The market value of my portfolio plus distributions grew a bit in August, with distributions providing most of the increase. It’s market value again set a new month-end high.

So here we are with the US economy humming along and corporate profits setting records. The S&P 500 keeps creeping upward even as the hyperscalers have been losing ground this summer amidst skepticism over AI.

What is endlessly strange is this: my portfolio is invested in hard asset companies selected to generate income and then to survive the AI apocalypse. Though it benefits from a strong economy, not so much from tech. But still my portfolio value has kept going up. Its month-end market value has increased every month so far this year (with only two of those months boosted by eventual gains from very long-term investments).

The Wall Street Journal provided some context this morning:

So far, there are few signs that the factors driving growth will wane in the near future, said Torsten Slok, chief economist of Apollo Global Management.

“As long as the AI boom continues and the stock market continues to be elevated, and we continue to have strong consumer income growth, the consumer will continue to be in good shape,” he said. But if the promise of AI fails to justify the massive investment, “we will be having a different conversation.”

Economist Scott Grannis reviewed key monetary and macroeconomic evidence this week and concluded that we face smooth sailing ahead. The thing is, looking at his charts one also would have said smooth sailing ahead in 2006. I remember thinking about that at the time and deciding then that the sailing ahead did look smooth. Oops.

Ahmed Husain notes this parallel:

In March 2007 Credit Suisse published a chart of a trillion dollars of adjustable-rate mortgages contractually due to reset over the next two years. Every desk in New York and London saw it. Every loan on it was still performing, because every borrower was still inside the teaser, and the market kept buying because it believed the exit would come before the reset.

Compute has the same wall. The signing boom of 2025-26 guarantees a billing boom in 2027-28, the way the 2005-06 mortgages guaranteed the 2007-08 resets, and for the same reason, which is that the delay was written into the instrument. More than $2.3trn of compute contracts sit on the books of the four biggest clouds, signed and not yet billing. Oracle’s grew 360% in one fiscal year. Groundbreaker, a Substack that built the wall contract by contract in a piece called The Teaser Period, has about $700bn switching from signed to billing in 2027 and $800bn in 2028.

It is a mystery whether those hyperscalers will be able to make enough to cover those bills. There may not be enough expensive demand to pay them. Color me skeptical.

Those companies may well be overbuilding data-center capacity, which definitely would rhyme with history. In addition, models much cheaper than the frontier LLM-based ones will prove able to handle many needs.

By the end of 2028, we should know more of the answer as to both what demand for big data centers will be and whether they are overbuilt.

My view remains that the cheap statistical correlations enabled by LLMs, though useful, is not thinking and cannot do what thinking does. So these models will actually prove able to do far less than the hype has claimed.

This was not true of the prior technological breakthroughs that drove previous cycles of over-investment. The basic capabilities of the technology were not wrongly promoted. This aspect drives my expectation that the hangover this time will be worse.

Pundits such as Spencer Jakab of the Wall Street Journal keep telling me to invest in growth companies and sell stock to generate income. But he and other advocated have no good answer when I ask what about a repeat of the 1970s, or the 1930s (I asked him). But here I am, living on a fraction of my dividends and watching my portfolio (plus distributions) beat the S&P 500.

This is not passive. Selective buying and selling of securities has boosted my gains. Buy low, sell high, you know.

I expect the market value of my holdings to drop when the bottom falls out of AI. But it will drop less than the value of companies more closely coupled to the AI buildout. Overall, earnings multiples should drop enough to better align with the history before the Great Recession.

Still this may be a few years off. There has been quite a bit of recent coverage of how incredibly long it took for the collapse in value of companies driving previous overbuilding of infrastructure for new technology.

Meanwhile, my companies will be able to grow earnings and dividends, whether for one month or many years. And their prices may even do well if we get nothing deeper than the Great Recession.

Status and Perspectives

Between recent gains and those in my other investments, the value of my portfolio plus distributions is up 39% YTD. The total value (see below) of my portfolio is 167% of what it was on 1/1/2020. Curiously, that is a bit more than the total return of the S&P 500 over the same interval.

REITs and Energy are not sectors with high earnings growth and corresponding risk. Instead, they are niche markets often considered treacherous by the ignorant, but also prone to mispricing, which provides opportunity.

My goal is to invest only in firms I know well through deep study. Most of my investments have been in quality companies that were undervalued in the markets. Only a small fraction have been in riskier firms where I see good potential for stronger upside. My response to the positive market action of the current moment is to wait, diversify further, and generally play defense.

As a retiree I care most about dividends. The companies I invest in have nearly all been growing their dividends, as detailed in my 2025 annual review. The point here is NOT so much current dividends, because the total return advocates are right that one can sell stock.

Instead, the point is to have that forward cash flow established when the bottom falls out of the market. While there are always a few firms that have trouble and cut their dividends during such periods, overall dividends have held up during past market crashes.

With my dividends at 2x my minimum target, I can let them fluctuate in response to investment opportunity. It will likely take the next bear market to see them move up another step.

My subscribers get trade alerts, deep dives into companies, and other useful material. My continuing annual subscribers get direct, real-time access to the details of my portfolio and trades.

[Disclosures: The present article was produced by editing prior material. I make no claim that any of it is original text. Also, this update is through August 30.]

Markets this Month

The market moves in my sectors have become more volatile in recent months. Overall, they have been led by oil producers. Here is the last 3 months for a few oil producers and the WTI oil price:

The cash flows produced by oil producers respond disproportionately to oil price changes, since revenues then change more than costs. Toward the end of August the oil price and their stock prices decreased as hope for increased transport through the Strait of Hormuz grew.

Midstream-energy stock prices did not change much in August overall. The markets have loved what Targa Resources (TRGP) has been doing, including their recent big new deal with Exxon-Mobil (XOM). Here are four of the midstreams YTD, along with the Alerian AMLP ETF in magenta:

REIT prices dropped a couple percent on net across the month. Here is my favored ETF for sensible monitoring of that sector, shown YTD:

The mean price here has been steady since May, with fluctuations of about 400 bps.

My REIT holdings are entirely in solid companies with very well covered dividends. They are in core economic sectors not easily disrupted by events.

On average, the ten I now hold are up about 5% YTD in price. They all dropped in August, likely reflecting interest rates. Only three have a net drop YTD. We will see where this goes next month.

The chances seem good that energy and REITs will remain decorrelated with each other and with the S&P 500, and internally diverse as well. I like owning a collection of firms across those sectors.

My Context

My secure income covers nearly 80% of my current spending budget, before planned gifts. At the moment, the remainder comes from various paid work.

The secure income includes social security, a pension, and a collection of annuities. Nearly all those sources have escalators of either 2% or inflation.

My dividends from “Go-Fishing” or otherwise very secure positions — firms likely to grow dividends at least with inflation — also could cover more than 40% of my spending. So if work stopped or when it stops, current spending is covered without drawing down the portfolio. In the meantime I will use those dividends to grow the portfolio and to provide legacy spending.

Today my emphasis is defense and those Go-Fishing and similar positions, and cash, make up more than 80% of my liquid portfolio. Almost none of the rest is speculative, in my view.

Dividends are the goal but we also know that chasing yield is a losing game. And we know that growth of portfolio market value can be a path to affording larger total dividends.

Now for some discussion of the past month and specific holdings.

Read more

Uranium is a complicated metal with only a few uses. The gigantic nucleus of the Uranium atom releases a lot of energy when it is split, usually by bombardment with neutrons. It’s primary applications have been fueling nuclear power plants and nuclear weapons.

Uranium is very dense, up to twice the density of lead, making it useful for counterweights and for radiation shielding. It also is a valued military material, for the same reason.

But wait, isn’t Uranium radioactive?

Uranium has two common isotopes, U-325 and U-238. The natural abundance of U-235 is 0.72% of the total. Natural uranium is only mildly toxic and emits only (alpha) particles that are stopped by the skin. You just don’t want to eat or breathe it.

The Canadian CANDU fission reactors operate with natural uranium but require a lot of heavy water. Most of today’s commercial fission reactors need uranium enriched to 4% U-235, give or take a bit.

There is also Oklo, the Earth’s 2-billion-year-old, only known natural nuclear reactor, in Gabon. Discovered in 1972, it consisted of multiple underground reactor zones where self-sustaining nuclear fission ran naturally for hundreds of thousands of years.

Advanced fission reactors, including most Small Modular Reactors (SMRs), need more-highly enriched fuel, up to 20% U-235. Nuclear weapons require enrichment to at least 90% U-235.

1. Fission Reactors

The primary source of demand for Uranium is fission reactors, so our focus will be there. The history is relevant and is the reason I have steered clear of investing in the sector.

The anti-nuclear movement turned its attention to fission power in the 1970s. Their positions never made rational sense, and one can question the motivations of their core advocates. There was also plain old greed; the family of Jerry Brown, an occasional governor of California, was heavily invested in natural gas and did what they could in opposition.

In the same period came the rise of regulatory lawfare against any undesired structure or activity, creating the inability of the modern USA to accomplish much of anything. You can see the impact on the construction times and then cessation of activity in the US, here:

Europe did this to themselves too. Meanwhile, Asia has continued to build reactors in well under 10 years.

Increasing construction time adds a lot of cost, mainly from accumulating interest expenses. So the pattern above translates into dollars per watt, as you can see here:

The issues with cost and delay are politically generated, and are not inherent to the technology. Today in the US there seems to be some progress on permitting reform generally and nuclear regulations specifically. This seems to be sufficiently bi-partisan to have legs.

Meanwhile there was the specific movement in opposition to nuclear power. For a long generation of leftists this opposition was a shared religious value, just as opposition to fossil fuels has become a shared religious value for the left today. We more or less had to wait for the old generation of leftists to die off before opposition to nuclear power could fade.

In the meantime, many scholars and individuals had taken a clear-eyed look at the facts and decided that nuclear power was safer and environmentally less impactful than other options for powering human society. The issue was cost.

Meanwhile reactor design has not stood still. One example of the current state of the art is the Westinghouse AP1000. A key aspect is that it is passively safe. Quoting Westinghouse:

In the event of a design-basis accident, such as a main coolant-pipe break, the reactor is designed to achieve and maintain safe shutdown conditions without operator action, and without the need for ac power or pumps. Rather than relying on active components, such as diesel generators and pumps, the AP1000 reactor relies on natural forces - gravity, natural circulation and compressed gases - to keep the core and the containment from overheating.

The AP1000 does need some additional water to be supplied, from onsite reserves, within 3 days and until day 7. After that no action is needed for the reactor to cool down indefinitely.

Had the reactors at Three-Mile Island and Fukushima had these features, those accidents would not have damaged the reactors.

Some other aspects of the AP1000 have safety and/or economic benefits:

• Features 50% fewer safety-related valves, 35% fewer pumps, and 80% less safety-related piping than previous pressurized water reactors.

• Uses leak-tight, maintenance-free pumps that completely remove the need for complex external shaft-seal injection and cooling support systems.

• Requires 45% less seismic building volume, grouping critical safety gear compactly inside the containment structure.

• Employs large structural steel and concrete modules built off-site and assembled simultaneously.

There are 6 AP1000 reactors in operation. The two in the US suffered massive cost overruns related to regulatory approvals.

A total of 22 AP1000 reactors are under construction or in progress in China or the US. Also, the AP1000 design or localized derivatives have been selected for national nuclear energy programs in Poland, Ukraine, and Bulgaria.

Several of these features mean that the AP1000 should end up both cheaper to build and safer to operate than the older reactors were. This assumes that the various countries involved can stay out of their own way.

In June the US DOE made a loan commitment “to finance the purchase of “long-lead time items needed to rebuild America’s commercial nuclear supply chain.” The loans are intended “to help finance up to five projects to build a total of 10 new AP1000 reactors, with construction aimed to begin by 2030.”

There are quite a few other advanced reactor designs being marketed, in addition to the AP 1000. The World Nuclear Association lists 15 of them.

The IAEA speaks to the total number of reactors in use and under construction. “There are currently 416 nuclear power reactors in operation in 31 countries, and 63 are under construction in 15 countries.” Here is reactors by construction start year:

One can see that, after the 1980s the rate of starts plummeted. China began rapidly building plants in the 2000s and accounts for more than half the starts since 2005. Other countries with reactor starts since 2020 include Russia, Egypt, Turkey, Bangaladesh, Pakistan, India, and South Korea.

Reading the news makes one think that there ought to be a surge from developed countries, but we do not see it in the above. It pretty clearly is coming though. The world now has 123 reactors that are officially planned and 323 more reactors proposed.

Countries with double-digit numbers of such reactors are Canada, China, India, Poland, Russia, Sweden, the UK, and the USA. But the USA is for now a minor player, with only 25 proposed reactors and none planned.

All these reactors will not get built. But it certainly seems that a lot of them will, whether or not the USA does much.

Even without that, there are already numerous life extensions and restarts. It has become clear that the initial plans for 40 years of operation were far too conservative. Expect most of them to end up with at least 80 years. Plus, three in the US and 18 in Japan are scheduled to restart, and more may follow.

Demand for fuel seems likely to rise 25% to 75% over the next 15 years.

I have been deliberately slow to take any of this seriously. Part of it is clearly due to the thrashing about of the Net Zero advocates, as they realize their weakened political position.

Europe in particular is resisting the realization that reliable, secure electricity based on wind and solar are hideously expensive if feasible at all. Wind droughts are real. So are cloudy spells, and they often come together. The only European country that is seriously moving on new reactors is Poland, a country in some ways too sensible to be considered part of Europe.

Much more of the rest of the world seems to want more of all sources of power. China has led the way on this, although you won’t see the story told that way in the mainstream media.

Every approach to electricity generation has its weaknesses, some more than others. What you prefer is a mix of sources, to be able to supply secure, reliable energy.

The weaknesses for nuclear include initial cost (operations are cheap cheap), adequate cooling water (threatened during droughts), and fuel supply. Fuel supply takes us back to uranium mining.

2. Uranium Mining

Between mining uranium and delivering fuel assemblies to reactors there are several steps. These are usually labeled refining, milling, conversion, enrichment, and fuel fabrication. These all matter; they all have the potential to make reactor supply more difficult and any one of them can impact the price for mined uranium.

The delivery to the reactor depends first of all on mining. The price chart for “Uranium” is rather scary, showing a rapid rise since the pandemic:

The big spike in price near 2008 was idiosyncratic. It was partly due to mining disasters and partly to depletion of stockpiles from dismantled nuclear warheads. These temporary effects have long since dissipated.

But today the price has more than tripled off its lows.

A joint report by the Nuclear Energy Agency (NEA) and the International Atomic Energy Agency (IAEA) lays out the supply and pricing story quite succinctly (emphasis added):

In conclusion, while sufficient uranium resources exist to meet demand for nuclear power generation in both low- and high-growth scenarios through 2050 and beyond, substantial investment in new mining projects will be essential. Given the long lead times for project development, identifying and advancing new projects in the near to medium term is crucial to avoid potential supply disruptions. Sustained adequate uranium prices will be required to drive new production, support exploration to replace depleting resources, and justify investment in innovative extraction techniques for unconventional uranium sources.

Here we have a big projected increase in uranium demand on top of a typical price cycle for any natural-resource commodity. The price has to rise enough and look sustained enough to make it profitable to restart more costly sources and to incentivize investing the money to increase production. Because these increases in supply are slow to start and slow to begin producing, the commodity price routinely overshoots any sensible mid-cycle price, sometimes by a large factor.

Fuel demand dropped after Fukushima, pushing Uranium prices per pound down from about $40 to $20. The world nuclear association shows production of yellowcake dropping by 28,000 tonnes from 2016 to 2021, from a 2016 peak of 74,000 tonnes. That was a reduction of 62 million pounds:

By 2025 mining production of yellowcake was back up above 70,000 tonnes (154 million pounds). Several sources including the World Nuclear Association puts reactor demand at 68,000 tU (80,000 tonnes of yellowcake), corresponding to nearly 180 Mlbs of yellowcake. The latter is an oft-cited number for present demand.

So it appears that Uranium production is in deficit by something like 10,000 tonnes of yellowcake (22 Million pounds). You can see in the table that production has risen very rapidly since 2020, which means a lot of larger, outdated numbers are floating around.

That 10,000 tonnes is in the ballpark of the amount of secondary supply that has been produced by fuel enrichers during the past decade plus of low demand for enrichment. But that is reversing as rising demand for uranium leads to increased demand for enrichment.

The numbers in the table about also suggest that idled mining capacity might be near 4,000 tonnes or 10,000 pounds, but the story is not so simple. Cameco, for example, has been increasing the production of its best mines while leaving some more costly ones still idled for now.

The table of idled mines as of July 1, 2024 from that aforementioned report, in combination with the above, would imply that there remains well above 10,000 tU/yr (200 million pounds) of idled capacity. The projection below from the WNA agrees with this estimate.

Notable is that production from existing, currently idle, and in-progress mines will begin a sharp decline after 2030. In contrast, demand will be going up, as detailed above.

Table 2.4 in the NEA/IAEA report shows that requirements might be above 68,000 tU/yr today but might not be until the 2030s. Here is their table:

Note that each year has a low and a high estimate. For 2050, the increase from current production ranges from 30% to 100%. These are lower increases than one finds in various hype, but are consistent with my estimate above.

If the Uranium market matched supply and demand in real time, like most commodity markets do, we might have to wait until supply dropped and demand rose after 2030 before seeing big pressure on the Uranium price. But that is not how it works.

3. Contracting

Where a deficit remains is in contracting, and it matters. Nuclear Power Plants (NPPs) face this life cycle for their fuel after the mining:

• Milling: 3 months

• Conversion to uranium hexaflouride gas: 1 month

• Enrichment: 8 months

• Fuel fabrication: 1 year

• Storage at reactor: 1 year

• Time in reactor: 3 years

• Total: 3 years to reactor and 6 years until the fuel is removed after depletion

So to sustain a steady state they must order fresh fuel equal to a third of the reactor capacity each year, which they will use in 3 years. The result is that NPPs typically contract for fuel 3 or more years in advance.

This is known as long-term, or just “term,” contracting. Notably, quoting major miner Cameco: “Uranium does not trade on an open market like other commodities. Buyers and sellers negotiate contracts privately.” Cameco provides this plot on pricing:

You can see that after a period when spot and term prices came together, there is now more volatility. Term prices have moved above spot prices and industry observers expect them to stay high.

In this recent contracting report by Sprott Physical Uranium Trust they wrote:

Uranium is typically secured through multi-year term contracts, with deliveries often beginning several years after signing. It must then move through conversion, enrichment and fuel fabrication before reaching a reactor. As a result, utilities will need to begin securing supplies for the early 2030s well before those delivery years arrive.

It is key that these contracts are typically for several years, and sometimes 10 or more. Sprott comments:

Utilities have benefited from favorable contract terms in legacy contracts, which provided flex options that allowed them to increase the quantity of uranium deliveries under existing terms. As legacy contracts expire, this supply buffer will disappear. Each year of contracting below reactor consumption leaves more future demand to be covered in later delivery periods.

Utilities can defer purchasing, but they cannot shorten the time required to develop a new uranium supply.

What blows my mind is that since Fukushima the NPPs have not bothered to fully lock in their fuel supplies on term contracts. Here is a plot from that same report by Sprott:

The NPPs have been relying on that flexibility in current contracts, but doing so shortens the window before they need new contracts that extend further into the future. Uranium is a small fraction of their operating costs, at about 20%, but it is not completely negligible.

So if NPPs were prudent, they would have been contracting for full replacement rate years in advance. But they did not.

Here is the summary:

• Within about a year the NPPs in both the US and Europe need to start contracting for fuel supplies after 2030.

• After 2030 the amount of mined uranium will begin a sharp drop.

• Demand increases for the next few years will reflect restarts and the completion of a few reactors now under construction.

• Demand increases from the new wave of nuclear plants will mainly be in the mid-to-late 2030s.

It might seem that tripling of the long-term price off its bottom in 2020 represented enough to impact supply. Not yet, though. It will take much higher uranium prices.

These factors together set the stage for an explosive increase in the Uranium price. This will be necessary to incentivize the restart of higher-cost uranium mines and the opening of new ones.

Strategist at TSCS emphasizes that the contracting cycle is the main thing:

So here’s the thesis. I’m not bullish “inevitable demand.”

That’s been the most crowded sentence in this sector and Cameco at 70x forward earnings has already been paid for a lot of it. I’m bullish the contracting cycle: the multiyear process, badly mispriced by everyone staring at spot, of utilities converting a decade of announced reactors into signed pounds.

Laurentian Research puts the likely turn in a more colorful way:

At some point in the uranium upcycle, NPPs wake up one morning and decide it’s time to panic. That’s when they scramble for the phone numbers of uranium producers. They get a busy signal—because every other NPP is calling at the exact same time. That is the exact moment uranium prices go parabolic.

One cannot know in which year and month the price of Uranium will explode upward from here, along with the prices of related stocks. But having it happen eventually seems locked in by the current context.

It is hard to see how the reckoning could be as much as 5 years away, which will be on the cusp of the actual decline of available mined uranium. It could be tomorrow, if the utilities wake up all at once. By 2028 they will be looking at real challenges beyond the next three-year cycle of mining and preparation.

This makes me think that the change is more likely to happen within two years than to take five. But of course you never know. This seems a sensible time to invest.

Please click that ♡ button. This helps push Focused Investing up on the Substack feed. And please subscribe, restack, and share. Thanks!

I sold Hemisphere Energy (HMENF, HME:CA) today. I like the management, a lot, but that does not remove the risk from their small size and limited assets. I sold for two reasons, in no particular order.

For one, doing so raised some cash, and I have ended up with less cash than I want for the next phase of the AI-driven cycle.

For another, as we discusse…

Read more

A lot of excitement lately has focused on natural gas production in the Permian Basin, which straddles the Texas/New Mexico border. Such gas production comes with the oil production that drives the economics. So decisions related to oil production determine how much gas is produced.

When there is insufficient pipeline capacity for the gas, and in this age where major producers no longer flare excess gas, the cost of transport often exceeds the value of the gas. This pushes the cash price negative. The recent history at the Waha Hub is here:

RBN Energy, part of Novi Labs, is an energy consulting company with a primary focus on hydrocarbons. They put out a free daily blog and a great deal of paid material. That image is from today’s blog, which as always will go behind their paywall tomorrow.

The negative price means that a producer has to pay to get rid of their gas. The price has often been negative for the past couple of years and got negative enough earlier this year to begin to impact oil production decisions.

The cure for this is to add pipeline capacity to pull gas out of the basin. This has been going on now for some time. Here is the map from RBN Energy:

And here is the list:

• The Matterhorn Express, operated by WhiteWater Midstream (WWM), has been operating since 2024.

• The Hugh Brinson pipeline, operated by Energy Transfer (ET), is just ramping up flows.

• The Blackcomb pipeline, operated by Kinder Morgan (KMI), will soon enter service.

• The expansion of ET’s Desert Southwest headed to Arizona is also underway.

The operator of each of these pipelines has significant ownership, but usually there are also several other partial owners who get a share of capacity. These other owners have usually been other midstream firms.

In combination, these pipelines will add about 9 Bcf/d of outbound capacity, compared to about 28 Bcf/d in 2025. RBN Energy’s most recent coverage of all this, before today, showed an eventual need for capacity beyond these projects, even beyond this, but not until 2033 or so.

While having insufficient capacity costs the producers money, having an excess costs the pipeline owners. In some cases these owners are using their share of capacity for their own volumes, and so are not concerned where market prices for immediate transport (spot prices) go. For those owners, such as MPLX (MPLX), what matters is to reliably get the molecules from the wellhead to the destination.

The big consequence for pipeline owners can occur upon recontracting. These pipelines are built on long-term transport contracts, necessary to guarantee that the costs get paid for. Ten years is a common term, but other terms are possible.

When those contracts are reset as they expire, the price paid for the next one is often lower. And if excess capacity has developed for whatever the pipeline transports, it can be a lot lower.

This happened around 2019-2020 with crude oil pipelines, causing big reductions in revenue for some firms. This led to one of the big dividend cuts by Plains All American (PAA).

Natural gas pipelines may be next. Until today, RBN Energy has said nothing about the Solitude Pipeline, whose Final Investment Decision was announced last Monday, August 17. This one is owned by Whitewater.

One curious aspect is that two major oil producers, Devon Energy (DVN) and Diamondback Energy (FANG) both have ownership interests in Solitude. They are seeking to assure that they can get their gas to market without being jerked around by the Waha price.

Solitude will be two 48-inch pipes, transporting a total of 4.5 Bcf/d. This is twice as much as RBN Energy forecasts will be needed by 2033 and, worse, it will arrive 3 years before that. Quoting RBN, “Simply put, it seems very likely that not enough gas will be available to fill each outbound pipeline, leaving some pipes partially empty.”

This will create risk in particular for pipelines that may recontract during that period near 2030. There are three big ones likely to be in that boat: Kinder Morgan’s Gulf Coast Express, Kinetik’s Permian Highway, and WWM’s Whistler (of which MPLX owns 30%).

Whitewater is private and Kinder Morgan is huge, but this might be significant for Kinetik. And it could impair the financial performance of the smaller owners. This is unlikely to be major but definitely could slow earnings growth. Other firms impacted may include MPLX, Western Midstream (WES), Enbridge (ENB), and Summit.

After a few hours exploration, this looks like Solitude could leave some pipeline capacity unoccupied (in solitude?) for awhile. But it seems unlikely to have major consequences, save perhaps for Kinetik.

Please click that ♡ button and restack too. This helps push Focused Investing up on the Substack feed. Thanks!

Summer is fading as the S&P 500 Index keeps hitting new highs. This is despite growing skepticism as to how profitable AI will be. All the hyperscalers show YTD total returns below the 14.5% of the Index and Meta and Oracle are both down for the year.

The list of the Index ranked by YTD gains is informative. Memory firms are showing the largest gains, and no wonder with the memory shortage. The top 74 have YTD gains above 40%. One can notice that many of those firms are AI-adjacent, involved in the massive buildout of related infrastructure.

As best I can tell, and I’ve read a lot of historical analyses, there has never been a massive wave of capital investment in infrastructure to support a new technology that has ended well for the owners of companies making those investments. The fact that the technology — some examples being canals, railroads, electrification of factories, and fiber optics — has produced major societal benefits in the long run did not save the investors who funded the growth. [A more lengthy discussion of some of these cases, along with some useful discussion of capex, is in Matt Franx’s article today. (Capex: The Good, the Bad, and the Ugly.)]

Today’s massive investments are going into infrastructure to operate Large Language Models (LLMs). These have almost become synonymous with “AI” in common use, although many other forms of advanced computing are sometimes described as AI.

The danger is larger at present than it was in any of those previous cases, because the hype vastly exceeds what can happen for LLMs. (Canals might be an exception.)

Note that I said “can,” not “could” or “will.” An LLM is a software system that uses statistical correlations to process pre-existing language. It does not have human reasoning ability and develops none of the human intuition that comes to humans from experience.

Here is the the problem in images. We started with this:

Making cars better and better has improved their ability to deliver energy to wheels, to avoid breakdowns, and to protect passengers, among other things:

But what did not happen was this, predicted on The Jetsons in 1962:

Here is the point. There is no sense in which the Jetson’s space “car” is a straightforward improvement of today’s automobile. Fundamental qualitative changes would be needed, in vacuum tolerance and propulsion, among many other things, to transform an automobile to a space car.

And some of those changes would be transformations of systems that are present in the automobile. Others would be completely new capabilities.

To get qualitative changes in the abilities of AI would take coding models with qualitatively new capabilities (beyond statistical correlation). This is true despite the proclamations of self-promoting CEOs including Elon Musk and OpenAI’s Sam Altman about how close we are to so-called “general intelligence” or “superintelligence.”

Do not make the natural human mistake of assuming the LLMs will continue to get better just because they have so far. Or the bigger mistake of thinking that such improvements will change their fundamental nature.

What is more, there is a real risk that better, less-expensive approaches will be able to handle many tasks for many firms, who will not need or be willing to pay for the capabilities of the large LLMs. Those large LLMs may prove analagous to the canals, which were very useful until railroads came along, which happened well before the canals had repaid their construction costs.

I see real risk here across those AI-adjacent industries I mentioned above. The economic implosion seems likely to me to be huge, a major recession at the minimum.

I have no clue when that will happen.

But even in deep recessions, a large majority of the population still works. They still need

• food, pharmaceuticals, and auto supplies, and some services,

• places to live,

• places to eat, for the better-heeled patrons of most REITs, and

• oil and natural gas for fertilizers, steel, concrete, plastics, and transportation.

This perspective informs my choice of investments. These are almost all companies with strong balance sheets in industries that will be needed across whatever bad times may come.

And given my specific background, this has taken me to REITs, energy companies, and some mining.

Looking Ahead

I’ve been working to understand the nuclear fission industry and uranium mining. This sector has been a high-risk mess for decades, thanks largely to the influence of the antinuclear and “green” movements. In my view, they can never be sufficiently damned for their irrational irresponsibility.

Today, the worm may have turned on the power plants, and uranium supply appears to be in an enduring deficit to demand. The main question is whether the predicted surge in demand will be real or will turn out to have been another fantasy cooked up by what now is called the NetZero crowd, who Robert Bryce calls the anti-industry industry.

My subscribers will get my view of this question when I have one.

Personal Notes

I will get to see my first grandchild, a grandson, in early September. His parents are acting like new parents from good families always do. They are completely besotted by the baby. I love it.

I’m also excited by the new wine dinner season, with our first wine selection and menu writing session this coming Monday. That first dinner will be about a month from now.

The woods across the lake from me have moved to late-summer green:

It looks like temperatures will finally cool a bit starting this week. I am more than ready for it.

Because of a combination of the July 4 vacation week, the Tour de France, visitors, and Canadian wildfire smoke in July, my last Perspectives was in June. I aspire to do them monthly as a rule.

The other personal note: I support freedom — free minds AND free markets — and oppose slavery and its precursors — suppression of the press, suppression of speech, corruption of public institutions, and others. Because of this I celebrate the defeats of would-be dictators (Orban) and actual dictators (Putin). This will not come up often here, but if these views of mine cost me subscribers that is just fine.

Recently published material

Material since my last Perspectives June 20 has included the following 12 items. You can see it all, and search it, at https://focusedinvesting.substack.com/

Recently:

• This Perspectives article to all subscribers

• Deep dives on VICI and Matador Resources,

• Brief Notes on VICI Earnings, EPR Earnings, and the Q2 Reports by Regency and Federal Realty

• Theory pieces on Why I Prefer Dividends and how you can Lie to Yourself with Charts

• Two Trade Alerts.

• Two monthly updates, each with a preview

Paid members also have access to the Focused Investing Chat, where there is usually an active discussion going on. Check it out. Post something.

Other Resources

To find my past articles covering a given company, go to the Focused Investing home page. There is a search function to help look for past articles. Search by name or ticker.

A note on my approach to restricting access: Anything providing details of my trades and portfolio is restricted to paid subscribers, as is anything I consider to be immediately actionable. Most articles with information it seems members may act on have a preview section followed by a paid section where the real meat is.

The Google Sheets (for continuing annual members):

• The main attraction on the Google sheet is full disclosure of my live, real-time portfolio. If you are a continuing annual paid member and do not have access, please contact me.

• There are in addition a REIT assessment sheet, some data from NAREIT’s REITWatch, and a Midstreams assessment sheet, each a tab. And if you scroll down on the Current Portfolio tab, you can see limit orders, some tickers I track, and some playing with possible portfolios.

Searching the chat on mobile devices:

• On mobile devices, it can be challenging to search the chat (for paid members only) or to find past articles. To do so, you have to get into the chat so my picture is on the top left, and then punch my nose with your finger (ouch?). You will see a display with a search emoji and a link to the home page where you can search.

Please click that ♡ button. Please restack, which helps others find this newsletter. And please share. Thanks!

Today I decided to have a bit of fun with some history related to this viewpoint. One way to display the history is to compare the S&P 500 with an equal-weighted index that uses the same companies. These are SPY and RSP, respectively, in recent data but other indices for further in the past.

Daniel Khaneman taught us that human expectations reflect our most recent experiences. Here is the past decade of experience, on a plot showing growth of $10k:

Equal weighting tripled your money while cap weighting quadrupled it. So it is obvious where to invest, right?

Well, no, you should be smarter than that but your emotional core does not want you to be. We can shake things up by looking at the period from late 2003 to late 2014:

Now you nearly tripled your money in the cap-weighted SPY but nearly quadrupled it in the equal-weighted RSP.

So it won’t surprise you that if we look from 1995 to now, these to options have made almost no difference:

Whatever your point of view, you can pull data to support it!

Going back as far as I could using YCHARTS, I got to 1970:

These are nominal numbers; inflation was big in the 70s and the first part of the 80s. What you see is that the smaller large-cap companies that dominate the equal-weighted index grew more in price across the 1980s and the 2000s than did those with the largest market caps. The biggest companies decreased the gap between them during the fiber-optic buildout (late 90s) and the current AI craze.

History usually rhymes. What this says to me is that, for the large-cap exposure of a long-term investor like my kids, this is a better moment to hold equal-weighted funds rather than cap-weighted ones.

Please click that ♡ button and restack too. This helps push Focused Investing up on the Substack feed. Thanks!

The two shopping-center REITs I hold are Regency Centers (REG) and Federal Realty Trust (FRT). My recent coverage is here and here. The pair make a combined story I find fun:

• Federal has a very long history and is a dividend king.

• Regency is not only newer but also had to rework their portfolio across the 2010s.

• B…

Read more

Online, though, one sees a larger fraction of arguments favoring stock buybacks. And institutions seem very focused on this. To be clear, there are multiple motivations in its favor.

Nearly all of these arguments focus on finding better ways to get total return. As I will detail below, this misses the point.

Motivations for Buybacks

Some motivations are hard to object to:

• Companies buy back stock to avoid dilution of shareholders from their stock-based compensation.

• A few companies support dividend growth by making large buybacks. This can keep total dividend costs constant while growing the per-share dividend in proportion to the decline in share count.

But in addition, many companies do buybacks as a means of “returning cash to shareholders.” Investors who like buybacks tell me they like avoiding the taxes that would come with dividends. This is in spite of the reality that it is uncertain when and even whether one will realize the increase in value that is theoretically associated with the buyback.

Stephan Clapham had an example on his Substack:

I [looked at a] stock from a recent UK conference – it had not moved in two years. The story had not really changed and meantime this cheap cash generative stock had bought back 13% of its share capital. The business had not performed as well as hoped and there were some wider macro issues, but I wondered if I might be asking myself the same question in two years’ time – what will make this stock go up?”

Those stockholders are congratulating themselves on avoiding the pain of taxes had that 13% been paid to them. The lack of any corresponding gains is foregone pleasure, and so has less emotional significance.

Many investors would rather avoid the pain of taxes than seek the pleasure of gains. Well no wonder. From Gemini:

The concept that avoiding pain is a stronger human motivator than seeking pleasure is most famously popularized in modern personal development by Tony Robbins, while scientifically demonstrated as loss aversion in behavioral economics by Daniel Kahneman and Amos Tversky.

We know today that the evolutionary function of the brain is to serve our emotional core. One has to wonder how many of the facile and sophisticated arguments one sees for preferring buybacks are driven by a core emotion of avoiding the loss from taxes.

But my purpose for writing this is not to revisit the large pile of arguments for dividends or for buybacks.

We can note that the buyback advocates uniformly emphasize total return (and no wonder). One such advocate wrote me that studies show the dividends to largely be reinvested so the total return ends up about the same. But my point today is that a focus on total return misses the most important aspect of holding a dividend portfolio.

What Actually Matters

What matters from a portfolio is the cash it can generate, either from dividends or from selling. This is what gets you through retirement or even just a long spell between jobs.

Warren Buffet, among many others, has said you can just sell some stock to generate the cash you need. But the market value of a portfolio is not stable.

Recovery can take many years. Here is the period after the fiber-optic overbuild:

Cisco (CSCO) dropped a lot and stayed down for decades. The S&P 500 (SPY) dropped significantly and was again underwater by 2010. Exxon Mobil, in contrast, paid a dividend that nearly doubled across the decade, and the stock price rose too.

Had you been counting on selling some of your Cisco (CSCO) to fund spending, like many are doing with Nvidia (NVDA) today, you would have found your holdings depleting rapidly. And even your index fund would have depleted rapidly for a more than trivial rate of withdrawal. I had a retired aunt and uncle who had to go back to work in the wake of that crash.

There are plenty of more distant historical examples too. Recently Spencer Jakab wrote in the WSJ:

…the Treasury yield curve’s slope is positive and increasing now. … That pattern this many years into an economic boom is reminiscent of 1966…. The 1960s episode was the start of a 16-year stretch when U.S. stocks went nowhere and lost much of their buying power to inflation.

I had a different aunt and uncle whose fixed retirement income dropped in half across that period, forcing them to live in a small house trailer.

So here is the point:

The reason you want the largest possible dividends is to sustain your spending power even when the markets go to hell. The dividends may not hold up perfectly, but will do a lot better than stock prices.

Historical examples of this are clear. Here is the dividend history from the broad energy ETF XLE:

The decreases here were modest and were generally not aligned with periods of stress for the broad markets.

And here is the NAREIT plot of dividends paid by REITs:

There were modest decreases during the Great Recession and 2020, but after those events payouts recovered within a few years.

An investor should size their dividend payout to some tens of percents above their spending need or have a sufficient cash reserve. If they do that, they are likely to be able to keep their holdings intact and not have to sell them into a down market.

I dug through the history for the broad market in the 1930s and the 1970s, both periods when dividends overall were a lot higher on average than they are now. In each of those decades, the real value of dividends on the S&P 500 held up far better than stock prices.

So what I really care about in selecting among quality companies is to see a capital allocation policy under which the primary way of sharing profits with shareholders will be dividends.

Please click that ♡ button and restack too. This helps push Focused Investing up on the Substack feed. Thanks!

I saw an article headline claiming that EPR Properties (EPR) had game-changing results. So I checked it out. You can join me in a brief forensic exploration.

EPR is a REIT focused on experiential properties. (See image above or their investor presentation for examples.) My 2025 article provides my current overall view on the company, which has not changed. Great management, difficult sector, results will vary.

If you scan through their current investor presentation, you can stumble across this:

Then you can get all excited about that 15% increase in AFFO/sh (quarterly, YoY). Indeed, if they could do that repeatedly it would be a game-changer. It is also pretty much impossible for an established REIT to do that routinely, but why should an author writing about EPR be aware of that?

Looking back at the last few years is not really helpful for understanding current numbers, unfortunately. EPR was collecting a lot of rent deferred from the pandemic through 2023, so that 2024 is the first year when various earnings measures become closer to reliable without adjustment.

Working through the financials, the main source of the YoY increase in quarterly AFFO is the $18M increase in quarterly revenues. The 10-Q says this about the main part of that:

For the three months ended June 30, 2026 compared to the three months ended June 30, 2025, the increase in minimum rent resulted from an increase of $14.8 million related to property acquisitions and developments completed in 2026 and 2025.

One reason that quarterly revenues are variable for net-lease REITs is that the changes are episodic. Both acquisitions and dispositions produce step changes whose cadence is uneven.

Property expenses were nearly unchanged so the change in Net Operating Income (NOI) was also $18M. During 2025 EPR invested nearly $300M. With more favorable conditions, they have invested nearly $500M during the first two quarters this year. Dispositions and stock issuance were both tiny by comparison.

The $18M increase in NOI, annualized, is 9% of the $800M invested. Adjusting for leverage, this would be an effective cap rate of 5.4%. This is lower than the 8.5% cash acquisition cap rate because new rent begins episodically.

The result suggests that the net increase in rent-paying property from Q2 last year to Q2 this year is about $500M. The point here is not to do a precise calculation, which we cannot. But the result makes reasonable sense of the numbers.

Looking ahead, for 2026 overall EPR is now guiding to a full-year increase in AFFO/sh of 7.2%. This is outstanding but it is not 15%. There is nothing game changing here.

As detailed in my prior article, my expectation is that EPR will generate stronger returns than most other REITs most of the time, but will periodically suffer problems with a tenant or sector that eliminates years of gains.

Please click that ♡ button and restack too. This helps push Focused Investing up on the Substack feed. Thanks!

The value of my portfolio plus distributions grew again in July. Oil producers were some of it (see below) but the main cause was further information and decisions about my recent big gains discussed last month.

During the month there were two positive contributions related to those big gains. The first was the good news that one of the investments qualified for exclusion from income related to owning a Qualified Small Business Stock (QSBS) for more than 5 years.

The second was my decision to donate the legal maximum to my charities. This released most of the funds I had reserved against taxes.

My donations were made Thursday along with the note that this was likely most of my “end-of-life” contribution. This became an interesting test of my charities attention to legacy donors. Of organizations I have supported for 40 years, more or less, one director reached out to me that evening with a very personal note, a second sent me an impersonal acknowledgement the next day, and I have yet to hear from the third.

The Good Old Days

This meme from the Substack Notes feed reminded me of better days:

I suffered from that dynamic in 2020, when I invested too much on the initial drops. In 2023 I did better with it. (Before 2020, I was in my career and holding index funds.)

But those drops let me buy stocks of interest at large discounts to fair value. This produced large gains in 2021 and 2024, driving the portfolio far above its initial value.

Since then, though, the markets have been priced too highly as investors charge toward AI Armageddon like lemmings running for the edge of the cliff. And strangely, my own stocks have been charging upward too, despite being in companies that have little to do with AI.

Waiting for Godot

Waiting for the collapse that is coming is persistently boring, but necessary. My main entertainment these days, other than sports, has been watching for signs of Armageddon.

This, from Barron’s Saturday, might be one:

Ben Snider at Goldman Sachs suggests a staggering 40% of S&P 500 earnings growth will come from just two stocks: Micron Technology and Nvidia. And if anything, expectations are rising. Overall earnings forecasts have risen by 3.4% since the end of March, the most since 2021. That sets a massively high bar for the sector—one that it’s struggling to clear.

Meanwhile, I used the opportunity of my recent gains to completely reset the portfolio. Specifics are discussed below.

I’m still in Energy, REITs, and one miner. But the position sizes are now mostly more uniform (except for the MLPs) and within those areas there is a lot of economic diversity:

• REITs

  • Apartments

  • Industrial

  • Retail Net Lease REITs

  • Casinos

  • Regional Malls

  • Shopping Centers

• Midstream Energy

  • Crude Oil

  • Diversified and NGLs

  • Gathering and Processing

• Upstream Energy

  • Supermajors

  • Canadian oil sands

  • Bakken oil

• Mining

  • Tin

One area I am clear of is dry natural gas, which will suffer amidst Armageddon.

A big aspect here is that my current investments are not made with any specific expectation about the timing or impact of Armageddon. I see them as able to grow earnings and dividends in the meantime, whether that is one month or many years. And their prices may even do well if we get nothing deeper than the Great Recession.

Status and Perspectives

Between recent gains and those in my other investments, the value of my portfolio plus distributions is up 39% YTD. The total value (see below) of my portfolio is 166% of what it was on 1/1/2020. Curiously, that is a bit more than the total return of the S&P 500 over the same interval.

REITs and Energy are not sectors with high earnings growth and corresponding risk. Instead, they are niche markets often considered treacherous by the ignorant, but also prone to mispricing, which provides opportunity.

My goal is to invest only in firms I know well through deep study. Most of my investments have been in quality companies that were undervalued in the markets. Only a small fraction have been in riskier firms where I see good potential for stronger upside. My response to the positive market action of the current moment is to wait, diversify further, and generally play defense.

As a retiree I care most about dividends. The companies I invest in have nearly all been growing their dividends, as detailed in my 2025 annual review. The point here is NOT so much current dividends, because the total return advocates are right that one can sell stock.

Instead, the point is to have that forward cash flow established when the bottom falls out of the market. While there are always a few firms that have trouble and cut their dividends during such periods, overall dividends have held up during past market crashes.

With my dividends at 2x my minimum target, I can let them fluctuate in response to investment opportunity. It will likely take the next bear market to see them move up another step.

My subscribers get trade alerts, deep dives into companies, and other useful material. My continuing annual subscribers get direct, real-time access to the details of my portfolio and trades.

[Disclosures: The present article was produced by editing prior material. I make no claim that any of it is original text.]

Markets this Month

The market moves in my sectors have become more volatile in recent months. Overall, they have been led by oil producers. Here is the last 3 months for a few oil producers and the WTI oil price:

The cash flows produced by oil producers respond disproportionately to oil price changes, since revenues then change more than costs. Curiously, while these producers increased in price as oil did, after February their stock prices increased less than oil did. The market never fully bought the notion that those higher oil prices were locked in.

Today both the oil price and the prices of these stocks are back to where they were in a couple months ago. But to my mind, volatility will continue to be the story for many months, if not longer.

Midstream-energy stock prices did not change much in July. But the ones most sensitive to the AI narrative did drop a few percent:

REIT prices rose a bit on net across the month. The last week, however, featured quite a plunge. That is apparently a response to rising interest rates. Here is my favored ETF for sensible monitoring of that sector:

It was a very volatile month that ended up with a small gain. YTD REITs are up about 12%. But the final few days were brutal.

My REIT portfolio is in entirely solid companies with very well covered dividends. They are in core economic sectors not easily disrupted by events.

On average, the ten I now hold are up about 9% YTD in price. Only two have a net drop YTD. We will see where this goes next month.

The chances seem good that energy and REITs will remain decorrelated with each other and with the S&P 500, and internally diverse as well. I like owning a collection of firms across those sectors.

My Context

My secure income covers nearly 80% of my current spending budget, before planned gifts. At the moment, the remainder comes from various paid work.

The secure income includes social security, a pension, and a collection of annuities. Nearly all those sources have escalators of either 2% or inflation.

My dividends from “Go-Fishing” or otherwise very secure positions — firms likely to grow dividends at least with inflation — also could cover more than 40% of my spending. So if work stopped or when it stops, current spending is covered without drawing down the portfolio. In the meantime I will use those dividends to grow the portfolio and to provide legacy spending.

Today my emphasis is defense and those Go-Fishing and similar positions, and cash, make up more than 80% of my liquid portfolio. And none of the rest is speculative, in my view.

Dividends are the goal but we also know that chasing yield is a losing game. And we know that growth of portfolio market value can be a path to affording larger total dividends.

Now for some discussion of the past month and specific holdings.

Read more

The big picture for VICI was the subject of my recent long article. It has not changed.

But then VICI Properties released their Q3 earnings report. This prompted some discussion in our chat of an arcane item: Current Expected Credit Losses (CECL), which has a big impact on some parameters. Let’s see if it matters.

Their reported value for Adjusted Funds…

Read more

I promised in the chat to put this out, so here it is. But with the Monthly Update a few days away it will be short.

The backstory:

• This spring saw me realize some outsized gains from both my SpaceX holding and from VC investments. This, though good, was also a disruption.

• It turned out that some of those gains, from an investment in a Qualified Small B…

Read more

Matador Resources (MTDR) is yet another oil and gas company led by its Founder. Founder Joseph Wm. Foran, age 74, started the predecessor company in 1983 and founded Matador in 2003. He serves as both CEO and Chairman of the Board.

Foran played rugby at both the University of Kentucky, obtaining a degree in Accounting, and at law school at Southern Methodist University. He was one of the original inductees of the University of Kentucky Rugby Hall of Fame.

In 1983, 17 of his closest friends and neighbors contributed $270k, enabling him to start Foran Oil Company. In current dollars that is something like $25k each. Would you invest $25k into a neighbor’s scheme? This guy is clearly smart, hard-driving, and charismatic.

Little oil companies most often end their lives in a buyout or merger, but some of them prove to be the survivors. Matador survived and grew.

They described recent progress on small acquisitions in this update:

In 2025, Matador continued its long-standing “brick-by-brick” acquisition strategy, adding high-quality acreage throughout its core asset areas in the Delaware Basin. Matador completed over 690 separate transactions for approximately 17,500 net acres in acquisitions in 2025, bringing Matador’s Delaware Basin acreage total to 212,500 net acres as of December 31, 2025.

The total consideration for these acquisitions was approximately $245 million, or $14,000 per net acre, excluding capitalized general and administrative expenses. Many of these transactions involved the addition of interests in Matador-operated units that were drilled in 2025 or that are planned to be drilled in 2026. These acquisitions enhanced the immediate value of the assets and further improved the economics on the wells drilled at these locations.

Notably, Matador’s “brick-by-brick” approach resulted in the addition of 100 net locations in 2025, along with 23 upside locations, essentially replacing the locations drilled by Matador in 2025.

Over time Matador has been active in several oil and gas plays. Today, though, almost all their activity is focused on the Delaware Basin in New Mexico and Texas, lying in the western portion of the Permian Basin. Here are those properties:

The pink blocks show their acreage, with green showing some new leases. The blue blocks to the lower right show the Ridge Runner acreage discussed below.

Matador surprised the world with the size of those new lease purchases shown in green, which cost $1.1B, in a recent auction by the Bureau of Land Management. About those acquisitions, Foran said:

The company acquired 5,154 net undeveloped acres, all of which are in the ‘core-of-the-core’ of the Delaware Basin and are strategic and highly complementary to Matador’s current acreage position. This acquisition not only extends the amount and the duration of Matador’s high-quality inventory and reserve base but also enhances the Company’s current assets with increased operating efficiencies. These lease acquisitions lend themselves to extended reach laterals of three miles or more

I’ve been working to understand Matador for just over a month. During that period they have announced three additional acquisitions:

One of these is a midstream and a second is set of bolt-on properties in the Delaware. The third is 50,000 acres of largely undeveloped property in “the core of the Woodward”.

This third is particularly interesting, as development of the layer of rock known as the Woodward shale has just begun. Those properties near the southeast corner of New Mexico access the oil window shown in bright green just to the west of the Central Basin Axis:

Overall my view is that there is no surprise here. Matador has been compounding their acreage at about a 30% CAGR for many years. And they have done that with relatively little issuance of shares, especially in the present decade.

To match their historical growth rate would have meant adding 60,000 acres this year. They have done that, although the new acreage is comparatively undeveloped.

Matador’s leases lie around the circumference of the core Delaware. This is a common pattern for smaller producers in that region, with one other example being Permian Resources (PR), covered by me here.

My main concern about all these producers working the periphery of the Delaware is just how good their rock really is. If it were the best, it would have long ago been consolidated with the core Delaware assets. It is hard to quantify this aspect, of course.

[There is a remarkable amount of detail in their 10-K about their businesses. It would be a decent primer on oil and gas.]

Article Summary

This article runs long, to include and discuss a lot of technical detail. For those not up to reading it all, here is a summary:

• Matador has grown acreage, production, and earnings quite rapidly on a per-share basis. This has made them a great value creator to date.

• In contrast to most producers at their scale or larger, they are still pushing growth very hard.

• They are driving down costs like everybody else.

• They have midstream assets and committed long-distance transport, securing the ability to get their oil to market.

• They push their leverage to grow but keep working it down, so it stays only modestly higher than the sector average.

• The use normal hedging, mostly with costless collars. These do not produce realized losses but GAAP accounting sometimes makes it seem that way (and did in Q1).

• They are valued at a multiple of cash flows that is similar to that of several other North American producers, given no credit for their larger inventory and likely growth.

• If they do succeed at growing as they intend, their stock price should strongly outperform other oil producers over the next 5 to 10 years.

Overall Performance

We will start with some overall metrics, which will motivate the longer discussion to follow.

Matador has grown production at a massive rate. Their CAGR of per-share, oil-equivalent reserves from 2012 thru 2025 has been 25%:

This growth has largely reflected growth of their acreage.

Other producers in the Delaware are not growing acreage and production as rapidly as Matador. Major producer Devon Energy (DVN), in contrast, has grown production per share at a 9% CAGR since 2022. This, though nothing to sneeze at, is less than half what Matador has done over the same interval.

Matador’s share count is up about 2.5x since 2012 but only 10% since 2019. From 2019 through 2025, production grew 3x and net debt/EBITDA has come down from 2.6x to 1.4x. This company has created massive shareholder value, which despite fluctuations is reflected in the stock price:

But neither price nor production directly address value generation. One metric that does is per-share Cash from Operations (CfO), which YCHARTS gets right when there is only one class of shares. We can compare results from a few oil producers:

Shown are Matador, three other Permian-focused producers, and supermajor Exxon-Mobil (XOM). You can see that Matador has outperformed three of the others through 2021 and all four of them since. [The oil price spike in 2023 is what created that bump on all these curves.]

Matador has shown true exponential growth with some noise on it. Beginning in 2013 (not shown), they tripled CfO/sh in their first 7 years and tripled it again in the next 7. If you take that 17% CAGR seriously, then their value should continue to explode.

This growth enabled them to initiate a dividend in 2021 and to grow it by more than 10x since.

Based on data from Gemini, Matador ranks number 15 in the Permian by BOE/d. If they were to again triple production they would still not reach the top 5, so there seems to be room to grow.

Valuing MTDR on the assumption of 17% growth for 7 years followed by no additional growth for 7 more, and using a 10% discount rate, their NPV would be 17x DCF/sh, with DCF being Distributable Cash Flow. In that case they would be undervalued today by 2x. For more modest growth assumptions (discussed below), their current value of just over 9x would be reasonable.

So the questions are how they have grown and whether we think they can keep doing it.

Production and Reserves

Matador calls their main strategy "brick-by-brick," continuing to acquire highly prospective, contiguous acreage or additional rights to acreage where they already operate.

They also have made at least three significant acquisitions in recent years: HEYCO in 2015, Advance Energy Partners in 2023, and Ameredev in 2024. The latter added proved reserves of over 600 MMBOE.

In combination these activities from January 2023 through 2025 have added “over 800 net engineered locations.” These represent 7-8 years of inventory added over 3 years.

This table from the 2025 10-K shows the makeup of current production in the Delaware:

You can see that 30% of total BOE is natural gas. But multiplying the numbers, the revenues from natural gas are only 11% of their total. So as usual the primary driver of financial performance is the oil.

Matador seems clearly focused on continuing to grow production. They are also driving down Drilling & Completion costs, like everybody else. Here is CFO Chris Calvert from the last earnings call on how they are doing that:

…it’s a lot of the similar levers that we have spoken to in the past. It’s multi-well completions, utilization of simul- and trimul-frac.

It’s the full utilization of electric fleets with 90% reduction in diesel usage, continued water recycling usage and improvements in water recycling in the first quarter of 2026, we recycled over 70% of our water came from recycled sources.

And so looking forward, how do we continue to push that? It’s drilling and completing wells in shorter cycle times. Year-over-year, we’re about 13% faster just on average from cycle times. But I think the really impressive parts of this are in the deeper parts of the basin, as we extend laterals, the improvement grounds that we have made.

And so if you look at 3-mile well laterals, for example, in 2025 versus 2026, our best 3-mile well we’ve drilled this year in under 16 days, which was a 40% improvement versus 2025.

And so I think as we look at levers going forward, it’s going to be reduced drilling times, increased use of recycled water, vendor relationships, AI integration within certain operational processes, MAXCOM integration, our MAXCOM room here, we’re in our eighth year of MAXCOM, continuing to see improvements, continuing to see records broken, 3-mile U-turns. I think the laundry list is long of levers on how we can continue to improve upon that number.

Revenues and Costs

Their 2025 total revenues were $3.7B, of which $2.8B or 76% was from oil. After subtracting operating expenses and interest expenses (and changes in working capital), their Cash from Operations (CfO) came in at $2.2B, about 60% of revenues. Per their 8-K Supplemental for 2025, their capex for Drilling, Completion, and Equipping (DC&E) wells was $1.5B while that for their midstream segment was $300M.

This left Matador with $400M of Free Cash Flow, of which they paid $160M (40% of FCF) as dividends. That value of FCF was below the recent average, reflecting larger expenditures on DC&E in 2025. They also spent $340M on property acquisitions and issued a bit of debt on net to close the books.

For reference, Adjusted EBITDA was at $2.3B after $140M to non-controlling interests. This roughly offset interest expenses, which is why that number is similar to CfO.

Matador got that production from just over 1,000 net wells (net wells is total wells times their average ownership fraction). So they are getting about 200 BOE/d out of their wells on average.

Many producers are trying to grow production only slowly. They seek steady operations including relatively steady capex. When they end up with surplus funds, they most often use them for buybacks.

This is not Matador. They explicitly discuss ramping capex up and down in response to oil prices. Relative to revenues, their capex is on the high end among similar producers.

For 2026, they are guiding for production of 213 MBOE/d, a 3.5% YoY production increase. Operating and Other costs will be $2.3B ($32/BOE), with dividends of $3/BOE. Their guided capex of $1.5B ($20/BOE) is down 11%.

This would balance the books for revenues of $53/BOE, which would be an oil price in the mid-70s. To balance the books for an oil price near $50/bbl, they would need to cut that capex about 4x. In the most recent 10-Q they say:

When oil or natural gas prices decline, or costs increase significantly, we have the flexibility to defer a significant portion of our capital expenditures until later periods to conserve cash or to focus on projects that we believe have the highest expected returns and potential to generate near-term cash flows.

A key question for any producer is what they have in reserves and in inventory that may become reserves with further work. Leaving aside details, here are their total reserves at the end of 2025:

You can see that their reserves have grown. Based on the oil production numbers above, their reserves would support nine years of production at current rates. This is typical for a US oil producer.

Developing of reserves steadily costs them money. They spent about $1B on that aspect in 2025. This took about 40% of their Cash from Operations.

But reserves do not tell the important tale. As to inventory beyond those reserves, they have both a lot of undeveloped land with mineral rights and hope to move production to other “benches” (layers of oil-bearing rock). The Q1 earnings release quoted Foran as saying:

We also remain focused on expanding our 10 to 15 year high-quality inventory, which we consider critical for present and future growth. For instance, since early 2023, we have added over 800 net engineered locations, adding seven to eight years of inventory to our asset base and available inventory in both new and established areas of activity.

Like other firms, they are working on “cracking the code” for underdeveloped “benches” in the Delaware. Their current operations, like that of most producers, are focused on the Wolfcamp and Bone Spring benches, and some shallower plays. The time is coming to work the other, deeper benches, including the Woodward.

It is difficult to compare inventory across producers, but my sense is that in this area Matador is ahead of the pack. (I might be wrong about that.)

Transport

Ownership of midstream assets to transport oil, gas, and produced water varies across producers. Matador has liked to own all theirs. This has the advantages of known capacity and costs, along with the disadvantages of missed opportunities at some times and competing for growth capital.

Matador has an operated interest in a captive midstream company called San Mateo that supplies local handling of crude oil, natural gas, and produced water. They own their own gas processing capacity, to convert the raw gas into transportable Y-grade, but pay fees to others for fractionization (elsewhere).

Last month they added to their natural gas processing capacity and added 145 miles of gathering pipelines by acquiring Cardinal Midstream Partners for $752M in cash. The adjusted EBITDA of San Mateo is expected to increase to up to $110M on an annualized basis by 2028 when the Cardinal plant complex is anticipated to be completely full.

They also have secured firm transportation on Energy Transfer’s Hugh Brinson Pipeline, which is expected to come online in the fourth quarter of 2026, “to move 500,000 MMBtu per day of natural gas production out of the Permian Basin to East Texas and markets along the Gulf Coast” (per the 10-K).

The midstream assets matter to the business, but on net are fairly small potatoes as part of cash flows. There is continual discussion about selling those assets. My guess: if they end up doing that, they will plow the proceeds into increasing oil production.

Cash Flows

We can see in the cash flows how Matador managed their growth. Here are the past 9 years, in my usual format with the left stacked bar of each pair showing sources of cash and the right stacked bar showing uses of cash:

Matador issued little stock to support this growth (red). Across this interval the shares outstanding grew at a CAGR of 1%.

The growth of their assets was driven by capex for Drilling, Completion, and Equipping (tan), their “brick by brick” acquisitions (yellow), and cash acquisitions (dark blue). This was fueled mainly by growing CfO (green, adjusted for working capital changes) and a bit by new debt (purple), with the debt mainly in support of the cash acquisitions.

They could continue to grow the dividend rapidly, but that would require doing fewer property acquisitions. My guess is that the dividend will grow in proportion to production per share from here.

Balance Sheet and Hedging

Matador has a slide summarizing their balance sheet in their investor presentation:

Here RBL is “Reserve-Based Lending.” Their liquidity is good. They have a credit rating of BB- and stable from S&P with Fitch recently upgrading to BB.

It is that low because small oil & gas producers are always at risk. Low enough oil prices, lasting long enough, can push them into covenant violations and defaults.

If for some reason they became unable to do the drilling needed to sustain production or even proved to have misjudged their rock, things could go south quickly.

Matador has a history of running leverage near the high end of sector averages:

From 2015 through 2020 they allowed leverage to float higher during the crash in oil prices. During this period they increased their gross property by 2x, their debt by 3x, and their EBITDA by 5x. [The distortion of EBITDA by unrealized gains or losses, discussed below, has not been large until Q1 2026 (not shown here).]

You can see in the cash flow plot that they greatly increased their rate of “brick by brick” acquisitions in 2017 and 2018. It appears that they took some risk to add properties at highly advantageous rates.

With their recent acquisitions leverage has come up some in 2024 and 2025. Matador is targeting leverage at 1.0x for the end of 2026. This is near the average for their sector. The risk seems to be low but not zero, but if they get the timing wrong on further leverage increases to fund acquisitions, there would be a potential for bad outcomes.

Here is Foran on the new leases bought at auction this year:

Matador has fully repaid its reserve-based lending (RBL) facility, providing ample liquidity for this transaction. Furthermore, under our current operating plan, we anticipate full-year 2026 adjusted free cash flow to approach $1.2 billion (assuming strip oil and natural gas pricing as of early May 2026). This strong cash generation gives us clear line of sight to substantially pay down this acquisition by year-end 2026 and to fully pay down the RBL in the first half of 2027.

This takes us to the need to protect the business against adverse events, and hence to hedging. Matador hedges to guarantee a enough revenue to survive even if oil prices crash hard and deep.

They are helped by some contracted midstream revenues, and so for 2026 hedged about 40% of their production. This is not unusual.

The hedges were mainly costless collars. They bought puts with strike price of $52/bbl, guaranteeing at least that much revenue. To pay for the puts, they sold calls with a strike price of $65/bbl. This caps their revenue for the volumes hedged and means that they might miss out on some massive profits. But on a current cash basis the insurance here is cheap (i.e. zero cost).

Thanks to GAAP, complications arise that do not matter but do confuse analysts and make reporting confusing. The cash consequence to Matador of these collars is always zero or larger:

• If the price drops enough and they exercise the puts, this generates $52/bbl.

• The avoided losses are a non-cash speculation.

• If the price rises enough that others exercise the calls, this generates $66/bbl.

• The “lost” gains are a non-cash speculation.

Matdor has zero reason to close out any of these positions unless perhaps to realize a trading gain.

But GAAP has other ideas. GAAP requires that the puts and calls be “marked to market” as of the end of each quarter AND that the resulting, unrealized gains (or losses) be reported as current revenues (or losses). And if the price of oil is much above the strike price of the calls, the expenditure required to theoretically buy them back becomes enormous. Mandating that the forced, unrealistic, theoretical expenditure be treated as a current cost is so insane that just writing the words raises my blood pressure.

So really there is nothing to see there. No matter what, the hedged oil will generate positive proceeds.

Looking Ahead

Matador is no longer tiny, but still by production is one of the smaller oil-focused production companies. Their long-time brick-by-brick strategy grows less efficient as they get larger, which explains their recent growth-by-acquisition.

On the one hand, they might keep doing that. On the other hand, they might combine with one or more of the Permian producers with comparable production.

The latter would provide more optionality for the succession of CEO Foran, who is near customary retirement age. His age may be the biggest risk to future growth.

The company would tell you that they have a succession plan in place, grooming current managers to move up. But these transitions are a time when bigger changes sometimes happen.

As with all oil producers, the price of MTDR will move with oil prices. And oil prices are fundamentally not predictable. But if their per-share production continues to explode, then so will the stock price.

Valuation

This section provides a more in depth background for the comparison done at the start of the article.

The standard valuation metric in energy and mining is EV/EBITDAx, where EV is Enterprise Value, the sum of Market Cap and Net Debt. The ‘x’ in EBITDAx stands for exploration expenses but actually may include what I would call sustaining capex. But either it or other adjustments are likely to exclude non-cash expenses from the adjusted EBITDA.

Thus, the EV is the cost of immediately acquiring the company by purchasing all the stock at the current price and paying off the debt. And so EV/EBITDAx notionally tells you how long it would take to pay back your purchase with cash income, ignoring taxes and assuming non-cash items have been removed from EBITDA in finding EBITDAx. It also ignores sustaining capex or similar costs necessary to sustain EBITDA over time.

But most companies one sees in oil and gas these days, let alone midstreams or real estate, are intended to produce (and likely grow) cash flows for an extended period. For such a company any debt is just a tool. Interest costs impact their free cash flow but the debt does not have to be cleared to justify some evaluation.

The value of such a company is the net present value of the relevant cash flows. One can debate what the relevant cash flow should be. Free Cash Flow (FCF) is popular, but does not work so well for a company like Matador that deliberately runs with maximum capex, keeping FCF low.

I decided to work with Distributable Cash Flow (DCF). Here is a comparison the ratio of Market Cap to DCF for many US upstream companies:

What we see in the upper left is a group of highly valued firms with low leverage, priced by the market above 14x DCF. To justify such a price one has to expect growth of DCF for an extended period.

Most of the firms are priced at 7x to 10x DCF, including Matador (red dot) at just under 10x. Overall these are either small firms or big ones with weaknesses.

If, for example, we assume that continued improvement will cause DCF to grow 10% a year with fixed production and use a 10% discount rate, then the net present value will be the number of years of inventory (not reserves) a company has. So it makes sense that most of the smaller producers are priced at less than 10x DCF.

But Matador [and Chord Energy (CHRD)] have well over 10 years of inventory. The market is giving Matador no credit for future conversion of inventory to reserves and no credit for the value of their midstream assets, but these would add up to small tens of percents in value. More importantly, they are getting no credit for their proven ability to grow.

Apa (APA) and Eni (E) are priced at or below 6x DCF. Evidently the market is less confident in their ability to sustain production.

Where Are You?

The above discussion convinces me that the value of MTDR to you depends primarily on your assumptions about future growth of cash flows by Matador. If growth will be slow, then MTDR is likely undervalued but not by a lot.

If growth will continue at anything approaching their historic rate, then MTDR should increase in price by 2x or more during the next 7 years. This will be modulated by changes in oil prices.

The dividend yield, below 3%, is below my usual threshold, although I do ignore that for some upside investments. My main concern here is that Foran, now age 74, may retire before enough growth is realized.

There is a lot of risk in what may happen after that. If he were 15 years younger I would be strongly tempted to invest.

As to you, dear reader, you have to decide for yourself. Will Matador continue to grow? How fast? What is it worth to you?

Please click that ♡ button. This helps push Focused Investing up on the Substack feed. And please subscribe, restack, and share. Thanks!

VICI Properties is an 8-year-old REIT, initially spun out of Caesars as they resolved their most recent bankruptcy. The initial owners were the creditors of Caesars, but they mostly sold their shares after the IPO. Still, at first VICI was 100% concentrated in one tenant.

VICI aggressively expanded via sale-leasebacks with other casino operators and now has gross assets above $45B and a Market Cap near $30B. Today the fraction of rents going to Caesars and MGM Grand is 38% and 32%, respectively. The rest goes to 13 other tenants.

Despite having Debt to Gross Assets at 35%, quite good for a net lease REIT, VICI is still only rated at BBB- or equivalent, the lowest level considered investment grade. A typical net lease REIT runs at 40%.

Two key reasons are the tenant concentration just described and geographic concentration, with 47% of their rents coming from Las Vegas. In addition, their properties are not readily sold or converted to other uses, unlike those of say NNN REIT (NNN) and Agree Realty (ADC).

These issues are real, do create risks, and there are some others discussed below. The market should demand a higher yield from VICI than from those others, and it does. But here lately the yield of VICI has diverged from those of other net lease REITs:

With a yield more than 300 bps above that of ADC, up by more than 100 bps over the past year, VICI may have become a bargain (credit goes to subscriber PoP P for highlighting this in our chat recently). So did something change or has this company become a bargain?

Before we can answer this question, some additional background is helpful.

Experiences

VICI today describes themselves as a REIT focused on experiential real estate. The other REIT that does this is EPR Properties (EPR, my most recent take here). Just as VICI was spun out of Caesar’s and has a lot of casinos, EPR was spun out of AMC Entertainment, much earlier, and has a lot of cinemas.

There are lots of critics of such properties, predicting their doom as the modern world offers replacements easily available at home. These critics completely miss the point.

Humans (except maybe those critics?) crave out-of-home experiences. If what you want out of a casino is the experience of losing money, you can indeed do that at home.

But even if you only want to gamble, many people enjoy doing that in a social environment, with decorating, people, and sounds. And that is far from all that people get from casinos, which offer varied dining and entertainment too.

And then there is Las Vegas, which has long been much more than a gambling destination or a collection of casinos. Today there are major sports, a great deal of fine dining, and more shows than you can count.

I have never seen an argument that Vegas is doomed show awareness of the human drives that it serves beyond taking risks. The story is similar for cinemas and, for that matter, for outlet malls (which are primarily places for groups of women to have shopping excursions together). Humans crave experiences.

The propensity of the chattering class to ignore this real human need throws up a new investment opportunity from time to time. So is this one of those times?

The remainder of this article discusses the business model of VICI, their recent actions, and the associated risks, seeking my answer for the questions above.

Read more

One of our members drew our attention to VICI Properties (VICI) a couple days ago. The price is dropped and the yield is up. A number of us have been buying the stock.

Notably, VICI has an average lease term above 30 years and their properties are essential to their operators. And gambling is far from the only way they generate revenue. Owning VICI shou…

Read more

On top of the gains on SpaceX discussed here and last month, a VC investment paid off in June. This left me with a big chunk of cash to think about, with the gains all being long-term capital gains.

Tax Considerations. Some of that thinking was focused on tax considerations.

The number in my head for the capital gains rate was 20%. But as I checked various details the taxes got worse. The NII tax adds 3.8%. The State of Michigan treats such gains as ordinary income, adding 4.25%.

In terms of my own psychological calibration of the Laffer curve, a 20% tax rate feels small but 30% is getting high. The higher it gets, the larger my motivation to evaluate alternatives.

Then I happened across this nice article by Elizabeth George: What to Do If You Just Became a SpaceX Millionaire! Of course I already knew that charitable donations could be deductible. But she emphasized how they are often used to reduce taxes on big gains by making such donations now and not delaying them until death.

My approach has been to try to grow the entire portfolio, and to use a combination of beneficiary designations and account sizes to provide my legacy distributions after death. So at the moment there is a certain fraction designated to go to my charities.

But if I were to donate those funds now, then they would no longer be available to help the portfolio recover from the next crash. This aspect clearly made my visiting daughter nervous.

It turns out that the dollar amount of those designated funds, the gains on my recent proceeds, and the maximum allowed (Federal) deduction are roughly the same number. So donating those gains now would complete most of my intended support of my charities and also save me some taxes.

The benefit of doing that would be net cash to me roughly equal to the taxes I would pay with no donations. The cost would be reduced flexibility in dealing with market crashes, along with reduced dividend income. Initial modeling says these impacts are not severe.

At this point I am pretty sure that I will go this route. But before doing so I will give myself time to think.

Status and Perspectives. Between that gain and those in my other investments, the market value of my actively invested portfolio is up more than 33% YTD. The total value (see below) of my portfolio is 147% of what it was on 1/1/2020. Curiously, that is nearly the same as the total return of the S&P 500 over the same interval.

My investing is focused primarily in REITs and Energy. These are not sectors with high earnings growth and corresponding risk. Instead, they are niche markets often considered treacherous by the ignorant, but also prone to mispricing, which provides opportunity.

My goal is to invest only in firms I know well through deep study. Most of my investments have been in quality companies that were undervalued in the markets. Only a small fraction have been in riskier firms where I see good potential for stronger upside.

My response to the positive market action of the current moment is to wait, diversify further, and generally play defense. As a retiree I care most about dividends. The companies I invest in have nearly all been growing their dividends, as detailed in my 2025 annual review.

But with the dividends at 2x my minimum target, I can let them fluctuate in response to investment opportunity. It will likely take the next bear market to see them move up another step.

My subscribers get trade alerts, deep dives into companies, and other useful material. My continuing annual subscribers get direct, real-time access to the details of my portfolio and trades.

[Disclosures: The present article was produced by editing prior material. I make no claim that any of it is original text.

And after today I will continue my usual practice of staying off Substack for a week around major holidays.]

Markets this Month

The market moves in my sectors have become more volatile in recent months. Overall, they have been led by oil producers. Here is YTD for a few oil producers:

Oil producers benefit disproportionately from oil price increases, since revenues then increase more than costs. Curiously, while these producers increased in price as oil did, after February their stock prices increased less than oil did. The market never fully bought the notion that those higher oil prices were locked in.

Today both the oil price and the prices of these stocks are back to where they were in early March. Still, to my mind we are far from the end of the story here, for a bunch of reasons.

The global consequences of the closure of the Straight of Hormuz have barely begun to surface and the markets are pretending there are no consequences. We will see how this plays out.

As usual, midstream energy responded more strongly to oil prices than really makes sense this year through May. But in June the price action was more sensible, with flat-ish midstream stock prices:

REIT pricing continued to fluctuate. Here is my favored ETF for sensible monitoring of that sector:

It was a very volatile month that ended up with a small gain. YTD REITs are up about 13%.

More than 98% of my REIT portfolio is in solid companies with very well covered dividends. They are in core economic sectors not easily disrupted by events.

On average, the eleven I now hold are up about 10% YTD in price. We will see where this goes next month.

The chances seem good that energy and REITs will remain decorrelated with each other and with the S&P 500, and internally diverse as well. I like owning a collection of firms across those sectors.

My Context

My secure income covers over 70% of my current spending budget and 84% if I exclude planned gifts to children. At the moment, the remainder comes from various paid work.

The secure income includes social security, a pension, and a collection of annuities. Nearly all those sources have escalators of either 2% or inflation.

My dividends from “Go-Fishing” or otherwise very secure positions — firms likely to grow dividends at least with inflation — also could cover more than 40% of my spending. So if work stopped or when it stops, current spending is covered without drawing down the portfolio. In the meantime I will use those dividends to grow the portfolio and to provide legacy spending.

Today my emphasis is defense and those Go-Fishing and similar positions, and cash, make up more than 80% of my liquid portfolio. And none of the rest is speculative, in my view.

Dividends are the goal but we also know that chasing yield is a losing game. And we know that growth of portfolio market value can be a path to affording larger total dividends.

Now for some discussion of the past month and specific holdings.

Read more

I find myself almost continually bemused these days.

The markets seem convinced that the war with Iran is over, that it will have had no consequences, and that the economic future is golden. Markets seem likely to make more all time highs, yet again.

Yet I am unconvinced of any of this. The involvement of the US in active shooting may be over, but for the Middle East and the rest of the world, the dangers from Iranian proxies have gotten larger.

The markets appear to believe not only that the flow of oil through the Straight of Hormuz will immediately return to its previous level, but also that the loss of 4 months of oil (and LNG) will have no consequences. But the reality is that it takes months for such hydrocarbons to work their way through the economy and that the impacts of that shortfall have barely begun to be felt.

And then there is the economic future. To my mind the present phase resembles the US railroad buildout of the 1870s and the fiber-optic buildout in the 1990s (often mislabeled dot.com).

In each of those cases, the early movers suffered massive losses after they built out the new infrastructure. That infrastructure enabled technology that eventually transformed the economy, but the benefits flowed to later investors.

This time could be worse, though, because the potential of LLMs has been vastly overhyped. One might even say hallucinated.

The positive benefits of associative, language-based computing, likely used within frameworks that do not yet exist, seem likely to be delayed. Meanwhile we get material like these examples presented within serious technical articles:

Interstate 25 does not pass through Greeley Colorado. And this:

Here the bridge labels are in the wrong place, as is Armiansk. And that is a revised map. The initial published version was much worse.

So after the massive bankruptcies and economic fallout, it will take years of further development before we get broad economic contributions from AI. (Yes, there are narrow use cases now but their potential impact is too small to support the hype.)

So where does that leave me?

I am holding more cash than is normal for me. Yet I do not believe in “going to cash” overall. The madness could go on for years.

It is frustrating to watch those big leaps by the overall market. One of my subscribers wondered recently whether it might make more sense to get on the rocket.

This brought to mind Isaac Newton. From Google’s AI:

The Rise and Fall of Newton’s Investment

• Early Success: Newton initially bought shares in the South Sea Company early on. As the stock surged, he sold out, pocketing a massive 100% profit of roughly £7,000.

• FOMO & Re-Entry: Watching the market continue to skyrocket without him, he was overcome by FOMO (fear of missing out). He jumped back in near the peak, investing heavily.

• The Crash: Shortly after, the bubble burst and the stock crashed. Newton lost approximately £20,000—a sum equivalent to millions of dollars in today’s money.

The Famous Quote

The experience left a permanent mark on the physicist. He is famously quoted (or apocryphally attributed) as saying:

“I can calculate the motions of heavenly bodies, but not the madness of the people.”

Meanwhile I am investing defensively, in quality companies with excellent balance sheets that both pay good dividends and are in a position to grow them. But many investors and some of my subscribers do not seem prone to patience.

They want high upside and high yields, and ideally both. Most of my articles lately seem to be summed up as: “Nope, don’t buy this one either.”

This brings to mind the story of Julian Robertson, as told recently by Theirry from arvy:

The greatest investor you’ve never heard of was destroyed by being right.

Julian Robertson ran Tiger Management. From 1980 to 1998, he compounded at 31.7% per year. The best record on Wall Street. He turned $8 million into $22 billion.

Then he looked at the dot-com bubble and called it exactly what it was: an irrational Ponzi scheme. Companies with no earnings at impossible valuations. He refused to play.

He was completely right. And it nearly destroyed him.

Tiger lost 4% in 1998 and 19% in 1999 while tech stocks doubled. His investors revolted. At the 1999 annual meeting, the people he’d made rich for two decades screamed at him. Money fled. His fund collapsed from $22 billion to $6.5 billion.

In March 2000, he gave up. He returned all outside capital and closed the fund, writing that he could no longer operate in “a market which I frankly do not understand.”

The Nasdaq peaked that same month. The exact month.

The market waited for the one man who saw it clearly to leave the building, and then it collapsed.

His final portfolio, run with his own money from 2000 to 2006, returned 120% while the S&P 500 returned -7%.

He was right about everything. His investors never saw a dollar of it.

Here’s the lesson that matters today.

You are not rewarded for being right about a bubble. You are rewarded for surviving it. Those are completely different skills.

The investor who shorts the mania gets carried out. The investor who simply refuses to overpay, keeps buying quality, and waits, gets to be standing there when the vindication finally arrives.

Don’t try to call the top.

Just don’t be the one holding the most expensive stocks when somebody else does.

So here I am buying quality and waiting. My subscribers have yet to start yelling at me or leaving in droves.

Still, we will see whether I have any left by the time the market finally breaks.

Looking Ahead

I’ve begun work on Matador Resources (MTDR). Still considering what to do after that.

Personal Notes

This next week my daughter who lives in Colorado will be here. I have not seen her for nearly two years, in consequence of some health challenges she had. I am really looking forward to the visit.

A few days ago we had a “tornadic waterspout” on my lake. It flipped over a bunch of boats, in their hoists. It also took out two of my trees. That did me a favor; I never liked those two and their growth was constraining my view.

The other personal note: I support freedom — free minds AND free markets — and oppose slavery and its precursors — suppression of the press, suppression of speech, corruption of public institutions, and others. Because of this I celebrate the defeats of would-be dictators (Orban) and actual dictators (Putin). This will not come up often here, but if these views of mine cost me subscribers that is just fine.

Recently published material

Material since April 30 has included the following 15 items. You can see it all, and search it, at https://focusedinvesting.substack.com/

Recently:

• Two Perspectives articles, including this one, to all subscribers

• Deep dives on Rayonier, Camden Property Trust, Kinetik, and Centerspace

• Brief Notes on NNN REIT, Canadian Natural Resources, and Armada Hoffler (now AHRT), and Bellepointe OZ

• A theory piece on What REITs Are Good For

• Two Trade Alerts, and a piece when I sold My SpaceX Investment.

• Two monthly updates, each with a preview

Paid members also have access to the Focused Investing Chat, where there is usually an active discussion going on. Check it out. Post something.

Other Resources

To find my past articles covering a given company, go to the Focused Investing home page. There is a search function to help look for past articles. Search by name or ticker.

A note on my approach to restricting access: Anything providing details of my trades and portfolio is restricted to paid subscribers, as is anything I consider to be immediately actionable. Most articles with information it seems members may act on have a preview section followed by a paid section where the real meat is.

The Google Sheets (for continuing annual members):

• The main attraction on the Google sheet is full disclosure of my live, real-time portfolio. If you are a continuing annual paid member and do not have access, please contact me.

• There are in addition a REIT assessment sheet, some data from NAREIT’s REITWatch, and a Midstreams assessment sheet, each a tab. And if you scroll down on the Current Portfolio tab, you can see limit orders, some tickers I track, and some playing with possible portfolios.

Searching the chat on mobile devices:

• On mobile devices, it can be challenging to search the chat (for paid members only) or to find past articles. To do so, you have to get into the chat so my picture is on the top left, and then punch my nose with your finger (ouch?). You will see a display with a search emoji and a link to the home page where you can search.

Please click that ♡ button. Please restack, which helps others find this newsletter. And please share. Thanks!

[This article is published without any paywall so that potential paid subscribers can assess the quality of my analysis.]

Centerspace (CSR) is a real estate company focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.

That is their self-description on their website. However, Centerspace has done no development since well before the pandemic. They have tried to make money by working with real estate they own or buy.

What is most intriguing about Centerspace is their geographic focus. Here is their map after their ongoing restructuring:

That map is from their June 2026 Investor Deck. While some other REITs are in Denver, a difficult market at the moment, no major REITs have a significant presence in their other markets. So owning CSR along with other multifamily REITs would diversify your geographic exposure.

CSR has been listed since 1997. Over the years since 2000, they have a total return above 3x. But that pales by comparison with the total returns of better-quality REITs:

Their dividend yields ran about twice those of the other REITs until the period of ZIRP madness after the pandemic. This makes sense considering the slow price growth.

If you look to underlying growth of cash flows, specifically CfO/sh, a modest overestimate of Funds Available for Distribution (FAD) for this class of REITs, you see this:

[Those big post-pandemic fluctuations by Essex are an artifact of YCHARTS, but not worth our time to explore today.]

Centerspace was the only one of these REITs to produce a net decline in CfO/sh over this period. And it has not been growing lately either. This sure looks like a REIT that has never figured out the business. But let’s look more closely at the period since 2019.

Historical Focus and Management

The poor long-term results led me to ask what the long story was, especially for senior management. Here is what I found, leaving out the corporate name changes. Some of the details might be a bit off, thanks to my use of AI, but the main story is definitely correct.

Thomas A. Wentz, Sr. founded the company in 1970. Odell-Wentz and its predecessor firms acted as its advisor from its inception until January 1, 2000. On that date management was internalized.

That version of the REIT, then and for many years afterward, was a Diversified REIT, holding properties in several subsectors. Such REITs have historically been the weakest performing subsector of equity REITs.

Wentz, Sr. served as President and CEO until January 2009, when he turned 73. Long-time executive Timothy P. Mihalick then served as President and CEO from September 2009 until April 2017. Despite the recovery from the Great Recession that enabled many REITs to strongly grow earnings over that period, CfO/sh for Centerspace dropped significantly during his tenure.

That poor performance may have stimulated a change in management. Mark Decker became President and CEO in April 2017. He led the company through a significant transformation. They sold their healthcare portfolio and then their office properties, ending up 100% multifamily in 2018.

Anne Olson originally joined the company in April 2017 as General Counsel and served as Chief Operating Officer from June 2018 until her appointment to replace Decker as CEO on March 31, 2023.

However, these changes did not have the impact for which one might have hoped. Here is the stock price from the end of 2019 to the present:

CSR did worse than the others, but not always and not by a tremendous amount. Their price went stupidly high during the “anything not coastal” mania in 2021, but came back to earth later.

The pricing behavior is, however, misleadingly optimistic. If we look at the ratio of Price to CfO/sh, we see this:

Except for the ZIRP-driven manic period, Centerspace has run this ratio near 10x while the others have mostly been above 15x. The market is not pricing CSR for growth, and no wonder.

The main culprit here is share issuance that has not been accretive. Centerspace increased their basic share count by 43% from 2019 through 2025 (the diluted share count fluctuates, impacted by imputed shares related to convertible preferred stock). The quality multifamily REITs increased share count by 7% or less.

The Olson Era

The above is not very hopeful, but still one wants to know whether this REIT today, since Anne Olson became CEO, has any clue how to think about growth. To explore this, I reviewed the introductory management comments on every earnings call since the management transition. I was looking for nuance and would not trust AI with this task.

Much of what was said is summarized in this comment from Olson on the Q2 2025 earnings call:

I want to reiterate our commitment to our strategy, which includes not only capital recycling to enhance our future growth profile, with maintaining best-in-class operations, driving shareholder results through continued year-over-year earnings growth and staying nimble to take advantage of opportunities while keeping an eye on our balance sheet.

Their only approach to growth seems to be issuing stock and capital recycling. Regarding stock, there is no sign of how they think about when this makes sense.

Regarding capital recycling, the contrast between what this management team has to say and what you hear from quality REITs like AvalonBay (AVB) and Camden (CPT) is striking. The latter two describe a cycle of ownership, from purchasing a property, to improving operations a bit and marketing a lot to increase NOI, to maintaining apartments, sometimes renovating to slow the decline of rent, and being sure to sell before the increase in capex that comes for them all at some age like 30 or 40.

They often speak of the IRR through a cycle of ownership. I’m not wild about IRR, but it does make sense as a way to evaluate these cycles.

Also, when they recycle capital from newer buildings, they always discuss disposition cap rates. They also consistently disclose acquisition cap rates. This lets investors see that the recycling is accretive.

In their remarks, Centerspace management shows almost no awareness of any of this. They also usually provide little detail on why key parameters such as FFO/sh changed. In contrast, quality REITs tend to walk you through the components of what changed.

On the calls, Centerspace often cherry picks what they say, sometimes reporting a quarterly change, sometimes annual, and sometimes nothing. I find this annoying.

Also, like many REITs, they focus on a “Core FFO” calculated by adding back, into NAREIT FFO, expenses they label “one-time.” I generally have a dim view of this and do here. As usual, I will focus on Cash from Operations (CfO) as a primary measure of cash earnings before capex.

Earnings Measures and Disagreements about FAD

This next plot shows how the various earnings measures have evolved recently:

The difference between NOI/sh (the top two curves) and CfO/sh is almost completely due to interest expenses and General & Administrative expenses. The latter is high for a REIT at 14% but not so high for a small REIT like this one.

The difference between the (green) CfO/sh curve and the (blue) FAD/sh curve is their capex. They identify this as having two parts, maintenance capex and value-add capex. I treat it all as sustaining capex, as discussed here. Aging real estate often needs capex beyond simple maintenance to maintain its earnings power.

There is a very relevant exchange about this in the Q4 2022 earnings call (edited for length):

Analyst John Kim from BMO Capital Markets.

How do you feel about your dividend levels these days? On our numbers, your payout ratio is above 90%. Are you satisfied with your dividend level where it is today?

CEO and Board Member Mark Decker

So, presumably, you’re including all capital -- like value-add capital to get to that number. That’s a very high payout number. How do you get to that number, John?

John Kim

We typically deduct revenue-enhancing CapEx,

Mark Decker

Got it. Yes. The revenue-enhancing capital is discretionary in our view. So we would peg our payout closer to something in the high 70s. And it’s been our goal to continue to work that payout ratio down ideally to kind of that minimum in the 60s, 65% level. So while also continuing to grow it a little bit. I mean, don’t think we’re getting well compensated for it on the one hand, on the other hand, part of our structure and what we’re all about is getting cash flow and increasing levels to our shareholders.

This is classic. The REIT wants investors to buy the idea that their value-add capex is growth capex. In my view, good analysts treat it as sustaining capex unless there is evidence otherwise.

For Centerspace such capex was large in 2022 through 2024. This is what pushed FAD/sh down on the above graphic. But it did not translate into CfO/sh growth.

Over the 6 years after 2019 through 2025, the NOI/sh and CfO/sh grew at a CAGR of 1.5% and the FAD/sh did 1.2%. That is quite poor for a REIT, and is despite a lot of quarters where they bragged about growth by some measure on their calls.

The Review and Its Outcome

Apparently their institutional masters got fed up with the poor returns. A key one may have been notorious activist investor Land & Buildings, who invested during 2025 and accumulated a 9% stake. Then on November 11, 2025, Centerspace announced their strategic review, saying:

With the support of its independent financial and legal advisors, the Board will consider a wide range of options including, among other things, a sale, merger and other business combinations, as well as continuing to execute on its independent business strategy.

And here was the outcome, revealed here on June 1:

The plan includes approximately $240-245 million of targeted assets sales in 2026, comprising twelve communities, including a full exit from the Bismarck and Rapid City markets and one community in Denver. Each of these dispositions is under contract with buyers and the Company anticipates closing these sales in the second half of 2026.

Upon successful completion of these dispositions, the Company currently expects:

• Total debt to decrease by $175-190 million, including repayment of the Company’s line of credit balance, improving both the cost and duration of debt;

• Improvement in proforma Annualized Net Debt to EBITDA, decreasing from 8.2x in Q1 2026 to an anticipated sub-7x level in Q4 2026; and

• That there may be special distributions of $45-65 million, with a declaration, if any, of exact timing and amount anticipated later in the year.

Some implications:

• They are selling 20% of their holdings but only 10% of Gross Assets, so these are cheap properties.

• Debt to Gross Assets will drop from 38% to 34%. In my view this is in the right direction but they should target 30% or less like quality multifamily REITs do.

• They might feel good about pulling Net Debt back below 7x, but the quality multifamily REITs run near 4x. Here is their relevant slide:

At least the debt is well-laddered, and will be even moreso when they pay down the revolver.

The Big Picture and My View

Centerspace is a REIT with a genuinely abysmal track record of growing shareholder value, both over 25 years and more recently. The only source of earnings growth they seem able to execute is rent increases.

This is likely what led to the recent “Strategic Review.”

The resulting plan amounts to selling about 10% of Gross Assets and reducing Debt by nearly 20%. This is positive but does not represent large changes. So they had a “Strategic Review” and ended up making no significant restructuring and adopting no change in business model.

What’s more, during Q1 2026, Land & Buildings sold their stake. Apparently they either did not see real opportunity or decided they would not get the changes they wanted.

I see this plan as window-dressing. It seems like a kid doing just a little work in the hope of getting a parent yelling “do your chores” off his back.

One wonders what their other institutional masters will think of this. There may be at least three outcomes here:

1. The could be allowed to keep going. Then I would not expect better outcomes.

2. One or more investors could pressure them into much bigger changes. But the most likely one left town during the review.

3. Someone could buy them out.

When you see big changes to address excess leverage, which involve selling a lot of property, you always see substantial dividend reductions. Stock prices also tend to fall. We’ve seen this many times and are seeing it now with Armada Hoffler.

As to pricing for that buyout:

• They think they are underpriced by perhaps 40%, based on their cap rate arguments (which are more or less equivalent to NAV arguments).

• They are priced at 14x 2025 FAD. Camden is at 19x.

• Similarly, the dividend yield is about 35% above those of the quality multifamily REITs.

BUT Centerspace clearly should be discounted compared to those other REITs, So now you can start splitting hairs about whether the discount of roughly 40% is too large.

My take is that a buyout might pay no premium over the current price and would be unlikely to pay more than a 20% premium. Buying with a hope for that would expose you to the risk that they decide to seek to transform into a quality REIT, producing the usual losses of principal and dividends for the investors who already owned the stock.

I see the risk/reward here as unfavorable. I certainly will not be buying this REIT.

Please click that ♡ button. This helps push Focused Investing up on the Substack feed. And please subscribe, restack, and share. Thanks!

Kinetic (KNTK) is a midstream-energy corporation focused on the Permian Basin and in particular on the Delaware (sub)Basin in the Permian’s western half.

That includes a lot of gathering and several gas-processing facilities. They also have interest in a couple Natural Gas Liquids (NGLs) pipelines to the Gulf coast.

Their own self-description, from the recent 10-K, is:

The Company provides comprehensive gathering, produced water disposal, transportation, compression, processing and treating services necessary to bring natural gas, NGL and crude oil to market. Additionally, the Company owns two NGL pipelines and equity interests in two separate Permian Basin pipeline entities that have access to various markets along the U.S. Gulf Coast and Mexico markets.

So details differ, but overall Kinetik is not so different from other midstreams with a heavy NGL emphasis. There are quite a few of those, variations on a theme.

Formation and Ownership

Kinetik was formed by a merger, in 2022, of Altus Midstream and BCP Raptor Holdco. The initial distribution consisted of 50 million shares of Class C common stock, which went to BCP’s unitholders, principally funds associated with Blackstone and I Squared Capital.

During the next quarter, a 2-for-1 stock split increased this to 100 million shares. This shows up in the Statements of Changes in Equity in the 10-Qs as Class C Common Stock. About 38M Class A, split-adjusted shares were issued to Altus Midstream shareholders as part of the transaction.

These distributions provided BCP unitholders with a 75% combined ownership stake in the newly formed pro forma company. Apache Corporation (APA) owned about 20%, since sold off, and other investors owned 5%.

Before that merger was announced, I owned shares in Altus Midstream, which had nearly doubled my money in less than a year and paid some nice dividends. Ah, 2021, those were the days. But I don’t trust Blackstone and their ilk and had no interest in being a small minority shareholder under their thumb, so I sold.

Those who held KNTK did well anyway, doubling their money over the 4 years since. This sounds great until you do some comparisons and find out that shares of other midstreams doubled too.

You can tell that I would want to see changes in the ownership distribution before I would buy KNTK. And coverage has at times made it seem like there have been such changes. You can ask Gemini via Google about that. Depending on fine details of wording, you will be told various contradictory things.

The inconsistency seems to arise from the existence of those two share classes, Class A and Class C. Some sources claim that the Class C shares have no voting rights, but here is what the prospectus for the merger says:

Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of Class A common stock and Class C common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as required by law.

So Class C shares do have equal voting rights with Class A shares.

Still, when you see ownership fractions on places like TipRanks, they show only ownership of Class A shares. Blackstone at the moment owns about 16% of the Class A shares.

But what we care about is the combined, pro forma, ownership of the company reflected in total voting rights. The total, initial, pro-forma ownership by Blackstone was near 50% and that by I Squared Capital was near 25%.

Notably, those Class C shares can only be sold by first converting them to Class A shares. The SEC filings provide a record of these transactions. Here they are since the IPO:

As best I can tell, the shares converted were all from I Squared Capital, and all the resulting Class A shares were sold, leaving their current ownership at about 13%. The online sources tend to be a year out of date on that fraction.

Note the Shares Issued column; Kinetik used Class C shares to help with their M&A activity. A lot of REITs issue OP Units for similar purposes.

Kinetik has not issued Class A shares for sale to the public, but has issued them as part of their DRIP activity. Blackstone still owns nearly 50% of the total pro forma equity.

As of March 31, the total pro forma share count is 162M, The combination of public companies and individuals own 9.4M shares or 5.8% of the pro-forma total. In short, despite what you can find on the always-accurate internet, the public/retail float has barely budged.

For me, knowing that ends the story. I still have no interest in being part of a very small float under the thumb of Blackstone.

But since I did spend some time on learning what they are doing, I can share that with you next.

Read more

I never rains but it pours. My investment in a couple related VC companies just produced a big payout. The older fund, in 8 years, has paid out about 3x my investment, after-tax. That sounds great but the CAGR is 15%, actually worse than my overall investing has done if you account for withdrawals.

Since I account for those at cost until the payoff, it boosted my “Portfolio value plus distributions” by 16%. This cash comes quickly on top of a slightly payout from my investment in SpaceX.

In our chat room, one of my subscribers commented “Mega-IPOs, big VC pay-outs........sounds like we are getting close to a market top.” That seems likely to me.

Since I was conservatively accounting for these investments at cost, the impact of the realized gains was huge. Together, these two gains increased the value of my “Portfolio Plus Distributions” by 36% across May and June. I’ve spent a lot of time over the past months thinking about what to do when those funds came in.

This led to a couple of decisions that did not involve immediate direct investing:

1. I am going to maintain a cash reserve of 10% of the portfolio, far higher than has been normal for me. This would be deployed in a big market crash.

2. I am increasing my rate of distributions to family members. That includes the new grandson who should arrive in about a month, whenever his dad gets in gear and sets up a 529 plan.

Even if I ceased all work, the dividends are now large enough to cover remaining expenses and those distributions to family.

After those things, there is still about 20% of the increased portfolio value available for investment now. A wrinkle is that these are taxable funds. This made planning more complicated. Here is what I decided and did.

Read more