Some things and ideas: June 2022
Some random thoughts on articles that caught my attention in the last month. Note that I try to write notes on articles immediately after reading them, so there can be a little overlap in themes if an article grabs my attention early in the month and is similar to an article that I like later in the month.
My monthly overview (Monthly recurring piece)
I consider YAVB my “empire” with four core pieces: this blog / substack (the free side), the premium side of this blog, my podcast (also on Spotify, iTunes, or YouTube), and my twitter account. You can see my 2022 vision and goals for the empire here. If you like the blog / free site, I'd encourage you to check out the pod, follow me on twitter, and maybe even subscribe to the premium site!
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If you're launching a subscription service, or a new blog, or you're an investor who has done some really good research and wants to get some more eyeballs on it, please drop me a line and let me know. If the quality is there, I would love to link to your blog post or subscription service or research (and if the quality isn't there, I'm happy to provide feedback! I have done so with several services and I think my advice is good / appreciated / helpful!), and I'd love to have you on the podcast to talk about all of it. I can't promise anything, but most podcast guests / people I've linked to have been very happy about the reception / feedback they've gotten (I've even been called the king of the sub bumps / almost as good as Twitter / a big sub bump, and I've generally heard from investors with LPs who come on the podcast that they're delighted by the response). My DMs are always open, so feel free to slide into them if I can be helpful!
A bonus note: I get asked from lots of people about how to break into the finance industry. I detailed it more here, but my top advice would be to go out and start a substack.
Man it has just been an absolutely brutal month in the markets. I noted last month I was quite bullish, and obviously that’s proved short term a little too optimistic.
That happens in markets. No one can time the bottom. What I can tell you is this: things always look darkest right before the dawn. Maybe markets are headed lower from here, maybe they’re not. But fear is off the charts* and in general there are lots of things that look very attractive. If you’re putting money to work today, I think you’ll be very happy with the returns over the next three to five years.
*I realize there are better ways to gauge this, but seriously fear is rampant. The “CNN Fear & Greed Index” has been flashing extreme fear for a month, and every investor I talk to trips over themselves to express bearishness on the market.
Opportunity in energy?
I remain absolutely perplexed by the share prices of energy stocks across the board. Energy stocks have been just absolutely demolished over the past few weeks, and many are pricing in future earnings power that is completely out of line with where forward energy prices are now.
An example might show this best: consider BSM (I did a podcast on them last year). The stock’s current dividend is $1.60/year; however, they pay dividends off trailing earnings. If the current curve holds, trailing earnings will be materially lower than forward earnings because trailing earnings include both hedges (which were done at commodity prices materially below current prices) and because the forward curve is materially higher than trailing energy prices even without those hedges. The combo should drive significantly better realized prices for BSM, which will dramatically improve earnings without any additional wells being drilled on BSM’s lands (though I’d expect a lot of additional wells get put online as well!).
As I write this, BSM’s stock is trading for ~$13.60/share, so you get a ~12% dividend yield that should be growing pretty quickly given the current energy curve (and that’s before factoring in the likelihood of increased drilling on their land).
So BSM is cheap. But I chose it for a specific reason: BSM’s stock is roughly flat this quarter (It was ~$13.50/share on March 31, 2022 and it’s $13.60 today). The energy curve across the board (see screenshot below) is way up over that time frame: medium term oil prices are up ~5% while medium term nat gas prices are up ~15%. Plus, prices have come down from their mid-May peaks, but prices were even than current strip higher intra-quarter, and BSM is not completely hedged, so they enjoyed some way above average profits intra-Q as well.
Today you can buy BSM at the same price as you could at the start of the quarter, but their prospective earnings level is much higher and we’re one quarter closer to all of their underwater hedges rolling off.
I used BSM as an example, but honestly there are plenty of other companies I could have pointed too. I’m just trying to highlight there’s a massive mismatch between the earnings the energy companies would do at the current curve, and where these companies are trading.
Maybe bears would say, “But Andrew! These are energy companies. They will do something dumb with their cash flow (like pay huge premiums to buy competitors, or go on a wild drilling binge). Plus, you’ve got massive terminal value risk with these (maybe they’ll make a ton of money in the short term, but in the longer term these companies are in some type of structural decline).
That might be true…. but at the current level of earnings a lot of companies are returning so much cash flow that their terminal value will just be gravy, and it would be difficult for them to “bad capital allocate” their way to negative returns.
Consider, for example, CHK. They were at a conference last week, and they put out a detailed guide to what they would earn / do over the next five years at current energy prices. As I write this, their market cap is <$11B. The company is saying they’ll do $14B in FCF and return $9B of that to shareholders, so they’ll return almost their entire market cap and have an extra $5B in cash left over.
Obviously there are lots of risk. Maybe the energy curve collapses. Maybe CHK is flat out lying to you and plans to light all of that cash flow on fire. Maybe the ground opens up and swallows all of CHK’s assets. Who knows? But there is a massive mismatch between the energy strip and the price energy companies’ stocks are trading at, and the companies are gushing so much cash that the market is going to be proven right or dramatically wrong on pricing these companies below the strip very quickly.
Nerd Corner (Monthly recurring piece)
There’s no hiding it; I’m a massive nerd. I read 3-4 fantasy books a month, my favorite past time is playing board games with my wife and friends, and I religiously watch every new entry in the Marvel Cinematic Universe (MCU) and listen to fantasy show recaps on Binge Mode (so much so that I even did a Twitter Space talking about the MCU!). Plus, I was an eager supporter of the Brandon Sanderson Kickstarter (yes, I splurged and went for the hardcover books).
Anyway, I figured a few of you are nerds like me, so I’m starting this segment to give recs of what I’m nerding out over currently, with the hope that you’ll either try it and enjoy it or recommend me similarly nerdy things that I’ll enjoy. This month’s recs:
I am DEEP into the Stormlight series and it is unbelievable. I finished Words of Radiance (stormlight book #2) and Edgedancer (a novella that serves as book 2.5) and started Oathbringer (book #3). They are just incredible.
Honestly, normally I read more than a book or two a month, but these books are big. 1k+ pages per book. But it’s well worth it; the worldbuilding and plotting Sanderson is doing with this series is just incredible.
PS- outside of my monthly recs, I constantly get asked what my favorite fantasy books are. So I’m just going to throw this list out monthly:
Kingkiller is probably the best books I’ve ever read; waiting for the third is agony.
Gentleman Bastards is right up there with Kingkiller; the mix of fun and world building is outstanding.
Red Rising series is more sci-fi, but my god is it good. I would literally stay up all night to read every book the day they came out (note: I’ve only read the first trilogy; I’m going to read the second when the last book comes out later this year).
If you’re looking for something a little more under the radar (most of the books above are widely regarded as some of the best fantasy books / series ever), the Licanius Trilogy was fantastic.
First Law trilogy is excellent. It can get a little brutal though; there are a bunch of sequels and spins, but I’ve never been able to finish them because one of them got so brutal I just put the book down and never picked it up agia.
The Cradle series probably isn’t as “good” as the books above, but I binged them and every fantasy fan I’ve recommended them to has said something along the line of “I read all ten books in two months after I opened the first one.”
Podcasts (Monthly recurring piece)
I launched the Yet Another Value Podcast in August 2020; the goal of the podcast is to do a deep dive into a high conviction idea from a sharp investor. No talking about the investor’s philosophy or history; just one well research idea broken down (I provided a longer piece on my vision for the podcast at the start of 2021). They've been a blast so far.
A big update: I moved the podcast to a dedicated section of this blog. If you already subscribe to the podcast, no need to do anything. If you don’t….. well, you should!
This month’s podcasts:
Other things I liked (Monthly recurring piece)
If you haven’t watched the wire, it’s one of my favorite shows ever. If you have watched the wire, we own this city on HBO is a spirtual successor and excellent!