10Foot Scuttlebutt: You’ve Been Unwise, And Four Other Fun Thoughts

10Foot Scuttlebutt: You’ve Been Unwise, And Four Other Fun Thoughts

Markets are tricky. I’m down 22% this quarter peak to trough, probably a little less start to finish, but who’s counting. I have marginally less money than I started with in September last year when I began this portfolio, put it that way.

Some thoughts on markets

Coronavirus is rotting your brain. I’ve never ever seen so many grown men turned into gibbering lunatics by an endless stream of (misguided) hot takes on Twitter.  Every time I logged into the platform over the past 8 weeks I lost a few IQ points.

  • “Idk why people are worried about coronavirus because more people died in {insert_event_here}”
  • “more people die from the flu than died from coronavirus”
  • “there’s a vaccine for coronavirus in the works”
  • “stocks have gone down a lot, great time to buy”
  • “look at volatility imagine how much more stocks will go down”
  • “great to see stocks are back to where they were in January”
  • “I don’t understand why people are so worried about coronavirus but when scientists say the world is going to end, they don’t care”
  • “The mortality rate is only 2%”
  • “stocks have only gone down a little bit but THEY ARE GONNA GO DOWN A LOT”
  • “the Fed is gonna stimulate”
  • “China only has 70,000 cases”


Whipped into a frenzy and fed drivel on Twitter, rational adults have defaulted to their reptilian programming. Here is how the typical brain on Coronavirus works:

“Coronavirus means X, therefore Y is gonna happen”

(Coronavirus is not a big deal, therefore buy stocks)

(Coronavirus is a really big deal, therefore sell stocks)

These thought processes are extrapolating a linear outcome that conforms to biases and beliefs about an event rather than considering a probability tree of possible outcomes. This thought process ignores the reflexivity of life (X happens therefore Y gets done differently which means Z happens / doesn’t happen/turns out different to expectations). These thought processes ignore the inherent unknowableness of coronavirus and allow the human to attempt to control the unknown through a stream of rationalisations. This approach confuses proximal with distal issues and novel with everyday risks:

“more people died in world war 2, so i dont know why we worried about Coronavirus”

“People worry when scientists talk about coronavirus but when you tell them the world will end from climate change they dont care”


The mental errors are myriad, they are really really bad, and they have broken my brain. It is painful to watch and frankly there is a good chance that many of us are guilty of the same sins. That’s something to think about. There is not much fear yet. But mark my words:

It is coming.*

Distressed stocks

One of the dumbest things I’ve ever written – ever – was in my last quarterly update when I said that distressed stocks made sense because they were cheaper than usual, much cheaper than the rest of the market and probably had higher risk-adjusted returns than popular stocks on 30x sales. I still think that’s probably true. But I overlooked the classic “black swan event” which says that when markets stop functioning so do your distressed stocks.

On Monday I sold my distressed oil producer for 0.5x last Thursday’s EBITDA, taking a 50-70% loss on the sale (i bought twice).  Entercom (distressed radio producer) is down 33% from my already cheap purchase price, albeit I sold ~95% of my holding at much closer to intrinsic value. Mea culpa.

Consider me chastised.


Shipping falls into my distressed basket. Here, I have not learned my lesson. I began selling in early February when coronavirus started to hit the news. I was hurt on the sales, and sold about half the position approximately breaking even. At that time I didn’t know if coronavirus would become a “thing” (this is before the global spread became apparent). I assessed in early January that there was a risk shipping would get hurt by coronavirus, but I was slow to grasp the full implications and I waited until early Feb to start selling. As a result I achieved a worse result than I should have. I sold a further quarter of my shipping positions at about a 25% loss in late Feb. The shipping stocks now have a full recession baked in, being down 50-70% from my original purchase prices mid to late last year (i’m even down on my original STNG purchase in Dec 2018). I also received a major boon in my hunt for a scrubber stock, but that’s a story for another time.

Shipping stocks were 2 months ahead of the market in pricing in the coronavirus-related drop in economic activity, and they are still well ahead of global markets in this sense. If nothing else comes of these positions I will be fortunate to have learned that lesson for future market upsets.

Having sold and suffered through the fall, I began repurchasing shipping stocks late last week and early this week. Shipping rates are still up 50-100% year on year, in the middle of the off-season, and the stocks were priced for a full recession. Either investors are wrong or the shipping rates are wrong. If coronavirus leads to a global economic shutdown, then the rates will be badly wrong, and so will I. I believe my original thoughts regarding the ageing fleet and impacts of IMO 2020 have not been invalidated, although a loving friend kindly pointed out that the oil industry has been telling a similar story since late 2014.

What’s crazier is that the low oil prices have caused contango in oil markets, leading to spot prices being below future prices. You can make a lot of money buying oil and parking it on a tanker to deliver for futures contracts. VLCC ship day rates have tripled in the past few days. I don’t know what’s going to happen here. But in light of rates and depressed prices I have repurchased some shipping stocks over the past week and a bit. We shall see.

Thoughts on positioning

In mid-Feb I had about 40% cash following the sale of shipping stocks and decisions to trim British Tobacco, and sell most Datadog and Entercom. In line with my above comments on coronavirus-related mental disability I have been working very hard at sticking to a process. I am not extrapolating linearly nor am I making binary decisions like “stocks are cheap therefore I should buy”.

I am making probabilistic decisions that look more like this: “some stocks are cheap and there are many unknowns with coronavirus. I can buy a small amount today and buy more tomorrow if they get cheaper“. I bought a tiny amount of Anheuser Busch – I’m down 15% in about four days. I bought a little bit more Altria and I have bought a tiny amount of Booking.com on two occasions. I’m also down about 15% on Booking, whose sales are going to have a close encounter with the zero bound over the next month or two.

It is possible that there is a time in the future for a binary decision. We may not get there. There is no capitulation in the market and frankly not yet enough fear, although I notice the lizard brain hot-takes are slowly receding as the uncertainty creeps in. The more fear and uncertainty, the greater the probability we arrive at a binary SELL EVERYTHING NOW moment. It is not here yet.

I have been plotting out the decisions I will make if that time comes.


Fear is a curious beast. It takes the place of certainty. First we were certain the coronavirus was just a flu. Then we were certain the Fed and the Chinese were gonna stimulate. Now we’re certain that countries have not done enough to contain the virus. If Australia and the US were smart, they would take drastic and aggressive containment measures. These will bring the economy to a halt in a way that coronavirus would otherwise force upon us.

The world does not work linearly. Risks do not increase linearly, they interact with each other and multiply. One thing affects another thing which changes the behaviour of those involved in the third thing. I have seen some pictures from the US of empty public halls and things like this. The US only has a few thousand cases – utterly trivial. Banal.  Imagine how it’s gonna be if the country shuts down. The majority of public market participants globally are not yet personally affected. When that changes, their behaviour is gonna change. I personally bought extra toilet paper last week (sue me).

I’m not predicting that the world will shut down. That’d be dumb and I’m trying real hard not to be dumb. There are many future paths of varying severity. There’s a good chance that a quarantined and subsequently coronavirus-free country gets reinfected.

I do not know what the true path is, neither do you, and neither does anybody else. You are playing a guessing game where the weightings for the inputs to the outcome change daily. Many things are possible. There are many unknowns, but I will tell you this for a certainty:

The fear is not here yet.

But it is coming.*

Food for thought.

*Unless it is isn’t, in which case it doesn’t.  Probabilistically speaking.

I own shares in British American Tobacco, Altria, Datadog, Entercom, Anheuser Busch, Booking.Com, a basket of shipping stocks including Scorpio Tankers, and more. This is a disclosure and not a recommendation.

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