The Art of Saying No - PSHG: Performance Shipping Inc
When Insider Ownership is a Warning, Not a Comfort
“The difference between successful people and really successful people is that really successful people say no to almost everything.” — Warren Buffett
Introduction: The Power of Subtraction
In the autumn of 1995, Steve Jobs returned to Apple and did something counterintuitive: he killed 70% of Apple’s products. Not because they were bad, but because they distracted from what mattered. This is the central paradox of value creation—the power lies not in what you do, but in what you refuse to do.
Warren Buffett keeps a list of companies he’s studied and rejected. Charlie Munger famously said his success came from “knowing the edge of my circle of competence.” Peter Lynch turned down hundreds of stocks for every one he bought. These aren’t stories about missing opportunities; they’re stories about the disciplined pursuit of only the best opportunities.
Sometimes, the companies we look at are perfectly fine companies at the wrong time or wrong price. A few are fascinating turnarounds that need more time. But all of them failed to answer three brutally simple questions satisfactorily:
1. How many birds are in the bush? (What’s the magnitude of return if the thesis works?)
2. How sure are you? (What’s the probability the thesis actualizes?)
3. How fast till you get them out? (What’s the realistic time horizon?)
For a LEAPs strategy—buying long-dated call options 12-24 months out—I need high conviction on all three. If any answer is unsatisfactory, the idea gets rejected. Period.
What follows is a detailed forensic examination of each rejection, complete with financial analysis, probability assessments, and the specific mechanical failures that killed each thesis. Think of it as a masterclass in what Charlie Munger calls “the psychology of misjudgment”—except here, we catch ourselves before the mistake.
Let’s begin.
SHG: When Insider Ownership is a Warning, Not a Comfort
Date Analyzed: September 18, 2025
Current Price: N/A | Market Cap: ~$23.5M
The Cigar Butt That’s All Ash
Performance Shipping Inc. owns four vessels with an interesting liquidation math:
Assets:
Cash: $70 million
Property, Plant & Equipment (vessels): $248 million book value
Estimated liquidation value @ 60% of PP&E: $148.8 million
Liabilities:
Total: $55 million
Net Liquidation Value: $70M + $148.8M - $55M = $163.8 million
Against a $23.5 million market cap, that’s a potential 7x return if liquidation value can be realized.
The Fleet Composition
PSHG operates:
3 Handysize drybulk carriers: 97,664 deadweight tons total capacity
1 Aframax oil tanker: 115,800 deadweight tons
For context, Handysize vessels (typically 20,000-50,000 DWT) are the workhorses of regional commodity shipping—grain, coal, steel products. Aframax tankers (80,000-120,000 DWT) carry crude oil and petroleum products, primarily for regional/medium-distance routes.
The Dilution Disaster
This is where the thesis dies. Here’s the warrant overhang:
Outstanding Warrants:
Class A Warrants: 567,366 shares @ $15.75 (deeply out of money; ignore these)
July 2022 Warrants: 1,033,333 shares @ $1.65
August 2022 Warrants: 2,122,222 shares @ $1.65
Series A Warrants (March 2023): 14,300 shares
Series B Warrants (March 2023): 4,097,000 shares @ $2.25
Current shares outstanding: 12,432,158 (as of July 29, 2025)
Total potential dilution: ~7.3 million shares (ignoring Class A which are too far OTM)
New share count: 12.4M + 7.3M = 19.7M shares (+59% dilution)
Adjusted liquidation value per share: $163.8M ÷ 19.7M = $8.31 per share
The stock trades around $1.88 (market cap $23.5M ÷ 12.4M shares).
So the “7x return” shrinks to 4.4x after accounting for dilution. Not terrible, but only if liquidation value is real.
The Shipping Industry Reality Check
Here’s what my analysis missed initially: vessel valuations are highly cyclical and asset values can swing 50-70% based on market conditions.
The Baltic Dry Index (BDI), which tracks dry bulk shipping rates, demonstrates this volatility:
2008 Peak: 11,793 points
2016 Low: 290 points (97.5% decline!)
2021 Recovery: 5,650 points
2023-2024: Averaging 1,200-1,800 points
When shipping rates crater, vessel values collapse. The $248 million book value assumes historical cost less depreciation. Real market value could be 40-60% of book value in a downturn.
Adjusted Bear Case Math:
Vessel liquidation value @ 40% of book: $248M × 40% = $99.2M
Cash: $70M
Liabilities: -$55M
Net liquidation value: $114.2M
Per share (with dilution): $114.2M ÷ 19.7M = $5.80
Current price: $1.88
Return: 3.1x
Now we’re in “maybe” territory, not “compelling” territory.
The Insider Ownership Problem
Here’s the critical detail from my analysis: Insiders own almost nothing.
When insiders have no skin in the game, they optimize for survival (keeping their salaries), not value creation (maximizing per-share value). The incentive becomes: issue stock to raise cash, pay management salaries, repeat. Shareholder dilution is costless to management if they own 0-2% of shares.
The Cycle of Death:
Company needs operating capital
Can’t access debt markets (too expensive or unavailable)
Issues equity to raise cash
Dilutes existing shareholders
Stock price falls
Company needs more capital
Issues more equity at worse prices
Repeat until delisting or bankruptcy
This isn’t hypothetical. This is the modal outcome for micro-cap shipping companies with weak insider ownership.
The Final Calculation
Even assuming vessels can be sold at 60% of book value (optimistic in a down market):
Upside: 4.4x over 2-3 years
Downside: Further dilution, possible bankruptcy if can’t cover operating costs
Time horizon: 2-4 years minimum (asset sales take time)
Probability of realizing value: 30-40%
For a LEAPs play requiring 2x+ returns in 18-24 months, this doesn’t qualify.
Birds in the Bush: 4.4x best case, 3.1x realistic case
Probability of Success: 30%
Time Horizon: 3-4 years minimum
Verdict: Weak insider alignment plus cyclical industry plus extended time horizon equals rejection. This might work as a deep value SOYA (sit-on-your-ass) play if you can buy at 30-40% of conservative liquidation value. At current prices, it’s marginal.
Learnings To Stick To
1. Dilution is Value Destruction
It doesn’t matter if a company has $200 million in cash if they’re issuing $300 million in equity at pennies on the dollar. Per-share value is what matters, not absolute value.
2. Debt is Fragility
Interest coverage below 3x means one bad year could trigger covenant breaches. Below 2x is playing with fire. Below 1.5x is suicidal.
3. Insiders Always Know First
When CEOs, CFOs, and directors sell 60-80% of vested RSUs immediately, they’re voting with their wallets. Listen.
4. Business Models Matter More Than Operations
You can’t cost-cut your way to success if the fundamental value proposition is obsolete.
5. Timing Is Everything (For Options)
e.g. MDU Resources and Krispy Kreme might be great investments... in 2027. But for LEAPs expiring in 2026, the timeline doesn’t work.
6. Regulatory Red Flags Are Never False Alarms
When annual reports are encrypted, when revenue collapses without explanation, when short sellers publish specific fraud allegations—walk away. The risk isn’t worth the reward.
7. Pandemic Winners Are Usually Losers
Mean reversion is brutal. Companies that benefited from temporary behavioral shifts rarely maintain those gains.
The Philosophy of “No”
Charlie Munger said: “The art of being wise is the art of knowing what to overlook.”
In investing, success comes from:
Saying yes to the right opportunities (important)
Saying no to the wrong opportunities (more important)
Saying no to marginal opportunities (most important)
This article is about #3. None of these companies were obviously terrible (well, maybe CHR and WIMI). Most had legitimate businesses, real assets, and plausible turnaround stories.
But “plausible” isn’t “probable.”
And “interesting” isn’t “investable.”
The Buffett-Munger Standard
Before investing, ask:
Do I understand this business? (Circle of competence)
Does it have a sustainable competitive advantage (Moat)/ does it have a legitimate working business model (for LEAPs)?
Is management trustworthy and aligned? (Stewardship)
Is the price attractive relative to intrinsic value? (Margin of safety)
What could go wrong? (Risk analysis)
For LEAPs specifically, add: 6. Will value be realized in 12-24 months? (Timing) 7. Is the expected return 2x+ to compensate for time decay? (Return threshold)
If the answer to ANY of these is “no” or “uncertain,” walk away.
The Opportunity Cost Mindset
Every dollar invested in these marginal opportunities is a dollar not available for exceptional opportunities.
Your capital is finite. Your attention is finite. Your time is finite.
Protect all three zealously.
When I reject companies, I’m not losing opportunities—I was preserving capital and attention for better opportunities yet to come.
In investing, a 0% success rate at finding investments can be a 100% success rate at avoiding disasters.