Risk and The Many Forms of Leverage

"There is another form of leverage. For companies that has large and ongoing infrustructure. This is deferred maintenance.

AT&T is a prime example of this. Airlines do it also.

This typically happens when a company has declining top line revenue and increasing profits.

Are you at least able to keep the fiber safe? "

there is always a risk of the fiber getting cut, there is constant digging going on in the outside
world, we can’t stop that from happening. But the fiber equipment and paths the fiber takes have redundancy engineered in, so if a cut occurs the system switches traffic onto the backup route.

the copper cable that is in the ground has huge deferred maintenance issues, the company just doesn’t seem to value it at all. we want to be an all IP based switching network, with strictly fiber and wireless for transport. but doing so will lead to some customers not being able to get basic service, and the government will not allow AT&T to just abandon these customers. so we manage to cobble together enough working copper pairs to keep things going for basic service, but this arrangement does not allow these mostly rural customers to have hi speed service. 5G wireless might be the solution, but at what cost ? to be determined.

we do a pretty damn good job, imo, of supplying emergency power to our CO’s. we have either stationary engines or deployed portables installed at every CO. the stationary’s have an ATS so no human intervention is needed when commercial power is lost. the portables do require a human to connect, start, and switch CO over. But at one of my locations we recently had a contractor install an ATS, and we wired a portable to it, so no human necessary when power is lost. that is a huge savings over installing a stationary engine, so I expect this to be used more in the future.

If AT&T can deal with it’s massive debt, and get that payed down, then they have a pretty bright future,imo. But they better not get hit with any black swan financial events in the meantime.

hey, I’m doing other things while catching up on my reading, AT&T is the furthest thing from a Saul stock so I shouldn’t even be discussing it here. I’ll try to FA it.

Back atcha, Ethan. Always look forward to your posts.

I couldn’t find the particulars of the third party insurance. Do you have any info?.

No. If I followed the company I’d check the conference calls. Maybe ask Investor Relations if
I couldn’t find it there or in their filings.

I’ve always considered this an asset of the shopify/SaaS business model. Do you feel otherwise?

You get an asset from a liability? Glass half full? lol, I’m kidding you a bit.
I’d just keep in mind that this is not “free cash” as in disposable cash – there’s a claim on it.
As putnid said, it’s “encumbered”. But there certainly is an advantage to this model of getting the
money up front.

Are you sceptical of the SaaS business model?


Look, you’ve started to look into risk, rather than returns. I think that’s refreshing, and it
reflects how smart an investor you are. In that spirit, keep in mind that these SaaS companies don’t
disclose how much of each dollar spent is allocated to investment and how much is allocated to
current operations. So, again, for each of these players it’s difficult to predict the timing and
magnitude of profits and disposable cash when they get to nirvana. So you want to make sure you
structure your portfolio to manage that risk and also manage the risk of randomness. You’re on the
right track!

Do you mind if I ask what stocks you currently find attractive

I’m invested in things that retail investors can’t invest in.



C’mon B&W, you’ll never start a fire by rubbing two stones together. You need to use sticks.

A little more seriously, using necessary leverage (debt) is not always a bad thing, but it always comes with inherent risk. I find no fault in an explanation of different forms of leverage and briefly describing the attendant risks. I don’t believe that Ethan was suggesting that all leverage is a bad thing. I do think that he was asserting the obvious, that highly leveraged companies pose greater risks than companies that are not highly leveraged.

For someone highly invested in REITs which are really just leverage machines that might not be a welcome message. That doesn’t make it less true. Well managed leverage can be a key to great fortune. The well managed part is the rub in a lot of situations.

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