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2.2 Keeping An Eye On Your Money 2Q22
July 23, 2022
I apologize for the tardiness of this letter; I have struggled to find the right way to convey my message in my 2Q22 review. At the present moment, a list of pre-recessionary indicators is growing by the day. The volume of retail sales are declining, new and existing home sales are faltering, vehicle sales are below 2019 levels and business confidence is terrible. I could keep going, but you get the point. There is a mess out there that needs to be dealt with and the headlines will continue to be scary. The S&P 500 has already declined 20% and the bond market (BND) fell by 10% in the first half. Both simultaneously performing so poorly is nearly without a historical precedent.
And yet, I need to remind you that bad news is an investor's best friend. It will allow us to buy a slice of the American economy at a marked down price. I remain confident that most major businesses will be setting new profit records 5, 10 and 15 years from now and waiting for the comfort of good news means it will be too late to buy at attractive prices. Despite the correction we have endured, I do not see fear or optimism in valuations leaving me with a mixed outlook of what exactly to do. Now you can see why I've struggled with how to express the prospect of a gloomy future alongside cheerful optimism.
What Happened in the First Six Months
I've touched on much of the current economic issues in previous letters but here is a quick recap. The easy money policies of the US Government and Federal Reserve bank shifted demand for goods significantly higher. For a while businesses happily supplied the goods to meet consumer demand, profits surged and drove stock prices higher. And like most historical market rallies, investors piled in with their stimulus dollars driving valuations of many businesses well above what their fundamentals could justify. Valuations of high growth unprofitable businesses in particular, approached the same heights as the 2000 dot-com bubble.
With so much money flooding the economy, bizarre risk-seeking behavior became rampant. Just about any business and I mean ANY business was able to borrow all the money they needed. How else can a "do it yourself orthodontia" business borrow $650 million? Seriously, who thinks saving a few bucks to straighten your own teeth is a good idea? In 2020, what was normally a tiny backwater of finance known as Special Purpose Acquisition Companies or SPACs went mainstream and by Christmas, every rich kid had their own SPAC filled with hundreds of millions of dollars of cash sitting under the tree. Businesses like Hertz and Revlon saw their stock prices surge by several hundred percent even though they already filed for bankruptcy. However, as we have seen year to date, fairytale-like bubbles in the market result in many people finding out their investments have turned into pumpkins and mice.
Now that we are on the doorsteps of a potential recession, we must keep in mind that we are all interconnected. One person's debt/spending is another's asset/income. When a significant surge in demand is driven by transitory factors like government stimulus and illusory investment gains; pain will be felt across the entire economy as we return to the normal supply/demand equilibrium. The painful process of mean reversion has begun and is likely to persist for a while longer. Our portfolio consists of sound companies that I believe will continue to prosper. However, all businesses suffer hiccups as they always have, and we just have to endure the downturn. Eventually the economy and investor sentiment will improve.
Why 70 / 30?
When it comes to deciding the proper investment mix, it is much like the kind of driver you are. There are times where it is appropriate to set the cruise control at 75 mph and go with the flow of traffic. And when there is treacherous rain or snow it is most prudent to drive below the speed limit. And then there are times to put the Jesus statue on the dashboard and put the pedal to the metal. We all have our own sense of what feels right, and it may change with the circumstances. For most of 2021, I had 85% of my assets invested in equities and I regard this proportion to be my "home base." Equities purchased at sensible prices in my opinion are the most effective way to build wealth over time. If you have personally discussed investing with me, you know my first rule is to never risk anything in the market you may need in the near future. For my personal situation, allocating 15% in safe assets such high quality bonds provide a cushion for both an emergency and as dry powder for truly exceptional investment opportunities that occasionally arise. When the COVID-19 panic occurred in March of 2020, I had enough cash flexibility to purchase a few high-quality businesses at exceptionally cheap prices. Those timely purchases materially changed my family's financial well-being.
As the market marched higher throughout 2021, I had ever increasing difficulty finding equities with sensible valuations. I also found bonds increasingly unattractive as interest rates were well below inflation and risk spreads were at historic lows. Therefore, my savings each month was allocated to ultra-safe money markets and US T-Bills rather than sensibly priced equities or bonds because there were none. This gradually shifted my asset allocation from 85% equities to 78% by 1Q22. Finally in April, I shifted a material portion of my 401k into cash bringing my mix to 70/30. There is nothing magical about 70/30, it is just what I regard as my "cautious base." Long-time readers know I have repeatedly warned about trying to time the market. Few people can do it consistently and you should be wary of those who claim to do so. I first turned sour on the market in January 2021 during the Gamestop fiasco and wrote about it in my letter "Tiny Bubbles." Had I started selling equities at that time, I would have missed out on the 29% rally in the stock market for 2021. As you can see, I have no crystal ball.
My aim is to do a little better over a long period of time and making large deviations from my investment plan introduces the risk of being wrong. I would have harmed my family's financial well-being by missing the 2021 bull market. Having enough cash on hand to never be a forced seller of equities in a bear market is part of my investment plan. Enduring the agony of inevitable market downturns is also part of the plan. However, the few actions taken over the market cycle did produce the intended effect, a portfolio that outperformed the overall stock market and corresponding stock & bond benchmarks. With investing you do not have to do exceptional things to get exceptional results. Doing a little better over a long period of time will get you there.
3Q22 Outlook
With the 20% correction in equities and a 10% correction in bonds, valuations are now representing a reasonable value. However, with a potential recession on the horizon, I am not in a hurry to start adding risk to the portfolio. My plan is to incrementally increase equity exposure by approximately 10%. With bonds, risk spreads remain well below levels seen in prior recessions and with the Federal Reserve's plan to continue aggressive rate hikes, I remain comfortable with short-term T-Bill holdings. Inflation starting to ebb and the rates approaching neutral (interest rate = inflation rate) will serve as key items to monitor before changing our bond allocation to a broader mix of issues.
I fear the Federal Reserve may be aggravating the magnitude of the economic cycle rather than providing stabilization. The Fed is trying to attempt at a "soft landing" where it will bring inflation down without causing a recession. The indicators suggest that may not be possible, which in turn means the Fed will return to its Pandemic-style behavior to ward off a recession and spur yet another expansionary cost-of-living problem. So how do we invest around what appears to be a period of excess volatility? We may be faced with the need to rebalance portfolios more often than was necessary in the past. I am also finding attractive opportunities monetizing volatility through synthetic convertible bonds. These investments are like what I managed in a professional capacity over the past 10 years. Please reach out if you would like to discuss the specifics of this strategy. It is not suitable for everyone.
Wills Family Portfolio as of 6.30.22
Cautious Investing,
To The Front
To The Front
Braemar Hotels & Resorts (BHR)
The biggest change to the portfolio during the second quarter was the sale of Braemar Hotels. When purchasing a new investment, there are a few common characteristics that I am looking for. The first is a business I can understand, second is a valuation that offers an attractive return potential and the third is an honest and capable management team. It is the third item that has failed us with our Braemar Hotels investment. When we entered this position a year ago at $6.00 per share, I felt the fair value was approximately $12.00 and highlighted the CEO's issuance of new shares as a risk to our ability to realize the $12.00 valuation. Despite my repeated attempts to convince management to stop issuing shares and a public declaration by the CEO that he would refrain from doing so, he has continued to print new shares at an alarming pace. The CEO of a real estate company's primary responsibility is to allocate capital intelligently and the share issuance has failed the test.
The share count at our time of purchase was 39 million and today it stands at 70 million. This increase in outstanding shares has diluted the upside potential in our investment. Because one of the core tenets of ownership is broken, I believe it is best to exit at a modest loss. With the market heading lower, I am optimistic we will have an opportunity to redeploy this capital into a better business with better management for the long run. Note shares of BHR have declined 20% since our sale in May.
Berkshire Hathaway (BRK.B)
Why Own Berkshire Hathaway
In 4Q21 I made Berkshire my largest single holding. The stock surged at the beginning of the year but has drifted back down below my fair value estimate. 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.
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 of 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 exists 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 $305 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 $325 billion stock portfolio which contains $133 billion of Apple stock, $32 billion of Bank of America, $21 billion of American Express and $25 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 $125billion of cash and subtract out its liabilities and I get an all-in valuation of $675 billion vs. the current $617 billion market cap. Because there are so many pieces to Berkshire, it is a difficult business to value. I have provided a simplistic formula to gauge the relative value of the business.
How has it Performed?
Berkshire declined 8.7% in the first half outperforming the 20% decline for the S&P 500.
Lam Research Corporation (LRCX)
How Did Lam Research Perform?
LRCX continued to perform poorly throughout the first six months with a 40% decline. LRCX reported after the first quarter that they continue to see robust demand for their products but are also facing supply chain challenges to fulfill their customers' needs. Similar comments were made by LRCX's peers noting that unfilled demand for 2022 will push into 2023 and 2024. Micron Semiconductor, one of LRCX's largest customers, also noted demand is slowing for its memory chips following the robust environment for electronics over the past two years. However, it only incrementally lowered its planned expenditures for semiconductor equipment. Semiconductors are a cyclical business, and the stocks tend to have higher highs and lower lows. While I am disappointed in the performance, I have not observed any material issues with the business that would make me reconsider our ownership. Enduring the agony of the downturns is part of the process.
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 that 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.
What is Lam Research Worth?
I think a fair value for LRCX is $525. 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 an in-between phase as the pandemic fades. Consumers are shopping in person again and 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 is 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 in 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' last 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 with Jeff Bezos stepping back the company may be signaling it has finally started to enter the harvesting phase.
With ownership of Amazon, we have the largest online retailer with world class delivery infrastructure, the largest cloud-computing provider and the third largest online advertiser. If Amazon is able to maintain 30% operating margin in its AWS business, mid-single digit operating margins in its retailing business and 40% margins for advertising, a 10% overall operating margin seems achievable for the company as its business lines reach maturity.
Using the outlook of 10% operating margins current share price of $110 suggests the ecommerce business has reached saturation and will struggle to grow from here and the AWS business will maintain its growth trajectory but slow down significantly over the next decade.
How did it Perform?
Amazon stock was -36.3% in the first half vs. the -20% return for the S&P 500. The stock went into free fall earlier this year after the company disclosed it had grown its warehouse capacity by too much, incurring $4B in additional costs. Amazon adapted quickly during the pandemic in response to a surge in demand and I think it is just as likely they will be able to adapt to the change in consumer behavior as the pandemic fades.
Apple (AAPL)
Why Own Apple?
The iPhone has become an integral part of our daily lives and it keeps getting more and more ingrained 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. Its App Store and is being investigated by the Department of Justice along with the other tech giants (Amazon, Google and Facebook). Antitrust regulations is in very early stages and often take 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.
What is Apple Worth?
I think a fair valuation for Apple is $130, 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 user 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 antitrust breakup of Apple's app store. It is really hard to project what would happen but let's hypothetically assume they have to 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 -22.8% in the first quarter vs. the -20% of the S&P 500. Apple noted that it expects a $4-8 billion impact to sales in the second quarter due to shortages of semiconductors. Apple's competitors have noted they have seen a slowdown in demand for 5G phones and PCs. The upcoming 2Q earnings release will be interesting to see how Apple adapts to the changing economic environment.
Verizon (VZ)
Why Own Verizon?
Verizon is in the portfolio as an alternative to fixed income. With its 5.0% 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 3.06% and is down 10% to start the year. With Verizon's +0.2% 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 5% dividend yield and stable free cash flow generation. I estimate Verizon is capable of producing $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 principal.
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 of 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 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, 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 are able to 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.
Vanguard S&P 500 (VOO)
The S&P 500 is the centerpiece of our portfolio. It comprises 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. Low-cost indices have outperformed 3/4ths of the actively managed universe. Ownership of the VOO automatically provides a head start over the alternatives.
