How to Successfully Invest in Oil Tankers, Part I

PERHAM, MINNESOTA – A few months ago, Kate and I sold some gold and bought a basket of tanker stocks.

On Monday, I explained how tankers are a “feast or famine” business.

Most of the time, they’re terrible businesses. Occasionally, they make you rich.

The key to success investing in tankers is to capture the sporadic feasts and avoid the long famines.

More below. But first…

Epic Road Trip

Greetings from Minnesota!

My family and I are on an epic 6-month road trip around America. We’re eating at fast food restaurants, camping under the stars, and driving about 200 miles a day, on average.

We’re now in Perham, Minnesota, a small town on the Great Northern Plains. It’s a farming town. The most visible landmark in Perham is a gigantic grain elevator.

Perham also sits on a busy railroad track. It’s BNSF Railway’s Northern Transcontinental route, the most important rail corridor in the American northwest.

The track runs from Seattle to Chicago and carries over 50 trains a day. Fifteen years ago, I traveled the whole way along it, sitting in a boxcar carrying cotton!

Anyway, we came to Perham to watch trains. Here we are…

Tomorrow we head south, to Iowa, where we’ll visit a hog farm.

After Iowa, we’ll head west to South Dakota, where we’ll visit Mount Rushmore.

(Our son, Dusty, 12, loves and admires Teddy Roosevelt. He specifically asked us to take him to Mount Rushmore before we started this road trip.)

Temporary Lull

Going back to oil tankers, yesterday I explained the meaning of a “tight” tanker market. I hypothesized that we’ve just entered a period of “feast” in the tanker business.

When we bought our oil tanker stocks a couple of months ago, we were right in the middle of a “surge” period.

The COVID lockdown caused a sudden 20% drop in demand for crude oil and refined petroleum products.

Producers couldn’t have anticipated this. And they had nowhere to store their excess production. So they booked tankers – also known as “floating storage” – to store their petroleum products.

They pulled 125 of the biggest tankers (called VLCCs) and 60 of the next biggest tankers (Suezmaxes) out of the fleet.

Then, there weren’t enough tankers to move oil around. Oil tanker leasing rates jumped from $20,000 a day to $300,000 a day, virtually overnight.

Since then, crude oil demand has rebounded. Floating storage is being unwound. Many tankers have returned to the fleet.

Now there are too many ships. Plus, OPEC isn’t shipping as much oil recently. Tanker lease rates have returned to $20,000 again.

We’re also in the low season – that time of year when, for 19 of the past 20 years, the tanker industry falls into the doldrums.

In other words, we’re in the “lull” or “pause” between surges. That’s why tanker stocks have fallen since we bought them.

Now, as shipowners, we’re taking it easy, passing the time while we wait for the next busy (or surge) period.

When you look at it like this, it’s just a matter of time… almost like waiting for a bus… until the next time we get paid.

What will cause it? I have no idea. More sanctions? A war? COVID crisis affecting crews? Another COVID wave causing storage for crude oil?

Either way, the next surge is coming. We just have to wait.

Tomorrow, we’ll look at how the tanker stocks have been doing in the stock market…

– Tom Dyson

P.S. Gold closed at a new 8-year high last night… at $1,789 an ounce. Big breakout next? (If you’re new to the Postcards, and you want to know why I track the price of gold, read on here.)

Like what you’re reading? Send your thoughts to [email protected].

A request for traveling advice… and one reader encourages Tom to slow down…

Reader question: I eagerly await the next episode of your family’s journey to show up in my inbox. Even my children, 9 and 11, have started asking “Where are they now?” and “What did the Dyson kids get to do today?” Clearly, they might be a bit envious.

Have you considered putting together a short, step by step, pamphlet to guide folks like the rest of us who are living vicariously though you, to show us how to prepare for and then live on the road? I know it is not for everyone. But I know one family in TX that is very inspired, and I am sure that there are more. Be safe and thank you for your great writing!

Tom’s response: I have considered writing a pamphlet or a book to guide people how to throw everything away and hit the road. But then I thought, “What advice could I give? I don’t know how we did it.” We just leaped through the Portal and just trusted our fortunes to God.

Reader comment: Tom, love what you’re doing. Don’t be in such a hurry though. Spend two days at each spot and enjoy it.

Tom’s response: You’re right. Moving 200 miles a day doesn’t leave me any time to write or the kids any time to study.

Reader comment: I started reading and enjoying your trips and adventures. Are you always in “ready” mode? Is there a moment when you’d wish you were in your previous home and having all the comforts you are not having now and mostly improvising this travel?

Tom’s response: Life can throw curve balls at you, whether you live at home or live in a permanent state of movement. I don’t think it matters. In fact, we feel so much freer on the road, unburdened by possessions and shopping, and tending to a big house.

Meanwhile, others ask Tom about gold confiscation… the difference between physical gold and gold stocks… Tom’s economic perspective… and the best time to sell gold…

Reader comment: Love your “fringe” postcards and the videos are treasured, indeed. I have invested in gold but much of my investments are in the market. Often, I have thought to exchange it for gold as you have suggested. I guess my biggest reservation to doing this is the possibility for the government to confiscate gold like it did in the past. I think you have commented on this before, but could you go over this subject again?

Tom’s response: It could happen, but I just think, “Why would they bother?” Gold was exiled from the financial system in 1971 and it’s been walking in the wilderness ever since. In 1933, the last time they confiscated gold, it was at the center of the world financial system and they had to confiscate it to achieve their ends. Not anymore. If they confiscated it and then revalued it again, they’d just be hurting American citizens while making the Chinese and Indians and Russians rich. So I’m really not worried about gold confiscation.

Reader question: I live in a small town in Central Arizona and there are very few places that buy and sell gold. I’ve been following the Dow-to-Gold (DG) ratio for a long time. I choose gold stocks over bullion or coins (BC) for the following reason. When the DG ratio signals it’s time to sell gold, the market will be flooded with gold and IF I can find a buyer, the premium will be high. I can sell all my gold stock for hard cash in less than a minute. Your thoughts?

Tom’s response: I imagine, when the Dow-to-Gold ratio hits 5, people will be clamoring to buy physical gold, much as they were in March. As you say, the premium will be high, which is exactly what we want when we’re selling gold.

Anyway, if you prefer to buy gold through your stockbroker, that’s fine. There are many ETFs that mimic the price of gold. I prefer the feeling of physical gold that I can hold in my hand and that I cannot sell with the click of a mouse.

Reader comment: Thank you for your postcards every day. I love them. The thing which perplexes me every time I read them is: Why is there such complete disagreement between financial experts like you who say, “Buy gold, not stocks” and other financial experts whose newsletters I read who say, “Buy high-quality tech stocks now! The way to get super-rich is to buy the best tech stocks and bitcoin now!”

Tom’s response: I am making a macro economic argument about the big picture. When I talk about “stocks falling,” I am making a generalization about the entire stock market falling and a rough period for the world economy as a whole. Plenty of individual stocks will do well, and good analysts may be able to find them.

Reader question: While you are waiting for this ratio to come back down to 5 before you reinvest in stocks… Why not spend this time invested in gold royalty companies and gold mining companies instead of physical gold? Wouldn’t it be better to take advantage of the leveraging effects of having these companies so that your “dry powder” supply for buying stocks would be larger when the magic ratio of 5 has been reached? Looking forward to hearing your thoughts.

Tom’s response: I can’t handle the volatility of gold stocks. I wouldn’t sleep well at night. And sooner or later, I’d panic and log in to my broker and start selling things. Physical gold lets me sleep well at night and even if I wanted to sell it, I couldn’t. It’s impossible to access.

Reader question: Tom, nice blog. I understand the need for physical gold and silver as a safe haven in these times, but you cannot own physical gold and silver forever.

What are the indicators in the future to prompt me at the best and opportune time to sell my stash and maybe amass enough currency to buy that deflated beach house that I can’t afford today but maybe can in the future?

I live in Western Australia, not a bad place to live during a pandemic. No COVID-19 here, touch wood! Stay safe. Thanks.

Tom’s response: Figure out how many ounces of gold that beach house costs today. Then when it’s fallen 80% in terms of ounces of gold, buy it.

And still, other readers share kind words…

Reader comment: I give you and Kate great credit, as well as your children, for being able to embrace these adventures. If there is one thing I truly “envy” you guys, it’s the great quality time, togetherness, teamfulness, resourcefulness, love, sharing, learning, and everything else you heartfully gain from these.

Reader comment: Hi Tom, I’ve been reading your Postcards from the Fringe for almost two years now. Epic journey. Congratulations to you and your family for your emotional and spiritual growth. It has been a joy to read about.

Reader comment: As always love the postcards. Been following you since the beginning of this part of your life anyway. Thanks to you, I’ve acquired a nice position (for me anyway) in gold. If I’d taken your advice about the bottom of this latest correction and bought some gold stocks, I’d be even happier, but I’m conservative by nature and equally happy to be sitting on the sidelines.

Reader comment: Your family trip is a story book that many people would love to copy but don’t have the will or courage or other restraints. Following your family adventure fills the gap, I think, for many, along with financial education, advice, and a developing love for all that the road brings to you. You say Kate is the rock, but truly all of you are the support for all. Thank you.

Tom’s response: We read every note you send us, even if we don’t publish it here. Please keep writing us at [email protected].