Nathan Worden's avatar
$332.5m 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.
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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
Jensen Butler's avatar
"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
Nathan Worden's avatar
@jensen Exactly— if Ray Dalio is to be believed, a change in reserve currency is closer to 150-200 years and coincides with empire collapse.
Eric Messenger's avatar
Nice breakdown and an absolute gem of an idea. I have custodial accounts for both of my children, 17 & 18, and have done my best to teach them the real rules of capitalism. I was given the rules to Sorry at birth, had no idea I was born into a game of Monopoly until I was like 30 years old. Now I am doing all I can to provide a financial education to my children. Wish I would’ve been into investing early enough for it to be a shared collaboration. It’s what I’ve attempted to cultivate for the past 3-5 years, once they really showed an interest in money. Props👍💪
Nathan Worden's avatar
@wall_street_deebo Thanks Eric! It's incredible how powerful passing along those lessons are.

Getting them started in their teens is a huge leg up.

I'll have to compare notes with you once my kids are older— I have this notion in my mind (that is probably completely wrong) that my kids will just naturally be interested in investing. But like you said— they have to naturally show an interest in money. For some it's just not that interesting.

It's easy to forget that if you're an investing enthusiast... you're actually a bit of an outlier!
Ayesha Tariq, CFA's avatar
You know I love the new pick. 😊

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