We all make mistakes picking stocks. Whether it's buying a bad or poorly run business in hopes of a turnaround or selling a winner too soon, those portfolio scars can be permanent reminders that we will make mistakes and that it's best to learn from them.
There is one stock that I can personally claim wasn't a mistake early in my investing journey: American Tower (AMT -0.55%). It was one of the first single-stock positions in my portfolio and one I hold to this day. Since my first purchase on July 31, 2012, it has generated a market-beating total return of 311%.
Here's why I bought it and the surprising life story that has increased my long-term conviction in the cellphone tower real estate investment trust (REIT).
I think we're onto something with this whole 4G business
The years 2011 and 2012 were pivotable in the evolution of wireless technology and were akin to what we're seeing with the deployment of 5G today. It was then when we first started to see the deployment of 4G broadcast technology nationwide. In 2012, less than 20% of connected devices had 4G capability, and most carriers were still putting lots of money into ensuring they had enough capacity on 3G networks. Those with the most-advanced devices in 4G coverage areas were able to stream video. For those of us who grew up waiting hours to download a single MP3 on Limewire, this was astonishing (a nod to those of you who know exactly what I'm talking about).
The transition to 4G was poised to bring about a gigantic investment cycle for telecom companies. Deploying 3G from 2005-2010 cost telecom companies about $26 billion in annual capital spending, but transitioning to 4G led to annual capital investments north of $30 billion annually.
There was one investment that was a direct beneficiary of this 4G network arms race: cellphone tower REITs. With so much capital needed to deploy equipment, telecom companies don't want to spend on the physical infrastructure of towers. Furthermore, it would be inefficient for each telecom company to build towers to have only its own network equipment on it. So, instead, telecom companies rent space on a tower where they can install their equipment and pay the tower owner rent like they would any other landlord.
This gave cell tower owners two distinct advantages: 1) Being carrier agnostic meant it didn't matter who won or lost the 4G deployment race -- all carriers would pay the tower owner rent, and 2) towers with multiple tenants have much higher rates of return. American Tower estimates that the return on investment for a single-tenant tower in the U.S. is about 3%, but a three-tenant tower can generate returns upward of 24%.
This was, at the time, my reasoning for buying American Tower. It was one of the biggest U.S. tower owners with a few assets overseas. Back then, though, I was skeptical of the company's decision to make big investments overseas in developing markets. If the returns were so good for multitenant towers in the U.S., why chase growth elsewhere?
It took a major life change for me to do a 180 on that idea, though.
Why are they investing in Burkina Faso?
From 2012 to 2015, American Tower's portfolio began to change dramatically. What was once a U.S.-centric portfolio with a few international assets was becoming a truly global one. The company made tower acquisitions in Germany, Uganda, Brazil, and Nigeria. At first glance, I questioned why it was worth it to buy towers in far-off places where data usage was a fraction of what it was in the U.S. and where the returns were so attractive.
Then, in 2016, I too moved to those far-off places for my wife's work -- first to Malawi, then to the Gambia.
It's hard to condense almost six years of living in two of the poorest countries in the world into a sentence or two, but here's the best way I have been able to articulate it. Despite the challenges and frustrations of daily life that can get you down on these places, you cannot help but see the swaths of untapped potential just waiting to be unlocked. It could take years, or even decades, for that potential to be realized. Once it is, though, the developing world as we know it could be the next great engine of global growth, as we saw with China and the so-called Asian Tigers of the '90s and 2000s.
This made me reevaluate what American Tower was doing overseas. It was like a lightning strike. Many of these places where it was investing -- Nigeria and Uganda, then India and South America -- were still making the shift from 3G to 4G. At the same time, new telecom companies were entering those markets. What's more, the rates of return for towers -- even for single-tenant towers -- were considerably higher than for similar towers in the U.S.
Buying towers in countries that were about to embark on decades of massive capital spending, and positioning itself on prime real estate, held the potential to be a multidecade runway of immense profitability for American Tower.
Since that realization, American Tower has invested even more heavily overseas to the point that U.S. communications sites represent less than 20% of its portfolio, and the company has expanded to 25 countries in six continents.
A different investment for a different person
Companies change, and we as investors change based on the life experiences we have along the way. I was fortunate that one of the earliest companies in which I invested changed in a way that lined up almost exactly with an experience that altered my outlook.
I am hesitant to say that I will never sell American Tower, or any stock for that matter, because times, outlooks, and personal circumstances can change. That said, it will take a lot for me to change my mind about continuing to remain invested in this stock for the decades in which it will likely realize the value of its international investments.