Yes, $42 million is a lot of money… but these tankers were each four football fields long. That’s a lot of steel. And they could carry between 2-3 million barrels of oil.
And these ships were built just eight years earlier at a cost of $50 million apiece.
Jim Tisch is the son of the legendary Laurence “Larry” Tisch, the late billionaire founder of Loews. Corp – a conglomerate that has owned hotels, movie theaters, insurance, cigarettes, oil and watches over the years.
And like his Dad, Jim had a nose for value…
Low oil prices in the early 1970’s (around $3 a barrel) caused demand to soar. To keep up with the growing demand, everyone rushed to build supertankers (which can take years to complete).
Then the Arab oil embargo in 1973 sent oil prices soaring to $12 a barrel by 1975.
The Iranian Revolution (and ousting of the Shah) followed in 1979… And Iran drastically slashed its output. Oil jumped to over $37 a barrel.
Now there was much less oil coming out of Iran (and a year later, Iraq), but the tankers were still floating in the water.
Tisch started sniffing around for tankers in the early 80s, when, according to Tisch, only 30% of the global fleet was necessary to meet demand.
That’s why he was able to buy at an almost 90% discount. As he said at a 2006 speech at Columbia University:
Noting the strength, Tisch sold a 50% interest in his ships for 10 times his initial investment.