Not a week goes by without emails from dedicated DryShips (Nasdaq:DRYS) investors, trying to persuade me that I got the story wrong and the stock is really headed back to $50.  That wouldn’t be so strange if I wrote about DRYS frequently.  However, prior to this I only wrote one article on DryShips, and that was over two months ago.

DryShips investors are dedicated, something CEO George Economou has always counted on.  According to Kathryn Welling, whose Welling@Weeden newsletter is a must-read for institutional investors, during a road show for the DryShips IPO, Economou “actually said, basically, [he was able to pull off the IPO at such a rich price] ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”

Then there’s the related-party transactions between public DryShips and his privately-held shipping concern, Cardiff Marine.   According to Forbes, Econimou canceled a deal to exchange Cardiff’s vessels for DryShips stock when the share price drop made it less favorable for Economou personally.  But he still exacted his price from DRYS shareholders.  DryShips paid Cardiff both a cash fee for the cancellation and a cash fee for an option to purchase the ships by the end of 2009.

DryShips isn’t the first time Economou has hurt investors.  After raising $175 million in junk bonds, his previous  company, Alpha Shipping, defaulted on the payments.  Creditors forced the deadbeat company into bankruptcy, where Economou worked out a deal to take possession of the ships in exchange for giving the creditors 37 cents on the dollar for their debt.

Bottom line: DryShips does not deserve the faith of its investors.  Your emails make a persuasive case why under certain scenarios and metrics DryShips should bounce back or even excel — but they are missing one thing.  The company does not operate in a vacuum.  It operates in a cutthroat environment, where its CEO has proven himself to be no friend of investors.  If I wanted to play the Baltic Dry Index, at least on the long side, DRYS is not the vehicle I would choose.

Get trend analysis for DRYS from Ino.com

DISCLOSURE: No position.

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