Confessions of a Shipping Analyst: Voyage of the Damned, Asian Equity Research Version
Confessions of a Shipping Analyst: Voyage of the Damned, Asian Equity Research VersionIndependent insight posted to Smartkarma 22nd November 2017
Read more of Daniel’s work by clicking here!
At the risk of making Smartkarma (SMARTKARMA SP) seem like a New Orleans confessional the day after Mardi Gras, here’s another analyst ‘confession’ readers can file alongside Douglas Kim‘s excellent Confessions of an Independent Research Analyst (and interesting pieces in a similar, reflective vein from Hemindra Hazari and Nandini Vijayaraghavan, CFA, which you can find here and here).
Some (Fairly Ancient) History …
By way of introduction, I have now been posting here at Smartkarma for almost exactly 18 months, mostly writing about transportation, logistics, and tourism in Greater China and elsewhere in the region.
But I got my start in Asian equity research almost a quarter of a century ago in Taiwan. I had been working as an analyst at a corporate — a US-based container shipping company that was later acquired by Neptune Orient Lines Ltd (NOL SP) — but I had grown impatient with the slow pace of change at the company, and decided to head to Hong Kong (where a college roommate had offered a place to stay) to begin looking for…something.
About a month later I landed a job as the shipping analyst at a large brokerage firm in Taipei that was half-owned by the now-infamous Peregrine Securities (raise your hand if you remember Peregrine!). I admit I knew nothing about equity research at the time, but I did know something about how container shipping worked, and that was enough to endear me to a very small group of investors who actually cared about the sector.
When a similar position opened up at SG Warburg (another name from ancient history) a few blocks away, I quickly and happily moved on from my brief stint at Peregrine. I had grown tired of witnessing colleagues break down in tears on a weekly basis — not an exaggeration! — often due to the Managing Director’s, shall we say ‘volatile’ personality and management style. Even my inexperienced eyes could see that SG Warburg’s Taipei office ran like a fine Swiss watch by comparison — and this was before the actual arrival of SwissBank and, later, UBS Group AG (UBSG VX) on the scene.
At SG Warburg (later SBC Warburg, then SBC Warburg Dillon Read, then UBS Warburg Dillon Read, and finally just…UBS) I was asked to cover Taiwan’s listed shipping and airline companies — I believe there were eight at the time. But as an added bonus I was also asked to cover other local cyclical sectors, including steel, paper, and the local auto assembly companies. In other words, I was given the “opportunity” to cover the deeply un-sexy names none of the more senior analysts at the firm wanted to bother with!
After about four years in that position I transferred to the US with UBS to cover freight transportation on their US equity research team in New York. This mostly consisted of following larger names like Fedex Corp (FDX US), United Parcel Service Cl B (UPS US), and the US railroads. And then a few years after that, I went to work on the buy-side as a generalist industrials analyst for a series of US-based but Asia-focused Long / Short hedge funds.
And that pretty much brings us to 2015, when I began writing independent research on Asian equities, and trying (without much success) to market it to institutional investors in the US.
Regrets? I’ve Had a Few: Working as a Sell-Side Shipping Analyst
For the most part, I have very fond memories of my time as a sell-side analyst, particularly the years I spent in Taiwan with SG Warburg / UBS. Still, it wasn’t all fun and games, and certainly I share many of the complaints most sell-side analysts have: subtle pressure from Corporate Finance to maintain positive views on their clients’ shares; a cumbersome and time-consuming editing and publishing process; a rigid requirement that the analyst publish an exhaustive initiation note followed by regularly quarterly updates (usually to the detriment of more interesting idea-oriented pieces).
But in addition to these common complaints, there were other challenges I view as specific to covering cyclicals like shipping:
- For long stretches of time, many of the traditional cyclical stocks I covered would report depressed earnings or losses, and their market capitalization would in response often shrink to levels that pushed them off the radar screens of long-only institutional investors. In other words, although the stocks in these sectors certainly deserved at least a baseline level of attention from the analyst throughout the cycle, there were long periods where they really did not bear full-time coverage.
- Many of the companies within these traditional cyclical sectors — shipping and steel stand out — are truly global industries. But too often we as analysts covered them as ‘local companies’, and as such we were not encouraged to work with colleagues in other geographic markets who covered similar companies.
- Many of the traditional cyclicals I used to cover have been around for a century or more and the pace of change within these industries is often glacial. I remember taking up coverage of the four large US railroads in 1999 and thinking to myself, ‘is there anything new or interesting to say about these companies, some of which have been around since the US Civil War’?
- On joint marketing trips with colleagues who covered larger, more popular sectors (tech, financials) I usually ended up with the role of bag-carrier or hailer-of-taxicabs, sometimes given just a few seconds to present my ‘best ideas’ within my coverage. Not that I hold a grudge!
How Smartkarma Has Changed the Game for This Analyst
On the recommendation of an old SG Warburg friend who worked on the buy-side in Singapore, I got in touch with the folks at Smartkarma in Spring 2016 and I’ve been publishing my work there ever since.
Posting my work at Smartkarma addresses some of the mainstream complaints many former sell-side analysts have: there is no pressure from Corporate Finance to temper one’s views on a stock; the editing and publishing process is intuitive and streamlined; and analysts aren’t required to first publish a 60-page initiation note (and then regularly quarterly updates) before they express their views on a sector or an individual name.
But Smartkarma also addresses some of the frustrations specific to this analyst who was once ‘stuck’ covering traditional cyclical names like shipping and steel:
- Analysts at Smartkarma can devote their time and resources to covering sectors, companies, and themes that are dynamic and topical and thus likely to generate investable ideas for readers, even if these are only tangentially related to their backgrounds. Analysts need not wait for the cyclical names under their coverage to turn (for better or worse) before publishing; they can instead focus on ideas outside their core coverage that are actionable, and thus worth analyzing, now.
- Unbound by geographic restrictions on coverage, analysts here at Smartkarma can take the appropriate Global or Regional view of a sector.
- Analysts from different geographical markets or different sectoral backgrounds can also freely collaborate to generate ideas here on Smartkarma, as noted by Douglas Kim in his piece.
- In short, analysts (‘Insight Providers’ in Smartkarma parlance) who post their ideas here are free to break out of geographic or sectoral ‘silos’ and direct their time and energy to areas they feel are mostly likely to generate winning ideas. Ultimately, resources are directed to areas where they are mostly likely to generate optimal returns (both for Smartkarma’s Insight Providers and for subscribers). For those of us who used to focus on traditional cyclicals, this flexibility is extremely valuable. For those who cover growth sectors like technology, which is subject to constant change, this freedom may be less noticeable.
Confessions of a Shipping Analyst: Voyage of the Damned, Asian Equity Research Version
Independent insight posted to Smartkarma 22nd November 2017
Read more of Daniel’s work by clicking here!
