet:
“There will always be many good reasons not to do things in life, but people who achieve the great things are the ones who believe in themselves and find reasons to do things even when sometimes they do things that are not so smart.”
While I feel like I know a lot more about shipping after reading The Shipping Man, this is where my shipping education starts and not where it ends.

And no, I won't be buying a ship anytime soon.

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