5G & Cell Tower REITs

Hoya Capital posted a view on the big Cell Tower REITs. While their update is one of the best they’ve produced recently, I provided the following feedback.

@Hoya Capital Real Estate one of your better pieces imho. this is a complicated space and I would like to see a ‘usage’ view on the tower business contrasting 2 major usage models – a) consumer mobility (aka phones) and b) machine to machine communications. I believe that the latter in the 5G game will generate the majority of the data eventually (at least 5 years out). Have you all looked at that business driver vis-à-vis the tower REITs to determine if the usage models will change REIT pricing power?

I will update on their response if received. This is a very complicated space and investors are putting down big $ with little understanding. To follow up on my post yesterday … due diligence is required and can be hard work. Carry on!

Financial due diligence – reminder

A recent post at SA got me going … i own a small slice of this company and had missed this in my financial analysis due diligence. I made a mistake (was stupid), and now need to correct it. I will exit the postion quickly. Here is my comment to the author

Thank you for this analysis … I have a small portion of LAND and will discard quickly based on this as I had missed it. Seems way out of whack and with the games FPI management played back a bit, one would think the farm REITs would come to a ‘squeaky clean’ view. Not there.Also, I tried to reconcile this w/ www.investing.com/… … – no go even at the ‘roll up’ number unless the two sources are using different time periods (would be bizarre)Sad, as I too thought this was a plausible play on a real asset in limited supply … Good work on your part and reminder to all that financial due diligence takes effort.`

Hats off to the author for doing the needed grunt work, and ‘not to self’ do you due diligence better!

Heisenberg post today – corp. buybacks

Heisenberg report put out a great piece today on corporate buybacks using bank reports as is their practice. While there are political and economic arguments to be made about buybacks, that’s not their intent nor mine. Regardless of your opinion, buybacks are an element of stock selection and portfolio management. We need to understand their potential implications and risks.

Here are a couple of graphical apertifs

Source= Goldman

Caution on market values

Lane Roberts posted a great piece on current equity valuations and trends … for risk management purposes, this is a good / valuable read. These visuals from Lance suffice to get ones attention, i think …

The sky is probably not falling, but risk management needs to be fully implemented at this point, imho.

On yesterday’s Fed

The ever balanced Mr Duy posted a perspective that I found rational.

Heisenberg posted on the conflicting investment bank perspectives.

Today’s stock and bond markets responded after digesting the nuance and parsing … My personal perspective is that Powell may have dug himself out of an ugly hole into something more like normal; two key risks remain: a) liquidity in the technical plumbing as folks like to say, and b) non-predictable outbursts from maniacs with too much public air time.

‘Diligence and caution’ is the mantra going forward for risk-averse portfolio managers like me …

Ericsson’s earnings conf call – usage model spiral!

This week ERIC released quarterly earnings and held the requisite conference call. Mostly it was good news and the stock popped somewhat. I actually trimmed my position 50% with this move, as I believe lower entries will surface over next ~6 months.

With that said, however, there was a great line in the call that I am not sure people fully understand and it completely reminds me of Andy Grove’s insightful “Software Sprial” – basically the concept is that new technology surfaces new usages and those new usages continue to drive new technology – riding that sprial as INTC did with software and compute capabilities can make folks serious money. Usage models and use cases that were not before possible really drive the breakthroughs, not the technology itself (but that which it enables).

Quote (my bold emphasis):

“So the demand here is strong and when we look at early launch markets for 5G, we see a very sharp increase of data consumption among the 5G users, which indicate that 5G yet again shows that you will use your device in a different way, when you get a better service.

So if we look at — compare that for example to Europe, where we typically have weaker coverage or weaker networks as it’s more of an average compared to Northeast Asia and the U.S. And we see much lower data consumption as well. So I think the reality here is a better network drives new type of behaviors that actually also drives investment needs and drives our business. And that’s why it’s important I think that the operators also are able to charge a premium for 5G, because it will create new type of use cases.”

Global Growth – changes to 2024

Bloomberg published a great graphic on global growth in 2019 and compared to projections in 2024 – China and India will be the leaders per this article. In today’s swirl of geopolitical noise and confusion, clarity on sound investing plans are complicated. In my portfolio reviews, I am now looking more to India and Mexico with a required action to learn more about Indonesia between now and EOY portfolio strategic planning.

https://www.bloomberg.com/news/articles/2019-10-19/which-20-countries-will-dominate-global-growth-in-2024

relates to These 20 Countries Will Dominate Global Growth in 2024
relates to These 20 Countries Will Dominate Global Growth in 2024

Healthcare REITs from Hoya Capital

This was a pretty good post on Healthcare REITs, though my perspective is similar to Hoya’s (preference on lower risk segments) creates a bit of echo chamber here.

https://seekingalpha.com/article/4296372-healthcare-reits-rehab

DOC and WELL are each ~2% of my actively traded portfolio within the income growth segment. LTC is a much, much smaller allocation mostly because their management team is excellent, but the SNF is a tough business and to be mostly avoided. I am not expecting continued stock price appreciation and have recently trimmed my DOC position, but all 3 will remain in portfolio unless business changes materially.

Words chosen matter

Over the last couple of days, financial news headlines from mainline sources, especially Marketwatch, CNBC, and their peers, have chosen headlines that I see with strong bias toward painting events more negative, more bearish – interest rates and economic data.

An example from today was the jobless numbers this morning. The data was below the aggregate estimate, but MarketWatch headline was: “Jobless claims inch up in mid-september” … a true statement, but the probable audience reaction for the headline tilts negative, rather than “the number was better than anticipated” which would have been more positive.

My point here is not to highlight an incorrect bias, but that we as readers have to carefully respond and look at the data ourselves – not just the headlines. They are deliberately chosen for a narrative by that source and their motivation will always be to sell more content – not really help us make better investment decisions.

I worked with a brillant strategy person not long ago – truly brillant – and in a meeting this phrase was spoken with everlasting impact: “You have failed to realize the power of the English language”. Words chosen by news outlets have a purpose and it just may not be the same as ours.

A plausible bleak scenario

Scenario planning across many domains works for me – thanks to my early study of Shell’s work. I think thru the different scenarios and try to weed thru Plausible, Probable and Unlikely. From that, plans and contingencies and mitigations are created.

Portfolio managers in today’s environments can easily be overwhelmed with the different scenarios birthed by the seemingly irrational events surfacing around the world.

However, that does not mean you can dismiss them without considering the scenario plausible or probable. This scenario posted today is plausible – tho it bothers me greatly.

Thanks to Heisenberg report for diligently working through this over the last few weeks … it’s not crazy, but it’s scary. How do we plan for it is the key question.

India population growth

GDP is powered by population growth – workers, buyers, innovators … Most of the developed world is slowing, shrinking in some cases (political questions withheld). From a portfolio management perspective, I acknowledged that I am woefully under invested in India. This just makes my error more painful

Statista followed up w/ additional info on India – this targeting United Nations multidemensional poverty. https://www.statista.com/chart/18680/the-number-of-people-in-multidimensional-poverty-in-india/

Infographic: Then & Now India's Fight Against Poverty | Statista

5G rollout speeds so far

Another great data slice from Statista on current speed updates … a small sample size for sure, but will be interesting to watch this over time.

and a projection of up-take over time by geography (source Ericsson)

Infographic: Global 5G Adoption to Take Off in 2021 | Statista

Confusion?

After all the Fed speak today, the current interest rate futures are a bit strange, maybe confused

Near term rates are surely going down (wisely or not tbd) yet longer rates are mixed w/ 10yr flat and 30yr up … the superficial interpretation: fed lowers front end, increases inflation and “perfecto!”. Such BS – nothing is that simple. I am holding capital until some of this falls out. Younger more risk accepting traders can get in the saddle – and many will make money for sure. I just, as i’ve said countless times, want a return of my capital, not necessarily fantastic returns on my capital.