DryShips Inc (fka DRYS)

[Burnt before]

Just someones from WSJ opinion but i think it sums up DRYS very nicely

Why invest in a stock that rose 1,500% and then fell 99% while the chief executive earned millions?

Investors who have bought more than half a billion dollars in newly issued shares of DryShips Inc., a bulk shipping company, must be wondering right now. While any investment in the stock appears foolhardy, there are psychological reasons, and even a practical one, that have kept fresh cash flowing in.

DryShips made headlines last November when its shares surged by 1,500% in just four trading sessions for no apparent reason in mi-November. The company, which was worth $5 million before the run-up and wasn't servicing its debts, briefly saw its shares suspended by Nasdaq as questions swirled about the rally. The next day DryShips began selling what has become $550 million in shares to a mysterious offshore entity, Kalani Investments Limited. It appears that nearly all were immediately sold to retail investors. All of those new shares didn't matter to CEO George Economou who owns little common equity and a special class of preferred stock that gives him voting control.

The dilution has been brutal: A $1,000 investment on the day before the stock was suspended would have been worth just $82 a week later, $67 a month later, and $5 on Monday. A series of reverse splits has kept the share price from sinking to penny stock territory. DryShips's shares closed Monday at $1.05, down nearly 20% and close to the $1 a share level. Another reverse split appears imminent.

So why is anyone buying? One reason is the recent memory of that spectacular rally. Gains were one-and-a-half times what an investor would have earned buying and holding Apple Inc. over the last decade, starting shortly before the debut of the iPhone.

Aside from hoping lightning will strike twice, and that one's timing will be impeccable, there is, on paper at least, plenty of value in DryShips. The company used the money from its share sales to buy or take options on vessels worth around $700 million, based on securities filings. That is 10 times the company's market value. If the company stopped selling shares, the price might, in theory, rise to account for the assets the company holds, net of debt. There is scant evidence the selling will stop, but retail investors on message boards appear to be angling to catch the tail end of that issuance and reap gains on any rebound.

This opportunity is far outweighed by pitfalls, though. The extreme recapitalization has been done in a way that enriches Mr. Economou, who not only controls the company but owns more than 90% of the debt through an offshore company and receives management fees for each vessel through other offshore entities, based on securities filings. A revised loan agreement also gives Mr. Economou part of any profit if certain vessels are later sold. Mr. Economou and the company didn't respond to requests for comment about how he benefits from the agreements and there is no evidence that he is connected to Kalani or behind the surge in retail investor purchases.

Psychological foibles may be enticing some to keep buying. One is anchoring -- falsely interpreting a past price as an indicator of value. Even before its epic spike, DryShips was worth $146 a share or 125 times as much as today adjusting for reverse splits. Focusing on the past price makes even less sense after a huge expansion in the share count, though. Meanwhile, those who already lost money may be foolishly averaging down, stung by sunk costs.

Whether blinded by past gains, prices, or losses, or just making back-of-the-envelope calculations, buying DryShips represents the triumph of hope over experience. No wonder posts on message boards such as "an upgrade will double this price in a second" and "a last dip before the huge rip" are punctuated by snarky links to 1-800-GAMBLER.

Write to Spencer Jakab at [e-mail]