Semi and chips shortage
Hi ,
Some months I invested into the following related semi - conductors companies :
Due to Fabs low capacity to meet chips demand specially to automotive , the market in semi has been unstable .


I wonder what is best way to proceed . Do you believe is kind of temporary ?

Kind regards ,
Bruno
I own shares of $NVDA and $TSM as well and remain quite bullish. I believe it's definitely temporary. If you can hold for 5+ years, these will be great companies to have in your portfolio. Long-term winners.
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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month #21 — Texas Pacific Land
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 20 months:
‌‌Month #1 Aug 2020: $ARKK -42%
Month #2 Sep 2020: $ARKG -44%
Month #3 Oct 2020: $BTC.X +223%
Month #4 Nov 2020: $BTC.X +105%
Month #5 Dec 2020: $NVDA +42%
Month #6 Jan 2021: $VT +2%
Month #7 Feb 2021: $PACB -78%
Month #8 Mar 2021: $TSM -15%
Month #9 Apr 2021: $KLIC -9%
Month #10 May 2021: $TTD -15%
Month #11 Jun 2021: $ETH.X +34%
Month #12 Jul 2021: $ETH.X +25%
Month #13 Aug 2021: $ROKU -74%
Month #14 Sept 2021: $ETH.X -4%
Month #15 Oct. 2021: $RBLX -59%
Month #16 Nov. 2021: $APPS -51%
Month #17 Dec. 2021: $VMEO -43%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN -15%
Month #20 Mar 2022: $RRC +11%

Total portfolio return: -1.02%

Return if every month I had just bought the S&P 500: +2.69%

Well this is humbling

For the first time, the total value of the portfolio has now gone negative— meaning if I needed to withdraw the money today, I would have been better off saving.

Fortunately, my kids aren't even born yet so I don't need the money today. Hopefully this memo will be a humorous stop along the journey. We shall see.

Many years from now, I hope my kids will get the chance to read this and take away the following lessons:

  • After 20 months of building this portfolio, all the work that has gone into it has cost me 1.02%. This illustrates the argument for putting your money into an S&P 500 index and calling it a day. It's way less work, and you may just come out ahead in the long run.
  • In the short term, you never know where the stock market is going to go, especially individual stocks.
  • 1-2 years is considered "short term." Investing really is played on long time-horizons.
  • Expect to be wrong a lot in investing. So far 12 of the 20 picks I've made have lost money. My hit rate at the moment is 35%.

Things may keep getting worse before they get better. The extremely long time horizon intended for this portfolio allows me to sit tight. It's not fun to be down vs. the S&P 500 or in general, but for now, it's one stop along the way.

This month's addition:

Texas Pacific Land
Ticker: $TPL
Market Cap: 10.66B
Should tip the hat to Horizon Kinetics who have been big believers in $TPL for a long time (decades).

History
Texas Pacific land started out as a railroad 1871. The idea for the railroad was to connect West Texas with the coast of California. A federal charter granted land to the company for every mile of railroad it built. The company earned three and a half million acres of West Texas land from building the railroad. But guess how many people lived in West Texas in 1871? Pretty much no one! So the railroad went out of business— but the company still owned all that sweet land. So the Texas Pacific Land Trust was formed to manage the land, which it would sell and then return the money to owners of the trust certificates. In 1920, they stopped selling the land because, you guessed it: they discovered oil. Texas Pacific sold over 75% of its original landholdings. But even after all that, it is still the largest landowner in Texas. The remaining land is in the Permian basin of west Texas, the most productive oil field in the world right now. Texas Pacific now leases its land to oil companies and collects royalties from them.

Investable Attributes
  • The Dividend payout ratio is about 65%. Part of the thesis is that this will increase.
  • The company doesn't have any debt. It doesn't need to take in capital to grow.
  • It's all about the royalties. They are the biggest catalyst going forward for dividend growth. They don't have to drill the traditional oil. Companies lease land from Texas Pacific and pay them about a one 16th of royalty on the oil they extract, not to mention any water, right usage and other usages.
  • Texas Pacific's gross margin is always close to 100% EBIT and EBITDA margins are usually around mid 90%.
  • Free cashflow margins can run the high sixties, but in recent years this has dipped down into the low forties.
  • Texas Pacific has great operational leverage to rising oil prices and with no need to retain cash, the company returns the bulk of it to us, the shareholders.

Another part of the thesis is that in January 2021 Texas Pacific Land went from being a Trust to a Corporation. The reason this is important is that as a trust, $TPL was not part of the 'investable universe' for a lot of funds and ETFs. Now that it's a corporation, many more entities have access to invest in it.

The Main Thesis:
Texas Pacific Land is a way to get exposure to the price of oil without all the operational execution risk of an oil company. If the price of oil goes up, more oil companies will want to drill on $TPL's land, and the more royalties they will be able to collect.

I think oil demand will stay strong for years, and even in a world where we move primarily to renewables, there will still be a lot of uses for oil in the making of solar and renewable energy infrastructure. Even if oil prices stay where they are now, Texas Pacific is going to be highly profitable and flush with a ton of cash to return to shareholders.

Texas Pacific's estimates that the breakeven oil price for the bulk of their reserves is about $40 per barrel. If the price of oil stays above $40, Texas Pacific should see increased drilling activity on their land and increased revenue growth.

Now, oil reserves are a declining asset. One day Texas Pacific's oil reserves will be gone, or at least only economically viable with a really high price of oil. Right now, Texas Pacific projects that they have 19 years of reserves at a $40 per barrel breakeven price.

Risks
  • Oil Prices decline below $40 a barrel.
  • $TPL's reserves are depleted quicker than the expected 19 years

Things that aren't as big of a risk as people think
  • A fracking ban — fracking bans usually only apply to public land owned by the government. Texas Pacific land is private land. They own it and they can do what they want with it. And with their mineral rights, they would not be effected by a fracking ban. They'd actually be affected positively because other sites going offline means $TPL's resources are more valuable.
  • Electric vehicles — The expectation is the electric vehicle will cause oil demand to fall off a cliff. Today EVs are an expensive niche product. They are a small percentage of total auto sells. If EV sales were to double, they'll still only account for less than 10% of all automobile cells. We need a step change in battery technology to bring the cost per vehicle down and to increase our range, to make it a daily driver for the average person. Personally, I hope this happens, but I think it will take longer than most people anticipate. I'm assuming that in the medium term oil demand will go up, and in the longer term (30 years) oil demand will remain relatively flat.

Here's my trade— bought at $1,390. Currently at $1,366.
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Noticing some other Commonstock users who hold Texas Pacific Land. Nick Rasmussen @nras00 has been holding for 564 days and Ram V @sirthroedness for 409 days, impressive! Would love to hear ya'lls thesis as well.

Same with @joryko — how long have you been holding $TPL and what's your main motivation for holding?
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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month #20
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 19 months:
‌‌Month #1 Aug 2020: $ARKK -18%
Month #2 Sep 2020: $ARKG -24%
Month #3 Oct 2020: $BTC.X +294%
Month #4 Nov 2020: $BTC.X +150%
Month #5 Dec 2020: $NVDA +107%
Month #6 Jan 2021: $VT +12%
Month #7 Feb 2021: $PACB -68%
Month #8 Mar 2021: $TSM -3%
Month #9 Apr 2021: $KLIC +10%
Month #10 May 2021: $TTD +2%
Month #11 Jun 2021: $ETH.X +60%
Month #12 Jul 2021: $ETH.X +49%
Month #13 Aug 2021: $ROKU -65%
Month #14 Sept 2021: $ETH.X +15%
Month #15 Oct. 2021: $RBLX -37%
Month #16 Nov. 2021: $APPS -32%
Month #17 Dec. 2021: $VMEO -33%
Month #18 Jan. 2022: Cash 0%
Month #19 Feb. 2022: $OPEN +8%

Total portfolio return: 22.5%

Return if every month I had just bought the S&P 500: 13.7%

Addition for Month #20: Range Resources $RRC Resource.

Range Resources is a petroleum and natural gas exploration and production company headquartered in Fort Worth, Texas (I used to live in Dallas circa 2019).

Macro Thesis:
I want the world to transition to sustainable energy as much as anyone. But I think the current expectations of how fast we can move completely to renewables is unrealistic.

It generally takes about 5 decades for the world to transition from one energy system to another. If we are extremely disciplined, we may be able to speed up the transition to renewables in as little as 20 years.

But much of the investment world is acting as if electric cars will make oil obsolete in the next five years.

Oil demand is not going away in the next five years.

While the use of renewables is expected to grow faster than fossil fuels, the US Energy Information Administration (EIA) says coal, oil and natural gas will still account for 77% of our energy in 2040. The EIA reckons that total world energy consumption will rise by nearly 30% over the coming decades. Even if renewables grow exponentially, they will still need a lot of help from fossil fuels to meet demand.

You may see Teslas on the road every day and think that the whole world is on the cusp of going green. But it's a privilege to have the resources to go green. Developing nations have disproportionately younger populations which are incentivized to pursue high growth industries that can make use of their cheap labor and growing consumer base. The economies of these countries literally need energy to run. Going green for these countries is cost-prohibitive and quality-of-live reducing.

The fastest way to make green infrastructure is by using the tools we have today. Which means using a lot more oil.

Range Resources is bet that the oil industry has been overly discounted and still has a long life ahead of it.

Company Specific Thesis:
Range Resources is:
• A top 10 U.S. producer of natural gas
• Top natural gas exporter
• The most capital efficient operator in Appalachia
• Has the longest core inventory life in Appalachia
• Is a leader in environmental practices

Range Resources has a low decline rate. The 'decline rate' is a method for estimating reserves and predicting the rate of oil production. It shows the pace at which production is expected to decline over the lifetime of an energy asset. The lower the decline rate, the longer the oil well will last. $RRC's low decline rate drives sustainably low capital requirements.

Because their core inventory has a multi-decade life expectation, Range Resources has a long runway of free cash flow generation, which they are returning to shareholders via dividends and a $500 million share repurchase program.

$RRC is also a leader in environmental practices. They are targeting net zero greenhouse gas emissions by 2025.

Summary:
I'm adding Range Resources to the portfolio because:
• High FCF yield
• Low decline rate
• Dividend and buyback in place
• Good balance sheet
• Trades at a discount to NAV
• Has a strong environmental track record
• Energy demand will force investment oil to return in full force
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"It generally takes about 5 decades for the world to transition from one energy system to another." - Interesting! If this is the case for energy, imagine how long it takes for a transition to an entirely new reserve currency 😉 Nice $BTC.X gains, btw
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Nathan Worden's avatar
$312.8m follower assets
Compound Collaboration, Month 18 & 19
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 16 months:
‌‌Month #1 Aug 2020: $ARKK -16%
Month #2 Sep 2020: $ARKG -22%
Month #3 Oct 2020: $BTC.X +265%
Month #4 Nov 2020: $BTC.X +132%
Month #5 Dec 2020: $NVDA +82%
Month #6 Jan 2021: $VT +8%
Month #7 Feb 2021: $PACB -61%
Month #8 Mar 2021: $TSM -3%
Month #9 Apr 2021: $KLIC +2%
Month #10 May 2021: $TTD +22%
Month #11 Jun 2021: $ETH.X +39%
Month #12 Jul 2021: $ETH.X +30%
Month #13 Aug 2021: $ROKU -62%
Month #14 Sept 2021: $ETH.X 0%
Month #15 Oct. 2021: $RBLX -32%
Month #16 Nov. 2021 $APPS -27%
Month #17 Dec. 2021 $VMEO -28%
Month #18 Jan. 2022 Cash 0%

Total portfolio return: 17%

In January I didn't make a buy— markets have fallen a ton and there isn't necessarily any mandate to buy a new stock every month. Roku and Pacific Biosciences have gotten torched; everything bought after September of last year is down 30%.

Addition for February: Opendoor $OPEN

My thoughts on Opendoor can be found here.

Opendoor is a very risky bet. They're extremely early in what they're trying to do. Over 20 years, this will likely be either a 0 or home-run.
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Question: why are some tickers green, and others red? Is that based on the most recent trading day’s change in price?
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Dylan Patel's avatar
$88.3m follower assets
$KLIC - Earnings is later this week, but I am very pessimistic.
There’s a triple whammy here. Let’s not forget the CEO sold a lotta stock recently…
  1. China lockdown. Lam Research and KLA have had huge issues getting deliveries to China, part of that is pushing revenue out to the next quarter.
  2. KLIC order terms are not favorable. Because where they sit in the supply chain and their customers, they have worse terms for orders and deliveries. LAM and KLA can recognize revenue at shipment or delivery, KLIC almost always recognizes revenue at delivery. Any hiccup here hurts hard. The China issues will push on KLIC far harder, so I expect this issue to be exacerbated here vs the front-end semi-cap.
  3. Wire bond temporary saturation. There are over 10 OSATs with >$100M revenue, so it is hard to judge the market, but looking at the 3 largest, ASE, Amkor, and JCET, they are scaled back wire bond orders significantly in Q4. KLIC trades on the order book right now, for a variety the of reasons, investors do not care about the cash on hand or buyback story. They don’t care about miniLED, TCB for photonics, or the battery business. We do expect wire bonding orders to reaccelerate at some point this year because capacity is not anywhere close to ready for the flood of trailing edge semi coming online, but for current fabs, we have plenty of capacity at Tier 1 OSATs and Tier 2’s/3’s are somewhat overbuilt.
That said, stonk cheap, so how much can it move.
Interesting note about how KLIC recognizes revenue at delivery while LAM and KLA can recognize revenue at either shipment or delivery. Is that just an internal accounting decision? Or is there a further business reason for this?
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Upcoming Earnings Calendar (Jan 31st- Feb 4th)
Hey guys!

Here's the earnings calendar for next week! Here's what I'm interested in:

  • $XOM - Insights on the global oil market.
  • $GOOG - Strength of the digital ad market + growth of YouTube (since $NFLX slowed down).
  • $FB - Comments on their strategy to monetize Whatsapp (I don't expect any, but one can hope).
  • $SPOT - They recently expanded to other markets, so maybe they can maintain accelerated growth, unlike Netflix.
  • $AMZN - AWS and Advertising segment growth + impact of the increase in 3P fees.

What are you looking forward to next week?

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

MON:


TUE:


WED:


THU:


FRI:
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Dylan Patel's avatar
$88.3m follower assets
Advanced Packaging Part 3 – Intel’s Curious Bet on Thermocompression Bonding, ASM Pacific, Kulicke and Soffa, and Besi TCB Tool Landscape
Intel co-developed a thermocompression bonding tool which they own hundreds of. TCB is a key enabler in their advanced packaging strategy and a key differentiator versus their competition such as TSMC on a cost and integration basis.
Compound Collaboration, Month #17
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.

It is one of the main reasons why I invest.

Performance from the first 16 months:
‌‌Month #1 Aug 2020: $ARKK +14%
Month #2 Sep 2020: $ARKG +0%
Month #3 Oct 2020: $BTC.X +286%
Month #4 Nov 2020: $BTC.X +146%
Month #5 Dec 2020: $NVDA +120%
Month #6 Jan 2021: $VT +17%
Month #7 Feb 2021: $PACB -32%
Month #8 Mar 2021: $TSM +9%
Month #9 Apr 2021: $KLIC +18%
Month #10 May 2021: $TTD +32%
Month #11 Jun 2021: $ETH.X +73%
Month #12 Jul 2021: $ETH.X +61%
Month #13 Aug 2021: $ROKU -37%
Month #14 Sept 2021: $ETH.X +24%
Month #15 Oct. 2021: $RBLX +36%
Month #16 Nov. 2021 $APPS -7%

Total Portfolio return: 53%

This month's addition: Vimeo

Quick Thoughts:

$VMEO has 200 million users, and less than 1% of those are paying subscribers.

Vimeo is shifting their strategy towards enterprise. They're going to start charging "per seat", which means that if one person in an organization is using Vimeo, it is easier to get other people in that organization to become paying subscribers as well.

70% of existing paid users were one free users. So their current users are a great place to start converting people.

This is a bet that this new business model takes hold.
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