Q: Would it be wise to invest in shipping containers in this economy?
A: This type of investment calls to mind famed Fidelity Magellan investor Peter Lynch, who advocated investing in things you see in use every day. There is some merit to this type of common-sense investing, but it should also be noted that Lynch rose to prominence in the late 1970s. This was a time when the stock market was still recovering from an extended bear market, and international investing was still in its infancy. As a result, valuations were much cheaper than they are today.
Now, investors around the world are constantly on the hunt for the next compelling investment story, and that makes things more complicated. A huge amount of money chasing investment opportunities tends to raise the price of investments, attract competition to growth businesses and create opportunities for scam artists. All of this is exacerbated by the low yields on bonds and savings accounts, which have investors desperate for alternatives.
In today's global economy, there is no doubt that the intermodal transportation of goods that uses shipping containers will be a central part of commerce. So, barring some kind of extended economic slump, you can take demand growth as a given. However, there are some other key questions you have to ask before you assume that shipping containers are a good investment:
- How is supply growth? Demand growth may be steady, but if people are building new shipping containers faster than that demand growth, it will diminish the return on those containers.
- What is the current yield? Promoters of investments like to cite past returns, but what matters to new investors is the current yield. What earnings are shipping containers generating as a percentage of the price it costs to invest in them? Note that this yield not only has to compete with the yield on savings accounts or bonds, but it should offer a substantial premium to compensate for the greater risk.
- Is there a diversified vehicle for investment? The more diversification, the better. This is true for the variety of shipping companies and the range of trading partners in various parts of the world.
- Are the fees for accessing the investment reasonable? Diversification is good, but anyone bundling these opportunities into an investment vehicle is going to be charging a fee. You need to consider how much that will erode the return available.
- Is the provider trustworthy? This is the most important question. Try to make this kind of investment through a reputable bank or brokerage firm regulated in the U.S.
There are no easy answers in today's investment environment, but good opportunities should be worth doing a little extra research.
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