Summary
- DAC is a marine shipping services company based in Piraeus, Greece ().
- This post discusses the massive 2020 to 2021 gain in the company’s shares, which investors who acquired shares in March 2020 would have obtained at the time of this writing.
- Even with the recent drop, the gain is of 2,309.35%. An investment of $100 thousand would have turned into approximately $2.4 million during this period of slightly more than one year.
- This case highlights the need for investors to think in compensatory adaptation terms ().
Danaos Corporation (DAC)
DAC is a marine shipping services company based in Piraeus, Greece (). It provides seaborne transportation services; notably chartering vessels to liner companies, vessels that it purchases from ship builders in South Korea and other major producing regions.
The massive 2020 to 2021 return
The graph below shows the massive 2020 to 2021 gain, which investors who acquired shares in March 2020 would have obtained at the time of this writing. Even with the recent drop, the gain is of 2,309.35%. An investment of $100 thousand would have turned into approximately $2.4 million during this period of slightly more than one year.
DAC’s dividend yield was about 3% at the time of this writing. While the company is very leveraged, with significantly more debt than its combined EBITDA and cash, it is arguably not a speculative investment at the moment (although it is hard to argue against the idea that the “easy money” has already been made). It certainly was not a speculative investment in March 2020. I say this because many seasoned investors would associate this type of gain with very speculative and high-risk investment instruments.
Could the move have been predicted?
What a few investors saw in March 2020 was that two factors were to play a key role in the following months and year. The first was that COVID-related disruptions in international flights would significantly limit the flow of manufactured goods via air, increasing demand for sea transportation. The second was that many companies decided to increase their inventories, to be able to meet demand in spite of the disruptions, further exacerbating the need for sea transportation.
Final thoughts
While everything seems clear in hindsight, DAC’s case highlights the need for investors to think in compensatory adaptation terms (). Shares of many transportation and logistics companies fell precipitously in March 2020, because of the serious supply-chain disruptions, but those disruptions caused compensatory responses that disproportionally benefited some companies. Understanding this may help investors spot future opportunities.
Disclosure
The author does not own DAC shares at the time of this writing.
