Exclusive Partners Update
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2.1 Keeping An Eye On Your Money 1Q22
April 24, 2022
As you know my belief is that an advisor should have skin in the game and that is best achieved by showing you what is in my portfolio. At To the Front, we start with the same portfolio and adjust the risk by customizing the weight of the individual positions to suit your needs. Winning and losing together is the best way to ensure we share a common destiny. To The Front has been a free service while I test the business model. All I ask is that my partners not share this information with others outside of the partnership. I spend a considerable amount of time evaluating the positions inside the portfolio and others not held to achieve favorable results. If this information were shared with others that I have not had an opportunity to speak with, it not only diminishes the value of the work but also could be harmful to those who do not know their appropriate risk tolerance.
The start of 2022 certainly has been eventful with an ongoing war in Europe that thus far has included the shelling of a nuclear power plant, suspected use of chemical weapons and open attacks on civilians. Inflation hit a 40 year high of 7.9% and has put upward pressure on interest rates causing broad implications for the investment landscape. With this challenging backdrop, the S&P 500 declined 4% and the aggregate bond market fell 5.8%. I was generally pleased with the portfolio's performance as most positions performed in line with expectations with one exception, which I will cover below. Much like the fourth quarter, we were relatively inactive again due to concerns of rising interest rates and their negative impact on valuations. In the first quarter we made a couple small incremental purchases of AMZN, LRCX and VOO during the 10% market dip that occurred in late January.
At present, I see few opportunities and therefore the portfolio is overweight on patience, in the form of US Treasury bonds. I have one exception, I-Bonds can be purchased on May 1st with an estimated yield of 9.6%. If you haven't maxed out your purchase limit, I would recommend placing incremental funds into these bonds. They can be purchased at: https://www.treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm
In my letter last week, I introduced the "Misery Index" which is at its highest level since the Great Recession-Financial Crisis. We are not in a recession, but some forward looking indicators paired along with the Federal Reserve finally taking the punch bowl away from the party have me concerned.
- Real Wages (wage growth less inflation) over the past 12 months have declined 3.3%. The largest decline since it started being tracked in the year 2000.
- Real Disposable Income Per Capita has fallen 1.8% over the past twelve months and has declined for the past seven consecutive months.
- Small business confidence survey is at its lowest point since April 2020 which was the start of the pandemic and before any Government rescue plans.
- Rate sensitive sectors such as housing and autos have started to decline
- Inventories are building; therefore, we are approaching a point where further softness in demand will drive production cuts.
The Federal Reserve points to strong employment as a sign they can manage this rate hike cycle without causing a recession. The lowering of the unemployment rate has created an estimated 20.4 million jobs. However, inflation has permanently harmed 50 million retirees with fixed pensions and 130 million low to middle income workers. Is it fair to help 20 million at the expense of 180 million?
I went from having a conservative portfolio to an even more conservative portfolio. Unfortunately, I see few opportunities with an acceptable risk/reward profile. Valuations in my opinion have not fully adjusted to the prospect of higher interest rates.
Most of the time, I have an agnostic view of the market. I think that many investors go astray by trying to have a system that will provide automatic good judgment on all investment decisions. To me this concept is too hard in practice and quite frankly ridiculous to strive for perfect judgement at all times. I am using a different approach, by looking for opportunities that offer a big statistical advantage. These opportunities need to show up in a place where I am smart enough to recognize them. Because of my cognitive limitations, I will likely only find one or two ideas per year. If we wait patiently for the big opportunity and grasp it firmly, that fortunately happens to be enough.
Wills Family Portfolio for 1Q22
Bond Portfolio for start of 2Q22
I recently shifted my ST money market and VCSH into a ladder of 0% coupon US Treasury Bonds. These bonds were purchased to have a portion mature each month. When they mature, I intend to purchase another at the end of ladder. For example, when the 6/30/22 bond matures, I would purchase a bond of the same amount that matures in April 2023. This process will continue until a more attractive investment option that emerges. For those who prefer an automated process, a similar strategy is available in the SHV exchange traded fund for a .14% annual fee.
Braemar Hotels & Resorts (BHR)
"Choose a business any idiot can run, because sooner or later one will" Peter Lynch
After a facing serious headwind over the past two years from the COVID-19 pandemic, Braemar started to breakout in the first quarter returning +21.4%. The big news for BHR during the quarter was the acquisition of the Ritz Carlton resort in Puerto Rico.
Why Own BHR?
Braemar owns 16 luxury hotels in prime locations throughout the United States. Included in these properties are the Ritz Carlton St. Thomas, Puerto Rico, Lake Tahoe, and Sarasota. It also has top tier properties in Colorado, Napa Valley, Washington DC, and San Francisco. Prior to the pandemic, BHR was generating approximately $40-$50 million of free cash flow for shareholders. On its current $300 million market cap, if operations return to 2019 levels, the cash flow yield would be ~15%. The company was paying $30 million per year in dividends or a 10% yield on our purchase price. Because of the pandemic, the company was forced to stop paying its dividend, it was recently restarted at 1c per quarter. Not much, but it’s a step towards the return to normal. The pandemic has hit its city-center properties hard, however its resorts have been generating record revenue. In fact, its latest update the company said several of its resort properties were generating revenue 30% above 2019 levels.
Key Risks:
- COVID continues to have a significant impact on travel. City center properties are no longer losing money are still far from pre-COVID levels of profitability. Airlines, cruise ships and other travel operators are all commenting that the rebound has begun, but there is always a risk COVID comes roaring back. The BHR CEO has told me group travel bookings for 2022 are currently running near 2019 levels, a sign that we are nearing a return to "normal."
- I am disappointed with the actions of management. I have a professional relationship with the CEO, and I believe he has done an excellent job running his hotel portfolio in very challenging times. However, he has shown that he does not understand basic finance. It's not his fault after all, he is a former investment banker, and I don't think bankers understand basic finance. He agrees with me that the value of the hotel portfolio far exceeds the current stock price, but he has been selling stock around $6.00 a share to pay down debt. He essentially sold $1.00 for $0.50, this dilutes our ownership and is contrary to our best interest. I have had multiple heated conversations with him over what is in the shareholders' best interest. If I got through to him and he ceases to sell stock, we should do great on our investment. Update: the CEO recently told a group of investors he is no longer issuing stock, hopefully this mea culpa will last.
What is BHR Worth?
When we purchased BHR when the book value of the properties owned (price paid less mortgages) was $10.50 a share. At the current stock price, BHR's price per key is ~$300k. I have seen multiple sales of hotels in Chicago, Florida and Napa Valley at prices of $475k, $750, and $2 million. Braemar also recently purchased the Ritz Carlton Puerto Rico for nearly $2 million a room. Yet another data point that the sum of BHR's part is greater than its whole. In my opinion, the properties sold where of a lesser quality and supported a $10-$15 valuation range. However, as I wrote above, the destructive behavior of the CEO has reduced the value of our investment by 20%. I now estimate BHR is worth $8.00 a share.
Berkshire Hathaway (BRK.B)
Why Own Berkshire Hathaway
Berkshire Hathaway is the conglomerate run by Warren Buffet. I think of it as an index fund made up of businesses that are better than the S&P 500 on average. Until recently following a surge in the stock price over the past 12 months, I thought the company was trading at a valuation well below my estimated fair value. At the present valuation, I would not purchase any more shares of Berkshire Hathaway.
There are a couple of structural advantages the business has built over the past 50 years that will be difficult, if not impossible to replicate. Within Berkshire's collection of companies, there are some that are thriving, some that are mediocre and some that are declining. Because they are all held under a single umbrella, Berkshire can take the cash from the average and underperforming businesses and invest in the growers without incurring taxes. For the rest of us who want to take the cash out of one business and invest in another, we would incur capital gains or a dividend tax. This allows Mr. Buffett to earn a few extra points of return per annum and has helped him achieve the greatest investment track record in history.
The business is also operated very conservatively, typically holding more than $100 billion of cash. When the economy runs into trouble and large companies need money, Omaha and Washington DC are the only two places they can go, and DC typically won't listen until a call to Omaha has been made. Berkshire's cash reserves and sterling reputation allowed it to acquire Burlington Northern Santa Fe Railroad and issue tens of billions of dollars of loans to GE, Goldman Sachs, Bank or America, Harley Davidson, and Mars Candy at loan shark rates. To me Berkshire Hathaway is the business equivalent of the hydra monster from Greek mythology. When Hercules cut the head of the hydra monster, two grew back in its place. When trouble emerges in the economy or the stock market, Berkshire emerges stronger.
Key Risks to Monitor
- At age 91, we must accept Mr. Buffett will not be running Berkshire Hathaway for much longer. Although, he jokes his successor has a Ouija board. I am sure the stock will drop upon his passing; however, I do not believe there presently any "Buffet Premium" in the share price. If the stock falls too far, you can count on the company using its war chest of cash to repurchase shares.
- Competition for investments - With the enormous monetary and fiscal stimulus, the market is awash with liquidity making it harder for Berkshire to invest its capital at attractive rates.
What is Berkshire Worth?
I wrote last quarter that I made Berkshire my largest single holding, while the stock has had a great run and is slightly above my fair value estimate, I have not sold a share. At this valuation, I think Mr. Buffett will likely have pulled back significantly on repurchasing shares. Recent news reports of Berkshire making large investments in Hewlett Packard (HPQ), Occidental (OXY) and the acquisition of Allegheny Insurance further support this opinion. Our purchases of Berkshire shares over the past few years have closely tracked Mr. Buffett's which tells me my intrinsic valuation estimate is close to his.
My current fair value estimate for Berkshire Hathaway is $315 per B share. For the past few years, I have been able periodically purchase Berkshire shares at a ~10% discount to my fair value estimate. The company is expected to make approximately $27.5 billion this year. My valuation factors a modest 3% growth rate in earnings going forward. The company has a $345 billion stock portfolio which contains $150 billion of Apple stock, $40 billion of Bank of America, $28 billion of American Express and $26 billion of Coca Cola. In addition to its collection of high quality wholly owned businesses like GEICO and the BNSF Railroad, you get indirect ownership in some of the finest publicly traded companies. Add in $150 billion of cash and subtract out its liabilities and I get an all-in valuation of $700 billion vs. the current $765 billion market cap. Because there are so many pieces to Berkshire, it is a difficult business to value. My valuation and purchases have been coincidentally aligned with Mr. Buffet's buying patterns.
How has it Performed?
Berkshire is up 18.6 % in the first quarter outperforming the 4% decline for the S&P 500. Berkshire Hathaway is 1.5% of the VOO, when combined with my 7.6% stock holding, I am nearing a 10% self-imposed limit of the total portfolio. At this time and will be looking to increase other positions before adding more Berkshire. I will continue to communicate and purchase for those who own less when the price is attractive.
Lam Research Corporation (LRCX)
We should start with the bad news. LRCX performed poorly in the first quarter and declined 23% through March 31st. The 4Q21 and 1Q22 earnings releases were underwhelming because the company had issues with its supply chain which kept it from shipping finished products to meet customer orders. Demand for its products remains strong and recent channel checks with customers suggest LRCX these issues have persisted and may take until later this year to resolve.
Why Own Lam Research?
Lam Research might be my favorite business for a very simple reason. Every day we consume more and more data and everyday household items are increasingly being connected to the internet. But what you may not realize is those advancements require more and more memory. Lam Research has a near monopoly on the machines that make memory chips. The company estimates it has >90% market share of all flash memory and greater than 50% of all DRAM memory. On top of that the company has been steadily taking market share with logic semiconductors. In short, you basically cannot make a semiconductor without Lam Research. Why is that? The degree of precision needed to make a semiconductor is almost unfathomable, today's leading chips can fit 6 million transistors in a space the size of the period at the end of this sentence. Once a piece of Lam's equipment is placed into service, it will never be replaced by another vendor locking in a lucrative parts and service business.
The shortage of semiconductors provides a very favorable backdrop for LRCX. For more than a decade companies kept minimal inventory of chips on hand and when the pandemic caused disruption to chip manufacturing, an acute shortage has resulted that has idled auto and electronics factories worldwide. Orders for Lam's equipment are at record levels and the growing nationalistic attitude in the US and Europe could bring strong demand for the next few years.
Key Risks
- Trade Dispute with China: China accounts for approximately 30% of sales and the US has prohibited sales of leading semiconductor technology to certain Chinese companies. The Trump administration took a hard stance, that has been mostly adopted by the Biden administration. To date the blacklist has not had a material impact, however if the dispute escalates, LRCX runs the risk of losing a major revenue source. While it would be disruptive, I am not overly concerned about a more restrictive ban. Demand for data, memory and semiconductors keeps marching higher and Lam's machines needed to fill that demand will be purchased by someone.
- Lam's customer base is highly concentrated, and the business is prone to boom-and-bust cycles. The stock can sell off sharply when demand ebbs. That will likely be a buying opportunity. I watched LRCX stock for years before making a purchase. Some of you do not own the stock, patience is required, we will buy when the time is right.
What is Lam Research Worth?
I think a fair value for LRCX is $525. We made a small purchase at $560 in January, and I now think we slightly overpaid for those shares. My outlook for the business has not changed, I just increased the required rate of return to 9% from 8% in my valuation model in response to rising rates. LRCX is a volatile stock and is prone to boom-and-bust performance and valuations. My $525 estimate assumes that LRCX will grow 5% per year on average over the next decade. I use 5% growth, because semiconductors have historically grown a couple percentage points above GDP.
Amazon (AMZN)
Why Own Amazon
A vast selection of goods at cheap prices with fast convenient delivery. I doubt consumers will ever want the opposite. The pandemic was good to Amazon as consumers shifted more of their consumption online and away from traditional brick and mortar retail. The company is in a in between phase as the pandemic fades consumers are shopping in person again and also shifting a portion of their spending from durable goods back to services. This has caused the company's growth rate to slow relative to what we saw in 2020 and 2021. The brick and mortar to internet trend isn't over and Amazon still has a long runway ahead of it.
While Amazon is mostly known as a retailer, its computing service is even more valuable. Amazon Web Services (AWS) has similar economics to the retail business, a disproportionate share will be aggregated to the company with the most scale. After building out an enormous IT infrastructure to support Amazon.com it started offering companies access for a fee. The result was an entirely new industry that as changing the tech landscape. Any company now has access to world class IT systems via the internet for a fraction of the cost it would take to build the infrastructure themselves. As AWS has grown, the scale has resulted is a decline in the cost of operating the business. Amazon has in turn passed a portion of the scale benefits on to its customers through more than 50 price cuts over the past 15 years. Few businesses can compete with Amazon on cost and functionality, Microsoft, Google, and Ali Baba that is about it. Because Amazon started the industry, its lead is considerable over these firms.
Build scale, lower per unit costs, and pass a portion on to the customer. Amazon's extreme focus on delivering value to the customer is a very difficult model to beat.
Key Risks
- Like Apple, success brings jealousy and criticism. When a previously successful business finds itself hopelessly outflanked by Amazon, the last resort is to bribe - oops I mean donate to a politician. Amazon is presently facing a lawsuit over its policy requiring 3rd party sellers, utilizing its logistics service, to set prices on Amazon's site equal to or lower than other sites. Amazon's policy, using some backward logic, is considered detrimental to the consumer according to an attorney general in Washington DC.
- I'll repeat a section of Jeff Bezos' latest letter to shareholders about their anticompetitive behavior.
- "Customers complete 28% of purchases on Amazon in three minutes or less, and half of all purchases are finished in less than 15 minutes. Compare that to the typical shopping trip to a physical store - driving, parking, searching store aisles, waiting in the checkout line, finding your car, and driving home. Research suggests the typical physical store trip takes about an hour. If you assume that a typical Amazon purchase takes 15 minutes and that it saves you a couple of trips to the physical store a week, that's more than 75 hours a year saved. That's important. We're all busy in the early 21st century."
- "So that we can get a dollar figure, let's value the time savings at $10 per hour, which is conservative. Seventy-five hours multiplied by $10 per hour and subtracting the cost of Prime gives you value creation for each Prime member of about $630. We have 200 million Prime members, for a total in 2020 of $126 billion of value creation."
What is Amazon Worth?
An interesting development occurred over the couple months. I noticed in the annual report Amazon made a small $1.5B repurchase of its stock. This piqued my interest because Amazon since its inception has been hyper-focused on growth while reminding investors cash flow is their most important measure of success. In the past 25 years, there hasn't been much cash flow for the shareholders which is why a $1.5 billion share repurchase caught my eye. A few days later the company announced a 20 for 1 share split and $10 billion dollar share buyback. Perhaps the company may be signaling it has finally started to enter the harvesting phase.
The present valuation of Amazon implies the company will hit $1 trillion in sales in the next 10 years and generate more than $100 billion a year in cash. Amazon's growth over the past decade has been phenomenal and accelerated last year in the pandemic. Last quarter when I sent this letter out the implied valuation suggested Amazon would hit $1 trillion in sales within 6-7 years and with the underperformance of the stock it is now ~10 years which I view as more reasonable. I would consider adding to the position again below $3,000 per share which implies a reasonable 10% per year growth rate over the next decade.
How did it Perform?
Amazon stock inclusive of intra-quarter purchases was +1.8% in the first quarter vs. the -4% return for the S&P 500. When Apple recently changed its privacy settings, making it difficult for Facebook and Google to track people's online activity, advertisers started turning to Amazon. This is a very profitable business that posted impressive growth during the quarter. I have a close eye on AMZN and am looking to increase my holdings of the company.
Apple (AAPL)
Why Own Apple?
The iPhone has become an integral part of our daily lives and it keeps getting more and more engrained each year. With more than 1 billion iPhones in active use we can make reasonable assumptions about how often they will be replaced/upgraded and see that Apple has a steady stream of cash coming in for a very long time. Add in iPads, computers, watches, airpods and apps with its large network of users and see the captive users base that will generate more sales each year.
Key Risks to Monitor
- Antitrust: With great success comes jealousy and criticism. Apple won its first round of litigation in the US over its App Store policies; however, it is facing similar challenges across the globe. There are also continual rumblings in Congress about legislating changes to Apple's dominance over its App Store. The App Store is being investigated by the Department of Justice along with the other tech giants (Amazon, Google and Facebook). Antitrust regulations are in very early stages and often takes several years before a settlement is reached. It is far too early in the process to be able to accurately assess any potential impact.
- Taxes: Biden's ability to pass any major legislation looks like a long shot at this point with mid-term elections only a few months away. For now, I will leave Biden's tax proposal on the watch list as a key risk, although I no longer deduct this risk from the valuation.
- The devil is in the details of the tax proposal from President Biden. While the headline has an increase to 28% from the current 21% is still well below the 35% prior to President Trump's tax cut. However, within the proposal is a doubling of taxes on international income which could result in a tax bill 4x greater than the amount Apple saved from the Trump tax cut. The US is the only country in the world that taxes international income, a doubling of the overseas tax rate is a big deal.
What is Apple Worth?
I think a fair valuation for Apple is $130 and like LRCX is slightly lower due to a higher required rate of return with the rise in interest rates. That assumes Apple continues to earn around $100 billion per year in the future. $100 billion dollars of annual profit seems like a ridiculous number that is hard to grasp, and it is. So, we need to break it down. Apple has >1 billion active users and 1.65 billion active devices. If we assume the average users upgrades their phone every five years that generates $175 of revenue per user per year which works out to 60% of Apple's device revenue. The 650 million installed base of computers, iPads and watches generates approximately $112 of revenue per user per year. Add in another $70 per user for software and services, think about the revenue generated from apps, cloud storage, Apple care and its subscription services. With Apple's 22% average profit margin over the past decade suddenly $100 billion seems very achievable and we are not factoring in any new products the company will inevitably become a must have for its user base. The biggest risk is an anti-trust breakup of Apple's app store. It is hard project what would happen but let's hypothetically assume they must cut their 30% take-rate of apps to 15%. With a very rough estimate because Apple does not disclose its revenue from 3rd party apps would result in a loss of $17 billion of revenue. This would drop Apple's valuation to $100.
How did it Perform?
Apple stock was -1.5% in the first quarter vs. the -4% of the S&P 500. The most impressive accomplishment Apple made over the past few quarters is the 3.5% increase in profit margins while dealing with supply chain issues. For a company of Apple's size this translates to about $13 billion a year in extra income. I found it encouraging that CEO Tim Cook felt the improvement in profitability over the past year is permanent with room to continue growing.
Verizon (VZ)
Why Own Verizon?
Verizon is in the portfolio as an alternative to fixed income. With its 4.75% dividend yield and prospect of slow stable growth, I find its return prospects more attractive than what is available in the fixed income market and believe its risk is only incrementally greater. The Vanguard Aggregate Bond Fund (BND) has an indicated yield of 1.95% and is down 8.8% to start the year. Verizon's +1% return for the year, our thesis has been validated thus far.
Bonds carry two risks: first, the loans are defaulted, and you do not get your money back. Second, and larger risk is rising interest rates. When rates go up the price of bonds goes down. Over the past year the Vanguard bond fund dropped -10%. We purchased Verizon because of its 4.5% dividend yield and stable free cash flow generation. I estimate Verizon can produce $4.65 a share in cash flow which works out to about 8.5% yield. So, we have a stable business with an estimated 8.5% cash flow yield with the potential to grow with the proliferation of 5G service vs. investment grade bonds with a 1.95% yield that will not go up unless rates go higher but that will bring more losses to the principle.
The 21st century is the digital century which requires mobility and connectivity. Through that lens, Verizon, AT&T and T-Mobile own some of the most valuable real estate in the US. This valuable real estate has been underutilized. During normal operations Verizon is probably only using 25% of its spectrum and that has been good enough to generate about $20 billion a year in cash flow. But what if spectrum use cases expand with 5G and Verizon starts monetizing 30% or 35% of its spectrum? That would mean a lot more cash for the shareholders. Verizon already spent the money building its network which means for each incremental use of its capacity a large portion of that new revenue should flow straight to the bank.
Verizon has been vocal about offering fixed-wireless access to the home as a broadband replacement for $50 a month. It may not be as fast as broadband but at half the price and speeds quick enough to download a high-definition movie in one-second, I think that will be good enough for a lot of people. It will also have the advantage of being able to reach areas cable cannot reach like a construction site.
There are a lot of buzz words like the "internet of things," "augmented reality," "virtual reality," "metaverse" (I still have no idea what the hell the metaverse is, but it’s exciting enough for Facebook to change their name to Meta). All these hyped technologies will rely on 5G spectrum to function. With 4G we saw new innovative services like Uber and Spotify that turned into enormous multibillion dollar enterprises on the back of the 4G spectrum and were able to do so without any compensation to the telecom companies. With 5G and the ability to slice its network and create private spectrum, it’s possible the telecom companies may be able to get a piece of the pie from the new technologies enabled by 5G. I can't say for certain that this will happen, but I can say we are not paying for any of these ideas in the present stock valuation. Which means we have a free option to the upside if they can better monetize their spectrum.
What Will Make Our Investment in Verizon Work?
Verizon needs to keep growing its earnings a few percent per year and our investment will do just fine. This can be achieved by growing subscribers, increasing price, and adding new services. AT&T, T-Mobile and Verizon have all made the decision to make 5G service only available on their highest tier plans. Currently 35% of users are not on an unlimited data plan and only 25% are on the premium unlimited plan. When consumers upgrade or choose a new service the majority have chosen the top-tier plans driving a 1-2% lift in revenue per year. Growing subscribers is more challenging with cellular service reaching saturation. The pandemic has brought a shift to a mobile workforce which in turn may drive more corporate subscriptions and mobile hotspots. 5G service will bring numerous new use cases such as 5G in-home wireless broadband.
Key Risks to Monitor
- Loss of subscribers to AT&T and T-Mobile: Verizon has a reputation of having the strongest nationwide network thanks to its aggressive 4G LTE investments over the past decade. With 5G, it is currently in 3rd place with T-Mobile in the lead and AT&T rated second. Verizon is working to bridge the gap and recently purchased half of the 5G spectrum the US Government made available for $45 billion.
- Dish Network: Dish network has been acquiring spectrum over the past few years and claims it can create a 5G nationwide network for a fraction of the cost of what Verizon, T-Mobile and AT&T have spent. Dish Network is still in the assembly phase and is targeting a launch in 2023. It remains to be seen if Dish will be successful and if they are we will likely exit our position. However, the threat is not immediate, customers are slow to change carriers and an unknown network/brand will take time before materially impacting the three main carriers.
- Inflation: My outlook for earnings growth is in line with the Federal Reserve’s inflation forecast. A large portion of Verizon's cost structure for its network is in long-term contracts with fixed price escalators of only a couple percent. The risk is competition within the industry prevents Verizon from being able to pass any inflationary pressures it faces.
What is Verizon Worth?
I estimate Verizon is worth $60 a share which is based on my outlook that cash flow generated by the business will grow 2-3% per year. If 5G service is successful in creating new revenue streams and cash flow grows 5% per year, I estimate the value of the business could go as high as $70 per share. Conversely if competition with Dish Network and the other carriers increases and earnings do not grow the stock could fall to $35 per share. The last earnings release was a disappointment particularly after management offered a rosy forecast for the next few years in March. The case for owning Verizon remains, they deserve time to work through the inevitable hiccups of launching the 5G network.
Vanguard S&P 500 (VOO)
The S&P 500 is the centerpiece of our portfolio. It is comprised of the 500 largest companies in the US and is essentially a bet on the US economy and is viewed as the proxy for the overall stock market. Every month after I pay my bills, I make an investment with my excess savings. When I do not have a compelling investment idea in a business, I think is better than the average in the S&P 500 at an attractive price, I invest in the VOO.
