Watching markets decline on and on, and watching extremely well established companies falling to arguably long-term historical lows on valuation, I decided it was time to get some pizza and a steak and cheese sub given that I am currently in the US and haven't had the real thing in months. Whether its me trying to be overly-"folksy" (sort of the investors version of Sara Palin) or not, I like to think that the thinking and logic behind buying a company's stock should be such that it would also hold for someone looking to buy a local pizza shop from a business broker. Hopefully we can leave the debate as to whether I am merely trying to be folksy for another day...

What hit me today as I was eating a buffalo chicken pizza (a type of food you'll wonderfully only find in the U.S.A.) was that I wondered if the price of buying actual, well established, pizzerias was at a long term historical low, as with many well established companies in the stock market. Obviously the pizza shop is unlikely to have hidden financial landmines like some companies, but there are a lot of listed companies which are very unlikely to have anything of the sort either. Thing is, if I the price of some of my hometown's well established pizza companies had dropped by half in the last few months, I would be very interested to know, and one might suspect that it would be a great opportunity to buy it regardless of a coming recession or not. Now how does this exactly translate into the stock market opportunities of today? Not sure, clearly a lot of listed companies will have uncertainties far harder to understand that those of my local pizza haunt. But you would have to imagine that some battered down listed companies would be compelling in the same manner as my theoretical pizza-shop-at-half-price. At the very least this all makes me want call a local business broker for some pricing... I wonder if the cost of many small businesses has fallen substantially. Perhaps the best investments for all of us might be right around the corner.

Apologies for those who find the subject of Dryships, well, rather dry. This is a follow on from the post "Never Enough Lessons on Forward PE". I basically added a comment on seeking alpha explaining what one starting point might be for valuing a highly cyclical, asset-heavy company like Dryships, and wanted to include it here at The Stalwart.

As for how might someone value dryships? Well let's think as if one were actually in the industry looking to expand your fleet. An industry player can either buy ships in the market or buy a company that owns ships. If you get far more ships for your buck buying DRYS than buying int he market, then I think that's a decent starting point, but we must be very careful since even dry bulk (and rig) asset prices can fluctuate quite substantially. Thinking from an industry buyer perspective would be simply thinking about the value of a dry bulk company as the actual players in the industry do. I promise you they don't forecast 1 year of earnings and then calculate a multiple. Wall street analysts frequently do, and companies put simple multiples in their investor presentations, but trust me actual shipping players don't make decisions like this. DRYS has rigs and bulk vessels, plus perhaps some additional value from its organization and customer relationships. But you would probably want to be getting DRYS at a price where you were getting its assets at a good discount to market prices, as this would give you some cushion. (these asset prices can fall, so good to have a margin of safety). Just don't forget that DRYS has a lot of debt, so you would want your adjusted NAV (adjusted to include a margin of safety vs. asset price declines) to be much higher than Enterprise Value (not market cap).

Again, I have never owned Dryships nor have been long or short the stock in any manner.

We're doing it again! We'll be starting around 8:45.