Is our Societal Fabric About to Collapse?
Lately, everywhere I turn, it feels like things are starting to unravel. Even here in Canada, a place that used to feel safe and peaceful, car thefts are becoming a daily headline. Crime is up, road rage seems to be more common, and the visible rise in drug use, homelessness, and mental health struggles is impossible to ignore. There’s this heavy tension in the air, like we’re all standing on the edge of something darker. I can’t shake the feeling that this isn’t just a passing phase—this could be the start of a much bleaker chapter, and I fear things will get a lot worse before they get better.
I’ve started calling this period The End of Civility. Civility is what holds society together—it’s the little acts of respect and kindness that let us get along, even when we don’t see eye to eye. It’s what keeps people from blowing up at each other over small frustrations. But lately, that sense of mutual respect feels like it’s slipping away. You can feel it when you’re out on the road, with more people losing their temper behind the wheel, or in the simmering anger you see in public places. It’s as if that thin layer of politeness that kept things together is starting to wear off.
As we inch closer to the U.S. elections, the uncertainty seems to be ratcheting up a notch. Conflicts in the Middle East are heating up—Israel, Palestine, Lebanon, and Iran are all caught in a rising tide of tension. And then there’s the war in Ukraine, which feels like it has no end in sight. On top of that, government spending is spiraling out of control, deficits and debts growing like storm clouds on the horizon. It feels like we’re standing on the edge, just waiting for something to crack. And when I start hearing more and more talk of World War 3, well, it’s hard to ignore the weight of what might be coming.
The signs are right in front of us—dark clouds gathering, the wind is picking up. My gut tells me it’s time to hunker down, look for higher ground, and circle the wagons. The storm is coming. And the best thing I can do right now is fortify. I’m thinking about ways to strengthen my portfolio, protect it from the unknown, and get ready for whatever lies ahead.
Whether it’s the markets, global conflicts, or just the unpredictability of life, there’s no telling where the next punch will land. So for now, I’m staying cautious, focused on making sure my portfolio is as ready as it can be for whatever the world decides to throw my way.
Investing in Companies That Stand the Test of Time
When I think about where we’re headed—high inflation, ballooning government deficits, staggering debt—my biggest concern isn’t just about growing my wealth anymore; it’s about protecting what I’ve already built. Preserving purchasing power is becoming more critical than ever. That’s why my focus has shifted to building a portfolio filled with companies that own real, tangible assets—assets that will appreciate as prices around us keep climbing.
As the geopolitical and economic storm brews, I’ve been creating a watchlist of companies that I believe can not only survive but thrive in times of chaos. I’m looking for businesses with staying power, companies that can weather the storm and come out stronger on the other side.
Capital efficiency is at the core of this approach. I’m drawn to companies with rock-solid financials—plenty of cash reserves, little to no debt, and steady cash flows. These are the businesses that don’t need to rely on massive investments to keep the wheels turning. They’ve got strong working capital and high current ratios, and when things get tough, that cushion makes all the difference. I want companies that run lean, generate sustainable profits, and don’t overextend themselves.
Revenue growth is just as crucial. In a world where inflation could go wild, I want to own businesses that provide products and services the world needs, not just what’s trendy. Essentials. Things people can’t live without, no matter how rocky the market gets.
For this issue, the company I have in mind ticks all the right boxes. It’s perfectly positioned for the future, with growing demand for its offerings in oil and gas—both of which should remain vital in the years ahead. Water is becoming even more valuable, and energy security is front and center. And then there’s land—the one resource we can’t create more of. This company has vast land holdings, and like a smart landlord, they’re making the most of it, renting out their assets as the world scrambles for what they own.
So, let’s dive into this hidden gem and explore why it’s poised for long-term success, even as the world around us changes.
Texas Pacific Land Corp.
Let me introduce you to Texas Pacific Land Corp. (TPL), a company that checks nearly every box when it comes to capital efficiency and financial strength. It’s one of those rare businesses that flies under the radar for many but has all the qualities of a long-term winner. And in the kind of world we’re heading into—where energy, land, and water are all becoming more valuable by the day—TPL is positioned to thrive.
Founded way back in 1888, TPL’s origins are fascinating. The company was originally created during the bankruptcy of the Texas Pacific Railway, and instead of dissolving, it kept the vast landholdings that were granted to the railway. Today, TPL owns over 880,000 acres of land in West Texas, primarily in the Permian Basin, one of the most productive oil and gas regions in the world. This massive land portfolio forms the backbone of its business, but TPL isn’t just sitting on all that land—it’s actively generating revenue in several ways.
First, TPL manages its vast landholdings by leasing it out to oil and gas companies, collecting royalties as those companies extract resources from beneath the surface. This is a capital-efficient dream—TPL doesn’t have to drill or operate any wells; it just collects a cut of the profits without the heavy upfront costs. That’s the kind of business model I’m drawn to—one where you benefit from the growth of a sector (in this case, energy) without taking on the high costs and risks typically associated with it.
But TPL doesn’t stop at oil and gas royalties. It has another ace up its sleeve: water services. As oil and gas production in the Permian Basin ramps up, companies need a lot of water for drilling and fracking. TPL provides water solutions, including sourcing, storing, and recycling water for these operators. Water is becoming an increasingly scarce resource, and TPL has smartly positioned itself to profit from that rising demand.
What initially caught my attention with TPL is its balance sheet and capital-light business model. The company operates with minimal debt, high cash flow, and it doesn’t need to reinvest heavily to maintain or grow its operations. Essentially, TPL is a landlord of valuable land and resources in a time when those assets are becoming more critical to the global economy.
This is a company that has the potential to keep producing solid returns while staying insulated from some of the risks that other businesses in the energy sector face. Whether it's through oil royalties or water services, TPL’s core business is built around assets that are becoming increasingly scarce and essential—making it a standout example of a capital-efficient business that’s ready for the challenges ahead.
Why Capital Efficiency Matters
Capital efficiency is one of the key reasons TPL stands out as a smart investment. A capital-efficient business is one that generates significant revenue and growth while using minimal capital. These businesses don’t require heavy investment in assets or infrastructure, allowing them to operate with lower costs and higher returns. TPL exemplifies this concept with its capital-light business model.
Unlike traditional energy companies that need to invest heavily in infrastructure, drilling, or production, TPL doesn’t extract oil or manage large production facilities. Instead, they lease their land and collect royalties on the oil, gas, and water extracted by others. This strategy allows them to generate revenue without the operational risks or significant capital expenditures that weigh down other companies in the energy sector.
TPL’s ability to operate with minimal capital while maximizing returns creates a business model that is scalable and resilient, even during downturns. With no heavy operational costs, TPL can continue to perform well, even when energy prices fluctuate. Additionally, its growing water services business ensures a steady, diversified revenue stream—further enhancing its financial stability.
In short, TPL's capital-efficient approach makes it an ideal candidate for a portfolio focused on navigating economic uncertainty while maintaining steady growth.
Annual Financial Information
| In USD$ | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| Sales | $632M | $667M | $451M | $303M |
| Net Income | $406M | $446M | $270M | $175M |
| EPS | $55.77 | $57.77 | $34.83 | $22.70 |
| Shares Outstanding | 7,686,615 | 7,726,809 | 7,752,054 | 7,756,156 |
| Cash | $725M | $511M | $428M | $281M |
| Total debt | $0 | $0 | $0 | $0 |
| Free Cash Flows | $403M | $427M | $250M | $254M |
| Dividends | $100M | $247M | $85M | $202M |
| Share repuchases | $43M | $88M | $20M | $0 |
| Working capital | $818M | $218M | $476M | $311M |
| Retained Earnings | $1,172M | $866M | $668M | $0 |
| Return on Investment (ROE) | 44.7% | 62.7% | 47.5% | 35.3% |
TPL’s Strong Financials
Texas Pacific Land Corp. (TPL) is an outstanding example of financial stability and strength. As of Q2 2024, TPL boasts a robust balance sheet with $894.7 million in cash and cash equivalents, while maintaining virtually no debt. This puts the company in a highly secure financial position, capable of weathering economic downturns and capitalizing on growth opportunities without the burden of high leverage.
TPL’s business model allows them to generate substantial revenues with minimal expenses. They reported total revenues of $346.5 million for the first half of 2024, up from $306.9 million in the same period last year. Key revenue drivers include oil and gas royalties, water services, and easements, all of which contribute to a consistent and diversified revenue stream.
The company’s profitability is evident in its strong margins, with a net income of $229 million in the first six months of 2024, reflecting an impressive profit margin of 66%. This high level of profitability, coupled with their capital-light business model, highlights TPL’s consistent ability to generate substantial cash flows. In the first half of 2024, the company reported operating cash flows of $245.5 million and free cash flows of $235 million, ensuring the sustainability of their operations, rewarding shareholders, and maintaining solid financial flexibility.
In terms of shareholder returns, on March 7, 2024, the company declared a three-for-one stock split in the form of a 100% stock dividend, allowing each shareholder of record as of March 18, 2024, to receive two additional shares for every share they owned. The split, effective on March 27, 2024, made TPL’s stock more accessible to a broader range of investors while maintaining its impressive financial strength. As a result of the stock split, the number of outstanding shares increased from 7.7 million to approximately 23 million today.
TPL’s financial strength, with its ample cash reserves, low debt, and consistent cash flows, makes it a standout player in the energy sector and an ideal candidate for a portfolio seeking both stability and growth.
Growth Potential
Texas Pacific Land Corp. (TPL) stands out not just for its capital efficiency, but also for its impressive long-term growth potential. Unlike many companies that rely on a single revenue stream, TPL's diversified operations across land management, water services, and oil royalties provide a solid foundation for growth even during uncertain economic times.
One of the key drivers of TPL’s growth is its vast land holdings. As one of the largest landowners in Texas, the company’s extensive land portfolio ensures a steady stream of royalties from oil and gas production. The Permian Basin, where much of TPL’s land is located, remains one of the most prolific oil-producing regions in the world. As oil demand continues to grow or fluctuates, TPL benefits from the ongoing production and development on its land—without having to directly engage in the costly operations of extraction.
And with recent acquisitions in August and October 2024, TPL further solidified its position in the Permian Basin, acquiring approximately 11,596 net royalty acres across key regions. These deals, worth over $455 million, enhance TPL’s cash flow and offer significant growth potential in both current production and future development.
In addition to oil royalties, TPL’s water services business adds another layer of stability and growth potential. The company provides essential water sourcing, disposal, and treatment services to energy producers in the region, and with water becoming an increasingly critical resource in energy extraction, TPL is well-positioned to capitalize on this growing demand. Water management is essential for hydraulic fracturing (fracking), and TPL’s ability to meet this need ensures consistent revenue.
TPL’s unique position extends beyond oil and water. The company also generates revenue from disposal of saltwater, pipeline, power line, and utility easements on their land. These varied revenue streams add stability and protection against fluctuations in any single market.
In short, TPL’s growth potential is multifaceted. The combination of oil royalties, expanding water services, and land management not only offers resilience but significant room for expansion. The company's latest acquisitions bolster its presence in key regions of the Permian Basin, adding high-quality assets with strong cash flow yields. As the world continues to demand energy, water, and land, TPL is positioned to thrive and deliver strong returns, making it a prime candidate for any long-term portfolio.
On the Fence: Should I Add to the Portfolio Now?
Texas Pacific Land Corp. (TPL) checks many boxes for a long-term, capital-efficient investment.
Texas Pacific Land Corp. (TPL) stands out as a strong contender for those seeking both safety and growth in these uncertain times. While I’m impressed by the company’s fundamentals and the strength of its management team—always a key factor for me—I’m holding off for now. The stock has jumped roughly 13% in the past two weeks since I first started writing this issue, and it’s currently trading at around 50 times earnings, which feels a bit steep. I’d prefer a more attractive entry point, ideally starting around $600 per share. For now, TPL remains on my watchlist as I wait for the right opportunity to jump in.
Yields Are Dropping, and Smart Money is Selling
One of my all-time favorite audiobook and movie genres is the "end of the world" type—the kind where everything seems normal, and then suddenly, out of nowhere, life is flipped upside down. One moment, the world is as it should be, and in the next, it’s chaos. I've consumed enough of these stories to recognize when things are about to shift, and right now, that feeling is creeping in again. It’s as if we’re inching toward an event that could change everything, just like in those stories.
When it comes to the markets—the main focus of this newsletter—it feels like the storm is already here. The U.S. elections are just 25 days away, and the signs are hard to ignore: smart money is heading for the exits. Big players like Michael Dell, Jeff Bezos, Warren Buffett, and David Tepper are cashing out. Buffett’s been trimming his Apple and Bank of America positions, Michael Dell has been selling shares in his own company, and David Tepper dumped 84% of his NVIDIA holdings just in the second quarter of this year. Could they be signaling a market top? It sure feels like it.
What’s even more unsettling is the growing sense that we could wake up to headlines about a black swan event—something that drags us into a severe economic depression or an explosive escalation in global conflict. The idea that one of these events could trigger a major catastrophe is no longer far-fetched. The conflicts in Ukraine and the Middle East are intensifying, government spending is out of control, and debt is ballooning. Add in the fact that smart money is selling, and it’s clear that something big is on the horizon. It’s not a question of if, but when—and the real issue is, will we be ready when it hits?
For me, the answer is clear: it’s time to hunker down. I’m keeping a close eye on the U.S. elections, but honestly, at this point, it feels like it doesn’t matter who wins. It’s like trying to swap out the captain of the Titanic 50 feet before it hits the iceberg. The forces in motion are too great for any election outcome to change the trajectory. A geopolitical crash seems inevitable, and my focus is on preparation.
So, what’s my move? I’m sticking to my strategy: hold a substantial cash position (which I have), secure steady monthly income (check), and invest in commodities like oil and gold that tend to rise when the world goes south. I’ve got protection in place in case of a severe recession and enough exposure to take advantage of a crackup boom. My large cash position acts as a safety net, but I’ve also positioned for upside if inflation or a market melt-up kicks in.
As for the portfolio, I’m feeling good about where it stands. Since the start of the year, I’ve added a gold royalty company, two crypto ETFs that provide exposure to Ethereum and Bitcoin (and pay over 10% in monthly dividends), and a natural gas producer that offers geopolitical protection if gas prices surge. I’ve also made a play on the AI/data center boom. Most recently, I added two energy positions: Surge Energy (TSX: SGY) and BMO’s Covered Call Energy ETF (TSX: ZWEN), both of which are paying close to 9% in monthly dividends—giving me a nice boost to income.
Right now, over 87% of the portfolio is sitting in cash, but with interest rates falling, GIC yields have dropped from 5.40% a year ago to around 3.75%. It’s becoming harder to earn a decent return on cash, which makes the search for solid, yield-producing investments more pressing, despite the downside risks.
All in all, I’m confident in the portfolio. It’s well-diversified—energy, gold, crypto, natural gas, and a substantial cash position for protection. I’m ready for whatever comes next, whether it’s inflation, a geopolitical black swan, or a market correction. Now, it’s just about waiting.
The storm is coming, and when it hits, those who are prepared will be the ones who thrive. Be ready, and brace for impact—real opportunities are coming.
Portfolio Composition
| As of October 11th, 2024 | |
|---|---|
| Category | Portfolio Weight |
| Cash and GICs | 87.17% |
| Speculative Picks | 1.62% |
| Defensive Picks | 10.68% |
| Crypto | 0.53% |
| TOTAL | 100% |
Remember that the content of this newsletter is neither a stock recommendation nor investment advice. This is just something to consider. You can access my watchlist and portfolio through the link below. By clicking the link below you accept all responsibility for any potential losses that might result from buying any of the stocks mentioned in this newsletter.