Bull or Bear?
In the never-ending struggle between bulls and bears for market supremacy, the bears seem to have the upper hand – at least for the moment
(Article originally published in May/June 2023 edition.)
Are you a bull or a bear? Or a little bit of both? I suspect most of us are bulls. I mean, how could you not be if you play the market and dabble in stocks? You have to believe that stocks will go up over the long term and that you will make money over the long term. And the historical record supports that belief.
According to Jeremy Siegel’s classic, "Stocks for the Long Term," first published 20 years ago and updated twice since, equities over the last 200 years have produced an average annual return of seven percent. That means they double every ten years. If you hold stocks for 20 years, your original investment quadruples, and so on. No other investment vehicle – bonds, gold, real estate – comes close to building that kind of wealth.
But there’s a big catch. It doesn’t happen every ten years. Stocks go up, and stocks go down. Bull markets can last for years. So can bear markets. So it all depends on what ten years you’re talking about. You would have lost a lot of money during the Great Depression of the 1930s, and you would have made a lot of money in the ten years that preceded it, the Roaring Twenties.
More recently, you would have lost a lot of money from, say, 1998 to 2008, and you would have made a lot of money from 2009 to 2019. But over the long term, you’re gonna’ average seven percent.
So what’s the “long term”? How long do I have to hold to get that seven percent? Siegel says 20 years. That’s the minimum. He also says you have to have a diversified portfolio so you’re not overly reliant on one or two or five or six stocks. Every good investment manager says the same thing, as you savvy readers of this column well know.
And you can’t try to “time” the market by constantly buying and selling the same or different stocks. That’s a loser’s game and a formula for disaster. “Buy and hold” is the tried-and-true approach, and – as Siegel points out – it’s worked for 200 years.
The classic example today of the “buy and hold” strategy is, of course, Warren Buffett, whose favorite holding period is “forever.” His company, Berkshire Hathaway (BRK), is an old school, unapologetic, diversified conglomerate that both owns businesses outright (Burlington Northern, GEICO, BH Energy, See’s Candy, et al.) and has major stakes in others (Coca-Cola, American Express, Bank of America, Chevron, et al.).
And the businesses themselves have nothing to do with each other. They’re entirely different. There’s no “symmetry” or “synergy” or anything else between them. They just make money, and that’s the point. Pick good companies to buy or invest in, and leave them alone. BRK’s headquarters’ staff in Omaha is fewer than 25 people.
Since its founding in 1965, BRK has returned an average of 20 percent a year to its shareholders – double that of the S&P 500 over the same period. No other company even comes close.
The Current Scene
So bull or bear, which are you? I’m guessing we’re all bulls at heart, but there’s a little bit of bear in all of us too, isn’t there? It’s our survival instinct. It’s our fear of losing money. We get nervous when markets go down, and that’s when we make the mistake of trying to “time the market” and wind up losing big because we miss the next rally.
And that’s especially true today when the markets seem direction-less and buffeted by the war in Ukraine, high inflation, regional bank failures, the debt-ceiling crisis and the constant threat of a recession.
After all, 2022 was a tough year for stocks. The Dow fell nine percent, the S&P 500 20 percent and the tech-heavy Nasdaq a whopping 33 percent. Not good. Sure looks like a bear market to me, which it was. The three prior years, however, saw big gains and, in retrospect, marked the end of an eight-year bull market that came crashing down last year.
Over the last 12 months, according to a recent Wall Street Journal article, institutions pulled more than $300 billion from stock funds and individual investors another $28 billion. The enthusiasm for stocks is at a low ebb, says Bank of America, and investors are parking a record amount of cash in money market funds or cash equivalents. And why not, when you can earn upwards of five percent now that interest rates have risen dramatically. That’s almost as good as the seven percent average for stocks over the years.
Nonetheless, the equity markets are up this year, led by the tech-heavy Nasdaq (up more than 20 percent) and the S&P 500 (up 10 percent). The Dow is flat. All of which leads Truist’s Co-Chief Investment Officer Keith Lerner to ask whether this is the start of a new bull market or just a bear market rally. He makes a good case for both, concluding that the issue itself may be moot: “Instead of categorizing the market as a bull or bear, perhaps the proper view is one of a wide, choppy trading range that continues to frustrate investors on both sides of the issue.”
Are you feeling frustrated right now? I’m not, because I’m a “buy and hold” guy.
Bottom line, Lerner says: “From a tactical basis, we are underweight equities alongside an overweight to fixed income and cash. We continue to advise an up-in-quality portfolio bias, with an emphasis on U.S. large caps within equities and minimizing credit risk within fixed income.”
Sounds like the old 60/40 (60 percent stocks, 40 percent bonds) rule is getting updated to 40/60, at least for now. Fine with me.
While the markets stagnate and hem and haw, certain sectors of the maritime business continue to prosper, especially those connected to the energy business. In my last column, I discussed tanker stocks with a focus on companies like Scorpio (STNG) and Torm (TRMD), which continue to prosper on the heels of the war in Ukraine and Europe’s continuing need to replace Russian oil and gas.
So let’s take a look this time at the gas side of the equation – companies like Dorian (LPG), BW LPG (BWLLF) and Avance (AVACF), which transport liquefied petroleum gas (LPG). In other words, propane and butane, used in everything from food and fuel to plastics, especially plastics.
In a recent FreightWaves article with the enticing title, “Giant Tankers Full of American Propane Are Making Waves,” my new favorite maritime reporter, Greg Miller, says rates for VLGCs (Very Large Gas Carriers) have doubled in the last year, due largely to renewed demand from China, and the stock prices of LPG carriers have risen accordingly:
Shipping stocks in most of the other vessel segments are down year to date. Not so with the big three public VLGC owners. BW LPG, Avance and Dorian LPG are up 42%, 38% and 23% year to date, respectively. In fact, these VLGC stocks have been rising for years. Since January 2019, pre-COVID, Avance is up over 540& and Dorian and BW LPG by almost 300%.
To prove the point, Stamford, Connecticut-based Dorian recently reported its FY 2023 earnings for the year ended March 31, 2023, and Chairman, President & CEO John Hadjipateras had this to say:
The fourth quarter marked the culmination of the best financial year in the Company's history. Strong chartering results and a solid balance sheet enabled us to return nearly $225 million to our shareholders during fiscal year 2023. Our commitment to sensible and environmentally sustainable investment is evidenced by the addition of three dual-fuel VLGCs so far with a fourth coming later this year. I am grateful for the dedication of our crews and shoreside teams who are driving our continuing success and advancement as a leading provider of safe, reliable, clean and trouble free transportation and as responsible stewards of our shareholders' capital.
The company also announced a special $1 per share dividend for the fourth quarter, bringing its annual payout for fiscal 2023 to 16 percent (I’ll take that anytime!). And for you ESG-minded investors out there, in addition to the three new dual-fuel vessels announced above, the company is installing scrubbers on three other vessels and announced in January a new partner agreement with the Maersk Mc-Kinney Moller Center for Zero Carbon Shipping.
“As one of the leading VLGC owners and operators with in-house technical and commercial management, Dorian LPG will share with the Center its experience and capabilities that are relevant to decarbonization projects,” it proudly stated in a release.
Bull or Bear?
Aside from the gas carriers, there are other notable opportunities on the maritime front, notably offshore operators like Tidewater (TDW), which reported strong earnings for the first quarter and is up nearly 30 percent for the year.
The cruise industry, as represented by the Big Three public companies – Carnival (CCL), Royal Caribbean (RCL) and Norwegian (NCLH) – present an opportunity of a different kind. They’re still losing money and are burdened by a heavy debt load incurred during the pandemic, but that will soon change as a result of a huge “wave season” and stronger than expected demand.
So there you have it. Bull or bear? I’m running with the bulls.
Jack O'Connell is the magazine's senior editor.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.