OCA - Oceania Group - retirement villages

[Bjauck]

Ocas thread is a farce. It is full of stuff from Horses asses. Just added my two penn’orth.

[winner69]

Ocas thread is a farce. It is full of stuff from Horses asses. Just added my two penn’orth.

Heading to 4.5 million posts bjauck

OCA seems to bring the worst out in punters ….but must be one or two pearls of wisdom amongst the posts

[bull....]

I think the uncomfortable question is whether underlying EPS, as defined by OCA and others in the RV industry, is even an appropriate metric to apply a PE multiple to. Lots of work has been done by various brokers and the shareholders association on its many drawbacks (primarily based on what it omits), and the severely lacking correlation to underlying cashflow from operations (ie cashflow ex development). Even old Ryman has signaled it is moving away from its traditional underlying earnings metric, and next year will even stop issuing guidance on it.

Cashflow is king, as they say. but defining it is not straight forward.

ben graham used to use eps but i believe buffet as part of his magic formula expanded on the definition of how to interpret eps and modified it no longer used a straight eps difinition

[ValueNZ]

Ok, that's a good example. And I misunderstood you had basically provided the framework for that example. Apologies.

But it's not really what I'm asking. I'm asking, and I'm genuinely interested in opinions, and yes it does apply to the alleged Value stock of this thread, and I'll try and reword it.....: If we accept that Value investing is real (and I accept that), but if we also accept that Buffett, one of the greatest of all time, if not the greatest, has an advantage with the scale of his investments and his utilization of preferred stock and friendly board seats, then that means without those things there is a disadvantage compared. But people are ignoring this disadvantage, and these value plays may end up priced the same with no real upward inclination (ie, under for the one seeking value) for a very long time, maybe forever.

Why would one accept that Buffett has an advantage due to the scale of his investments when that's blatantly false.

Look at his partnership returns, when he was working with smaller sums of capital, and compare them to the returns of Berkshire.

[bull....]

buffetts magic formula is applicable at any scale

[SailorRob]

It's the most widely accepted and provable fact that size is a massive disadvantage. Buffett himself has spoken about this since at least 1990... Everyone knows and understands that compounding capital on huge amounts of capital is very difficult.

Literally one of the most well understood things in capitalism.

[SailorRob]

Why would one accept that Buffett has an advantage due to the scale of his investments when that's blatantly false.

Look at his partnership returns, when he was working with smaller sums of capital, and compare them to the returns of Berkshire.

Not only false but the exact opposite. One of the fundamental rules of the universe when it comes to investing.
The sub 100 million investor has a massive advantage

[bull....]

the $10 dollar investor has an even bigger advantage but anyway buffett is only constrained thru lack of opportunity to implement his formula. he has stated so

[SailorRob]

the $10 dollar investor has an even bigger advantage but anyway buffett is only constrained thru lack of opportunity to implement his formula. he has stated so

Show me him stating that and I'll give you 100k

[SailorRob]

Never once heard him talk about his 'formula' and I've read and listened to everything that exists...

[SailorRob]

Ok then, let's see if you "retail" investors, make your fortunes via Oceania, the internationally-renowned New Zealand retirement homes operator, all making it to billionaire status in the process lol...... Remember, as you say: the smaller the better!

I don't follow the logic here, anyone?

[Baa_Baa]

Ok then, let's see if you "retail" investors, make your fortunes via Oceania, the internationally-renowned New Zealand retirement homes operator, all making it to billionaire status in the process lol...... Remember, as you say: the smaller the better!

So your whole motive here today, spending the entire day with numerous posts, was to troll OCA shareholders, just because you don't like some of their attention to Buffetts investment principles, or for them to even mention it?

Weird, one day back from your ban ending, for insulting members and you're already offside with the whole OCA community. How to win friends and influence people was obviously not on your reading list. Your reply will determine whether you go back on ignore, like you were before you got banned the last time.

[SailorRob]

buffett is only constrained thru lack of opportunity to implement his formula. he has stated so


Buffett -

I think a number of people might have thought Coca-Cola was repurchasing shares at a very high price, because they’ll look at book value or P/E ratios. But there’s a lot more to intrinsic value than book value and P/E ratios. And anytime anybody gives you some formula for figuring it out, forget it.

You

have

to

understand

the

business.

The people who understood that business well, the management, have understood and been very forthright about saying so over the years, that by repurchasing their shares, they are adding to the value per share for remaining shareholders.

[SailorRob]

Now to bring this all back to OCA, why would Warren like this business?

Because of the example Maverick used earlier where they just stop any further investments and sell down and let. the float turn into cash.

Buffett would rightly see this as interest free non callable money that he could use to do anything with, and he would.

Obviously he could not be interested in this company now as his size totally precludes him from anything like this.

But I can guarantee in the early days of Berkshire they would have pounced.

Instead they used Bluechip Stamps and some small insurance companies to get their hands on free money as well as a bank.

[Baa_Baa]

Hey Ferg, thanks for your reply and challenge, I agree that the accounting norms or models de jure don't reflect the value or worth of the company. If the 'float', especially the amount that will probably never be repaid, was brought from a liability into the assets (which it is), then all of these RV's would be grossly underperforming their leverage on that asset.

It's a stretch (not that you said it will) to think these RV's will ever acknowledge their true 'underlying' value to investors, taking into account the withholdings that will never be repaid, until the aged population starts to diminish, maybe 20-30 years from now. it would expose that they have massively unleveraged assets and didn't need a bank to finance them.

[SailorRob]

It's a stretch (not that you said it will) to think these RV's will ever acknowledge their true 'underlying' value to investors, taking into account the withholdings that will never be repaid, until the aged population starts to diminish, maybe 20-30 years from now. it would expose that they have massively unleveraged assets and didn't need a bank to finance them.

Or until they choose not to grow?

[Baa_Baa]

Or until they choose not to grow?

Yes, and I think all of them except SUM, have said they'll will slow down growth. At the heart of it, they're all property development and investment companies, if they're not developing property and selling it, they're going backwards.

None of them acknowledge the float as an asset on their balance sheets, none of them. It's a blind spot and doing none of them favours with investors, fabricating 'underlying this and that' numbers that have recently been called into question, rightfully so imo.

[SailorRob]

None of them acknowledge the float as an asset on their balance sheets, none of them. It's a blind spot and doing none of them favours with investors


Do you even think that they understand it? Or think like we do about it?

Surely to christ they must do.

[Ferg]

Do you even think that they understand it? Or think like we do about it?

Surely to christ they must do.

IMO the people who set it up 100% understood it otherwise they wouldn't have done it this way, and the P/E owners would have seen this in a flash. What I have observed elsewhere is institutional knowledge is lost around the 2nd to 3rd cycle of replacement staff. I would like to think the current crop of staff know this....but from a political and/or client perspective RVs might not want to crow on about the float too much. Can't upset prospective clients.

[Ferg]

Hey Ferg, thanks for your reply and challenge, I agree that the accounting norms or models de jure don't reflect the value or worth of the company. If the 'float', especially the amount that will probably never be repaid, was brought from a liability into the assets (which it is), then all of these RV's would be grossly underperforming their leverage on that asset.

It's a stretch (not that you said it will) to think these RV's will ever acknowledge their true 'underlying' value to investors, taking into account the withholdings that will never be repaid, until the aged population starts to diminish, maybe 20-30 years from now. it would expose that they have massively unleveraged assets and didn't need a bank to finance them.

You're welcome. RVs also don't help themselves with the cashflow presentation. The RVs touch on the underlying value when they refer to 'embedded value' - it is often hidden deep within the notes of the presentation. Refer p23 of the OCA 1H23 presentation - they split the value between resale gains & DMF. So yes they get it SR.

Your first sentence - I raised the issue in this thread maybe 2-3 years ago of not counting the float in the NTA calculation given it was never repaid - but was talked out of it by another poster. But I still think of it this way.

[bull....]

I'm seeing red flag after red flag after red flag in this thread.



* Re the above comment, holding an individual stock - and it can be any stock - that is a dog, for ten years........: is a disaster. You don't seem to have contemplated this possibility.

* Falling in love with the Oceania float concept and its alleged amazing benefit and at the same time willfully ignoring the fact that the company is made up of many more facets........: is a good example of blinkered thinking that is negatively impacting for decision making in an investment context.

* Posters getting extremely angry and asking for bans after someone is pointing things out.......: proves my free speech (my growing negative opinion on this stock) cannot be countered with free speech in return; my argument cannot be reduced by counter-argument, and instead I need to be censored.....: !!extreme red flag!!

* Shout-outs to Warren Buffett as if he's in the background giving his real opinion on Oceania after he has utilized his extensive resources to research the company. What's next I wonder? An A.I. deepfake video of Buffett talking about said New Zealand rest home's "float" and how amazing it is, what an incredible find, thanks Sailor and ValueNZ for forwarding it on and would they like a 10% commission on his offer for the company???........: lol these shout-outs are more funny than tragic, but at the same time misleading and with the appearance of a sideshow to cover up the shallow knowledge behind this so-called value play.

the funniest thing is these people believe OCA has a float and they believe the company is hiding it in the accounts lol from people

[bull....]

Show me him stating that and I'll give you 100k

buffett has stated many times he see no opportunities to invest in big companies at the moment ( if you read between the lines moment meaning nothing that meets his magic formula ) and he goes on to say often when he does find something private equity end up paying more and he misses the opp ( read between the line meaning his magic formula says he can only pay this much for a company otherwise it does not work ).

when do you plan to send me my 100k ?

[bull....]

anyway people should read and think about this statement made yesterday and directly apply it to how you might value OCA or for that fact any RV going forward

Prime Minister Christopher Luxon: High net migration not sustainable for New Zealand


https://www.rnz.co.nz/news/national/504428/prime-minister-christopher-luxon-high-net-migration-not-sustainable-for-new-zealand#:~:text=Prime%20Minister%20Christopher%20L uxon%3A%20High%20net%20migration%20not%20sustainab le%20for%20New%20Zealand,-10%3A52%20am&text=New%20Zealand's%20118%2C000%20net%20migration ,says%20Prime%20Minister%20Christopher%20Luxon.

[SailorRob]

IMO the people who set it up 100% understood it otherwise they wouldn't have done it this way, and the P/E owners would have seen this in a flash. What I have observed elsewhere is institutional knowledge is lost around the 2nd to 3rd cycle of replacement staff. I would like to think the current crop of staff know this....but from a political and/or client perspective RVs might not want to crow on about the float too much. Can't upset prospective clients.

Excellent points, makes sense thanks.

[SailorRob]

buffett has stated many times he see no opportunities to invest in big companies at the moment ( if you read between the lines moment meaning nothing that meets his magic formula ) and he goes on to say often when he does find something private equity end up paying more and he misses the opp ( read between the line meaning his magic formula says he can only pay this much for a company otherwise it does not work ).

when do you plan to send me my 100k ?


As soon as I don't have to 'read between the lines' and you provide me with his statement about having a magic formula.

[SailorRob]

There is one thing that Bull, Azz and Day Trader can be commended for.

You can tell they are interested in OCA and know that there is something there that they are desperately trying to understand given the constant infantile questions and attention, but there is no way they can understand it, not even close, even when it's explained in such a way that a small child would grasp (I'm not talking about ValueNZ).

Understanding a balance sheet and business model as well as the math of lower prices vs higher - all this mid range stuff is well beyond them.

So they don't buy it.

And that's the lesson, they are not stupid enough to buy into something they don't and cannot understand and there is a lot to be said for that.

Instead they buy Nividia and day trade gold and use 12 screens to look at historical prices of random things.

This is what makes a market and is why we have superior long term returns, you need monkeys in the game.

[SailorRob]

I love the stock market - because it's very easy to prove, via stock price, over time periods, as to performance of the stock. And no that does not include Bizarro World where you and your pal ValueNZ turn everything upside down - when it suits ya - by pathetically saying that the lower the stock price the better. This is money, capital. You're tying up capital for what? What is the return on this. Where will the stock price be in two years time? Three years? Five years? I reckon it'll be worth even less than it is now at all those points. And if I'm wrong, and it's higher than now, I reckon it will still be a crappy price. When does this remarkable company with the magical float become valued appropriately as to your assertions for it?

As for Nvidia, one of my top gainers, a brilliant return and more to come, you can't even spell it right.


Nice gain bro. We're not some crank in mums basement trading 5k on a ****ty old laptop, this is the real world.

[SailorRob]

In other words, you cannot make any statement as to how this "magic float stock" is going to play out. What's the plan? You just buy endless shares, over and over, with an apparently infinite amount of money, never selling them, and the stock price goes down, or never goes up..... and then what? You've just burned capital on a wasteful pursuit while other opportunities, real ones, have passed you by.


I have posted thousands of words on the topic over a long period of time.

Azz you do not need to participate, it's not my job to dumb it down for you. Just don't buy.

I am very happy allocating capital here and will continue to do so if the price falls.

If the other shareholders end up giving me the whole company for free, will I be upset or happy?

I'm here for the long term, I hope the share price stays at 70c into the 2040's provided the intrinsic value increases at a significant rate.

[bull....]

The martingale system comes to mind

[bull....]

Or you get a takeover under your average buy price. that would ruin the plan

[winner69]

The martingale system comes to mind


Speedy Az has a cool martingale collar …..cool eh

[Bobdn]

Had to look it up
.
1. a strap or set of straps running from the noseband or reins to the girth of a horse, used to prevent the horse from raising its head too high.

2.
a gambling system of continually doubling the stakes in the hope of an eventual win that must yield a net profit.

[Daytr]

There is one thing that Bull, Azz and Day Trader can be commended for.

You can tell they are interested in OCA and know that there is something there that they are desperately trying to understand given the constant infantile questions and attention, but there is no way they can understand it, not even close, even when it's explained in such a way that a small child would grasp (I'm not talking about ValueNZ).

Understanding a balance sheet and business model as well as the math of lower prices vs higher - all this mid range stuff is well beyond them.

So they don't buy it.

And that's the lesson, they are not stupid enough to buy into something they don't and cannot understand and there is a lot to be said for that.

Instead they buy Nividia and day trade gold and use 12 screens to look at historical prices of random things.

This is what makes a market and is why we have superior long term returns, you need monkeys in the game.

Why are you including me in this?
I already have said some time ago I understand it, as it's actually not that difficult.
You just seem to have difficulty conveying it to others.

I actually agree with Mav, ValueNZ, Ferg & yourself that this is a value proposition.

The only thing I have debated is entry level & I commended your buying at 68c and that it's not a risk free investment you seem to make out.

But overall and over an extended horizon OCA imo will prove to be a very good investment.
I actually wouldn't be surprised to see even in the short term i.e the next year it proves to be a good investment, but the full value will probably take circa 10 years as you say.

I am surprised however, for someone who keeps saying they want the SP to be lower for longer that you talk up the company so much. Sort of goes against what you keep saying.

[SailorRob]

Why are you including me in this?
I already have said some time ago I understand it, as it's actually not that difficult.
You just seem to have difficulty conveying it to others.

I actually agree with Mav, ValueNZ, Ferg & yourself that this is a value proposition.

The only thing I have debated is entry level & I commended your buying at 68c and that it's not a risk free investment you seem to make out.

But overall and over an extended horizon OCA imo will prove to be a very good investment.
I actually wouldn't be surprised to see even in the short term i.e the next year it proves to be a good investment, but the full value will probably take circa 10 years as you say.

I am surprised however, for someone who keeps saying they want the SP to be lower for longer that you talk up the company so much. Sort of goes against what you keep saying.


Ok I apologise and take it back.

Yeah I really don't think my posting on here will move the price at all so that doesn't bother me. It's not the company I talk up, it's the big picture model. The company could apply it a lot better clearly.

My 68c buying wasn't as good as the bellyfull I bottom ticked at 39c or there about, sold a few weeks/Months later at 86c only because of better opportunities elsewhere at the time.

My average this time around is about the same as ValueNZ at 81c.

Price matters.

[SailorRob]

Azz psot about buying endless shares with infinite amount of money, has been deleted. While he said as a joke...

In ValueNZ's case it's close to the truth.

While he begins his professional career and starts earning serious money, in relation to what he has now he will be able to buy endless shares with a comparatively endless amount of money.

What will he want, a low share price or a high one?

Provided the business remains the same or higher intrinsic, I would hazard a guess he would want a lower price.

[bull....]

Ok I apologise and take it back.

Yeah I really don't think my posting on here will move the price at all so that doesn't bother me. It's not the company I talk up, it's the big picture model. The company could apply it a lot better clearly.

My 68c buying wasn't as good as the bellyfull I bottom ticked at 39c or there about, sold a few weeks/Months later at 86c only because of better opportunities elsewhere at the time.

My average this time around is about the same as ValueNZ at 81c.

Price matters.

so your a trader when you want to be ? as why wouldnt you be holding your 39c stock if the future is so bright.

[SailorRob]

so your a trader when you want to be ? as why wouldnt you be holding your 39c stock if the future is so bright.


You absolute muppet.

I said that the opportunities elsewhere were better.

The future was FAR brighter for what I bought (brought) instead hence why I'm sitting on my arse now counting my eggs.

[bull....]

You absolute muppet.

I said that the opportunities elsewhere were better.

The future was FAR brighter for what I bought (brought) instead hence why I'm sitting on my arse now counting my eggs.

you muppett thats a trader talk , i sold for better opportunities lol trader in disguise alert

[SailorRob]

you muppett thats a trader talk , i sold for better opportunities lol trader in disguise alert


I iss ere biz finks cheyp iff I kann amabee rr tradar

[bull....]

anyway back too OCA i see the 74c held as resistance again

[SailorRob]

anyway back too OCA i see the 74c held as resistance again

Wot waz ur job Bull befor you left 20 year ago to be ful tyme tradr?

[bull....]

Wot waz ur job Bull befor you left 20 year ago to be ful tyme tradr?

i worked in the oil industry

[Baa_Baa]

Azz really speedrunning his next ban 😂

That didn't take long, Azz gone from members list and all posts as well by the look of it.

[Daytr]

That didn't take long, Azz gone from members list and all posts as well by the look of it.

That's got to be some kind of record. 🤣

[Baa_Baa]

What I would really like to see, is someone brave enough to re-state the balance sheet, with the current numbers, taking into account the true assets (especially what withholdings are really held on balance and will never be repaid, vs what has to be paid out eventually) and genuine liabilities and debts without any 'underlying' assumptions.

From there we can do a true assessment of value. After that we can do a cashflow analysis, but we need to understand the true balance sheet first.

My DCF is broken because, despite the discount assumptions, very few of the basic inputs seems to be true based on current reporting, as they're distorted by other assumptions.

I've tried to reconcile the true balance sheet, but am so far unsuccessful as the numbers are so obfuscated I keep getting tied up in knots that my spreadsheet has errors all over it. Perhaps this is at the limit of my FA. It's annoying that I can't seem to do this myself, so reaching out for some help.

Can anyone help make some sense of this?

[SailorRob]

What I would really like to see, is someone brave enough to re-state the balance sheet, with the current numbers, taking into account the true assets (especially what withholdings are really held on balance and will never be repaid, vs what has to be paid out eventually) and genuine liabilities and debts without any 'underlying' assumptions.

From there we can do a true assessment of value. After that we can do a cashflow analysis, but we need to understand the true balance sheet first.

My DCF is broken because, despite the discount assumptions, very few of the basic inputs seems to be true based on current reporting, as they're distorted by other assumptions.

I've tried to reconcile the true balance sheet, but am so far unsuccessful as the numbers are so obfuscated I keep getting tied up in knots that my spreadsheet has errors all over it. Perhaps this is at the limit of my FA. It's annoying that I can't seem to do this myself, so reaching out for some help.

Can anyone help make some sense of this?


Ultimately though it all comes down to cashflow, the balance sheet as you know is just a list of assets and how they are funded. Means nothing if they can't produce cash.

As a lot of folk are finding out, cheap money when used to purchase expensive houses, stabi craft and Ford Rangers... Well it doesn't work out very well, even if they were paid 2% to borrow the money it would still be terrible.

I do like your idea but I see it as potentially very useful and potentially just technicality.

As you know, to me their balance sheet is everything, but all I need to understand roughly is the big picture - as discussed here often (in terms of the balance sheet). And then to be able to see that just a small return on assets will lead to huge returns on equity. And very low risk.

What we don't want is a small loss on Assets.

I mean just look at it this way - all of the assets are owned by the equity holders with a very small portion that has a claim on it by debt holders and another group that contractually has right of use of some of the assets with lots of obligations as well.

[ronaldson]

Remember, this is a business in transition.

Since FY23 it has ceased to operate 5 resthomes, and has 7 more for sale ( one was under contract by 30 Sept). Already it has lost 255 care beds in just six months with likely at least that many more on the block currently. So revenue will fall, along with staff costs and other operating overhead, and the underlying asset base will be adjusted (albeit the two leasehold facilities were the first to be exited, and one other facility was simply closed without the land and buildings being onsold at that juncture). This swing away from care beds to village units has been ongoing since listing but is definitely accelerating now that underlying circumstances are more permissive.

So if that pivot continues, as it surely will, then spreadsheet comparison isn't easy, further compounded by the acquisitions of operating facitities with development potential.

It will take time for this business to reach a more stable operating base and the fog to lift.

[bull....]

shame Azz gone. offered good reasonable debate. like SR lol

[SailorRob]

i worked in the oil industry


Was that domestic NZ or overseas. NZ oil industry is very small.

[bull....]

Was that domestic NZ or overseas. NZ oil industry is very small.

i was a fuel pump technician ie dispensed fuel to grumpy customers.

It really set me up for my successful transition to full time trading

[Daytr]

Remember, this is a business in transition.

Since FY23 it has ceased to operate 5 resthomes, and has 7 more for sale ( one was under contract by 30 Sept). Already it has lost 255 care beds in just six months with likely at least that many more on the block currently. So revenue will fall, along with staff costs and other operating overhead, and the underlying asset base will be adjusted (albeit the two leasehold facilities were the first to be exited, and one other facility was simply closed without the land and buildings being onsold at that juncture). This swing away from care beds to village units has been ongoing since listing but is definitely accelerating now that underlying circumstances are more permissive.

So if that pivot continues, as it surely will, then spreadsheet comparison isn't easy, further compounded by the acquisitions of operating facitities with development potential.

It will take time for this business to reach a more stable operating base and the fog to lift.

Thats a good question you have raised there that others maybe able to answer.

If the future cashflow of the DMF is so good which it should be why would they be selling off villages in a market that doesn't recognize that value?

Thoughts?

[winner69]

Jeez Ron …..I worry about you when you use words like transition, pivot and even stable

Did you leave out your thoughts about how they can keep entropy from happening?

Or is it really a matter of how conveniently they can reinvent holistic convergence?

[Rawz]

Once they are past the point of inflection this will rocket

[bull....]

Thats a good question you have raised there that others maybe able to answer.

If the future cashflow of the DMF is so good which it should be why would they be selling off villages in a market that doesn't recognize that value?

Thoughts?

the irr not good enough if you take this is relation to the cost of capital and its leading to uneven cashflows thats why. basically sh.t investments they have made. thats how insurance companies go bust they invest there float in sh.t investemnts or dont manage the risk correctly. thats why buffett is far surperior to all as his underwriters are the best of the best.

[ronaldson]

Thats a good question you have raised there that others maybe able to answer.

If the future cashflow of the DMF is so good which it should be why would they be selling off villages in a market that doesn't recognize that value?

Thoughts?

Because rest home beds do not generate any DMF.

[Daytr]

Because rest home beds do not generate any DMF.

Sorry I thought I read above that they were selling entire villages, I.e units as well.
I understand re the care units.

[winner69]

Once they are past the point of inflection this will rocket


They said they point of inflection was a few years ago

[Greekwatchdog]

They said they point of inflection was a few years ago

Then we had Covid. Go figure

[SailorRob]

the irr not good enough if you take this is relation to the cost of capital and its leading to uneven cashflows thats why. basically sh.t investments they have made. thats how insurance companies go bust they invest there float in sh.t investemnts or dont manage the risk correctly. thats why buffett is far surperior to all as his underwriters are the best of the best.

I never knew underwriters invested float, cheers for this.

[bull....]

I never knew underwriters invested float, cheers for this.

funny. without them there would be no float for buffettt to invest. anyway time for bed big fed day coming up

[Ferg]

Sorry I thought I read above that they were selling entire villages, I.e units as well.
I understand re the care units.
They have care suites and care beds but not care units. Was that a typo? Suites have DMF, beds do not.

If you compare p25 of the presentation for H1 for FY24 to p26 of the presentation for the end of fiscal 23, you will see some sites are missing from the later report which have been sold/disposed. These include:

Green Valley Lodge: 50 care beds
Amberwood: 67 care beds
Everil Orr : 52 care beds
Wesley : 51 care beds
Otumarama : 32 care beds & 7 care suites


From memory OCA signalled they would sell the older sites that were primarily care beds. It's part of the prolonged pivot/inflection.

[Daytr]

They have care suites and care beds but not care units. Was that a typo? Suites have DMF, beds do not.

If you compare p25 of the presentation for H1 for FY24 to p26 of the presentation for the end of fiscal 23, you will see some sites are missing from the later report which have been sold/disposed. These include:

Green Valley Lodge: 50 care beds
Amberwood: 67 care beds
Everil Orr : 52 care beds
Wesley : 51 care beds
Otumarama : 32 care beds & 7 care suites


From memory OCA signalled they would sell the older sites that were primarily care beds. It's part of the prolonged pivot/inflection.

Thanks Ferg and that makes sense.
It will make it more difficult to sell new developments or on selling existing units as next phase security is important for residents buying in.
However if the DMF is unaffected which is the critical piece for long term value.

[SailorRob]

anyway time for bed big fed day coming up


Why did you got to bed at 11:56 AM yesterday for the 'big fed day coming up' when as of right now the meeting still hasn't happened?

[bull....]

Why did you got to bed at 11:56 AM yesterday for the 'big fed day coming up' when as of right now the meeting still hasn't happened?

we dont all rise at your hr's anyway you better get oca back on track , your narrative is changing from float is king to prolonged/pivot underway. and educate daytr i didnt understand a thing he said lol

[SailorRob]

we dont all rise at your hr's anyway you better get oca back on track , your narrative is changing from float is king to prolonged/pivot underway. and educate daytr i didnt understand a thing he said lol

No need to educate Daytr I am confident he gets the big picture of the investment case and understands the business model and potential value at current market cap.

I haven't said anything about a prolonged pivot or that float is not king. To get OCA back on track, it would first have to be 'off track'.

Whilst I understand not everyone gets up at the same time, with some rising before 6am others after 8am... What I don't understand is why someone goes to bed before noon the day before a fed meeting that is at 08:30 the next morning. Doesn't make any sense.

So you worked pumping gas in petrol stations until you were late 30's early 40's and had traded through the Dot Com bust where practically every trader type got wiped out, and by circa 2003, the bottom of the market you realised you had enough capital and had amassed enough skill to quit the job and go into full-time trading where you have survived and sustained yourself for 20 years, never having to go back to the bowser again.

All very interesting.

[bull....]

No need to educate Daytr I am confident he gets the big picture of the investment case and understands the business model and potential value at current market cap.

I haven't said anything about a prolonged pivot or that float is not king. To get OCA back on track, it would first have to be 'off track'.

Whilst I understand not everyone gets up at the same time, with some rising before 6am others after 8am... What I don't understand is why someone goes to bed before noon the day before a fed meeting that is at 08:30 the next morning. Doesn't make any sense.

So you worked pumping gas in petrol stations until you were late 30's early 40's and had traded through the Dot Com bust where practically every trader type got wiped out, and by circa 2003, the bottom of the market you realised you had enough capital and had amassed enough skill to quit the job and go into full-time trading where you have survived and sustained yourself for 20 years, never having to go back to the bowser again.

All very interesting.

midday nap. good leads to higher performance.

anyway back at the pump where i learned one day that the pump wasnt dispensing the correct litre's as to the dollar amount paid although i was only out by a couple cents. made me wonder why do the pumps do this ? so i was asking the other dude who was also pump attendant too but a rather clever young fella with money who already owned 5 auckland properties with his brother about why would the pumps do this. he explained to me it was all about compounding. anyway went on to tell me the the petrol stations were volume business so if they made a couple cents over huge volume everyday and then compounded this over a long time it grew into big extra profits for them. tralk about a eye operner for me. went away did some research on this compounding and wala the holy grail had arrived in my head. anyway thats what lead to trading i thought if i could do what the petrol company doing everyday and compound it i be rich. of course i didnt have much money being a pump attendant so trading offered way to do this f i could earn a small amount each day and compund it like the petrol station i make lots of money of course as my money pile got bigger this was not feasble to do for ever and it didnt matter by then as i had learnt heaps from rteading books by then and my time frames moved out to not day tradiong to take into account larger sums of course the theory of compounding is still relevant. of course petrol companies dont do this now as they got caught out and now have people monitoring this lurk.

[Leemsip]

This is almost identical to sailor robs origin story. Just replace all the “compounding” with “float” and exchange the pump attendant mentor with buffett. Believe SR also had an oil background at marsden point, so lots in common. Is anyone else thinking what I’m thinking????

[SailorRob]

midday nap. good leads to higher performance.

anyway back at the pump where i learned one day that the pump wasnt dispensing the correct litre's as to the dollar amount paid although i was only out by a couple cents. made me wonder why do the pumps do this ? so i was asking the other dude who was also pump attendant too but a rather clever young fella with money who already owned 5 auckland properties with his brother about why would the pumps do this. he explained to me it was all about compounding. anyway went on to tell me the the petrol stations were volume business so if they made a couple cents over huge volume everyday and then compounded this over a long time it grew into big extra profits for them. tralk about a eye operner for me. went away did some research on this compounding and wala the holy grail had arrived in my head. anyway thats what lead to trading i thought if i could do what the petrol company doing everyday and compound it i be rich. of course i didnt have much money being a pump attendant so trading offered way to do this f i could earn a small amount each day and compund it like the petrol station i make lots of money of course as my money pile got bigger this was not feasble to do for ever and it didnt matter by then as i had learnt heaps from rteading books by then and my time frames moved out to not day tradiong to take into account larger sums of course the theory of compounding is still relevant. of course petrol companies dont do this now as they got caught out and now have people monitoring this lurk.

I don't understand what this has to do with compounding.

They were slightly increasing their margins, but how were they compounding this extra profit.

Two different things.

Did you think you'd fool people into believing you were sleeping during the day in order to trade during the night, not realising US markets close at 10am nzt and the meeting was at 0930 and when caught like a rat having to change the story?

[bull....]

I don't understand what this has to do with compounding.

They were slightly increasing their margins, but how were they compounding this extra profit.

Two different things.

Did you think you'd fool people into believing you were sleeping during the day in order to trade during the night, not realising US markets close at 10am nzt and the meeting was at 0930 and when caught like a rat having to change the story?

wrong us markets start at 3.30am nz time anf there announcements you need be up at 2.30 am so sleep during day is appropriate. go bed at early afternnoon get up 1 odd am makes perfect sense

wrong about compounding if petrol co makes money everyday from bowser they can re-invest profit into more bowser . just like oca

[winner69]

Arvida trading halt …rumours of a ‘transaction’

Whoever must think Arvida a better buy than Oceania …..if cheapness (v NTA) anything to go by

Maybe Oceania next on the block

[SailorRob]

wrong us markets start at 3.30am nz time anf there announcements you need be up at 2.30 am so sleep during day is appropriate. go bed at early afternnoon get up 1 odd am makes perfect sense

wrong about compounding if petrol co makes money everyday from bowser they can re-invest profit into more bowser . just like oca

Don't recall saying anything about market opening time.

The reinvestment of profits for compounding effect is different from increasing margins by fleecing customers.

So this story makes no sense, the margin improvement and the the subsequent reinvested profit is two different things...

Anyway, cool story.

[Antipodean]

Arvida trading halt …rumours of a ‘transaction’

Whoever must think Arvida a better buy than Oceania …..if cheapness (v NTA) anything to go by

Maybe Oceania next on the block

Apparently not, but was earlier
$1.70 per was not enough.

Hmmm

https://www.nzx.com/announcements/423543

[winner69]

Apparently not, but was earlier
$1.70 per was not enough.

Hmmm

https://www.nzx.com/announcements/423543

Fund on the hunt for a bargain…..always exciting

[Antipodean]

Fund on the hunt for a bargain…..always exciting

89% premium and still a bargain

Does that mean OCA at $1.34 is still a bargain?

[Old mate]

1.70. I'm in

[allfromacell]

As a holder of ARV that is very disappointing, almost a 100% premium is absolutely in the best interest of shareholders and should be engaged with.

[JSwan]

lol, this was 3 months ago, so much for “continuous disclosure”

[JSwan]

As a holder of ARV that is very disappointing, almost a 100% premium is absolutely in the best interest of shareholders and should be engaged with.

Their NTA is like $2 or something and they did an equity raise close to that, so probably that’s what they mean by “best interests”

[850man]

Maybe that purchaser will now approach OCA with a similarly valued offer

[Bjauck]

Apparently not, but was earlier
$1.70 per was not enough.

Hmmm

https://www.nzx.com/announcements/423543
It is incredible how directors decide on behalf of shareholders, who are kept in the dark, that an offer at price significantly higher than the prevailing share price is not worth pursuing. Since then the SP has dropped 25%. In the meantime this inside information has been leaking to some shareholders. Quite shameful.

[Muse]

As a holder of ARV that is very disappointing, almost a 100% premium is absolutely in the best interest of shareholders and should be engaged with.

write to the Board - let them know - they are there to serve shareholders, so appropriate they get feedback from a range shareholders themselves, rather than just 'perceiving' what's in their shareholders best interests.

[bottomfeeder]

If Arvida dont want $1.70. Tell them OCA shareholders will take $1.65

[percy]

if arvida dont want $1.70. Tell them oca shareholders will take $1.65

post of the year....

[X-men]

$1 mate... shareholders happy to sell this dog at discount price $1

[Greekwatchdog]

$1 mate... shareholders happy to sell this dog at discount price $1

Maybe you are as your very short sighted shareholder with our xxx shares is it. Leave the dog alone and maybe go find a bone to chew on.

[SailorRob]

post of the year....

Are you saying you would take $1.65 for your shares in a takeover?

Here I was thinking posting publicly that you bought channel infrastructure shares was the craziest thing in a while.

[X-men]

Shortsighted?? Bull will happily explain it to u

[Greekwatchdog]

Shortsighted?? Bull will happily explain it to u

What you use Bull as your investment advisor on a Public Forum? Your money, do your own research and put your money where that gob of yours is or alternatively sell your holding and suck up your win/loss. That's what a real trader does. Obviously your not very good

[bull....]

Shortsighted?? Bull will happily explain it to u

you are correct , why would anyone want there money tyed up in a company in NZ. after today fast becoming the peso of the pacific

[SailorRob]

you are correct , why would anyone want there money tyed up in a company in NZ. after today fast becoming the peso of the pacific

postd during teh biggst wun day rise in the keeywee doller in veri long time

[SailorRob]

Something I haven't brought (bought) up in a while,

The other day I was buying dollars freshly injected into this company as CASH by some extremely sophisticated investors, for 50c.

I'm talking about the capital raise where people injected cash at $1.30 and I'm now buying that equity at around 50% off.

[Daytr]

Something I haven't brought (bought) up in a while,

The other day I was buying dollars freshly injected into this company as CASH by some extremely sophisticated investors, for 50c.

I'm talking about the capital raise where people injected cash at $1.30 and I'm now buying that equity at around 50% off.

Or you could have read market sentiment & sold at $1.30 and bought circa twice as many at 68c without spending an additional cent


Again well done on your buying at 68c in the long or even shortish term it will prove to be good buying imo.

[SailorRob]

Or you could have read market sentiment & sold at $1.30 and bought circa twice as many at 68c without spending an additional cent


Again well done on your buying at 68c in the long or even shortish term it will prove to be good buying imo.

If you could read market sentiment though why did the insiders take up the $1.30 offer... They obviously couldn't.

[Daytr]

If you could read market sentiment though why did the insiders take up the $1.30 offer... They obviously couldn't.

Well they obviously couldn't but as you state the SP nearly halved. On the analytics it wouldn't have stacked up at that price.
Chasing dividends perhaps, but paying dividends wasn't a good corporate strategy for the long term which I'm sure you will agree.

[SailorRob]

Well they obviously couldn't but as you state the SP nearly halved. On the analytics it wouldn't have stacked up at that price.
Chasing dividends perhaps, but paying dividends wasn't a good corporate strategy for the long term which I'm sure you will agree.

What is analytics? And whatever they are Liz Coutts the gun director couldn't see that it didn't stack?

[Daytr]

What is analytics? And whatever they are Liz Coutts the gun director couldn't see that it didn't stack?

Look it up upu might learn something

[SailorRob]

Look it up upu might learn something

Hmmm another word is BS.

[Daytr]

Hmmm another word is BS.

So you didn't bother looking it up.

Simply it is the analysis of data

For someone so pedantic it's quite surprising.
Take the blinkers off.

[ValueNZ]

Or you could have read market sentiment & sold at $1.30 and bought circa twice as many at 68c without spending an additional cent


Again well done on your buying at 68c in the long or even shortish term it will prove to be good buying imo.


If you had that predictive ability you'd be short selling at $1.30.

So, did you short sell OCA at that price or are you admitting your macro analytics is BS.

[ValueNZ]

Great post here, I have been studying the IFRS lease accounting in detail over the last few days and can only conclude that is it a good thing.

I strongly disagree with it and it is a complete cluster but for those who truly understand it and can think through it, it is an advantage as it clouds the water for everyone else.

It completely stuffs up all the balance sheet ratios and returns on capital and all sorts of things.

A company I am looking at on the ASX is made to look like it requires tons of capital to operate because of this stupid lease accounting but the reality is that it requires basically none.

Also it clouds the water for anyone using screeners.
Hey SailorRob, what company is that? PM me if you don't want to say publicly.

[SailorRob]

'We have 7 billion, presently, of float. That’s the money we’re holding that belongs to someone else but that we have the use of.

Now, if I were asked, would I trade that for $7 billion cash that would be ours and not have to pay tax on the gain that would result if I did that, but I would then have to stay out of the insurance business forever — total forever non-compete clause of any kind in insurance — would I accept that? And the answer is no.

Now, that is not because I would rather have 7 billion of float than 7 billion of net proceeds of free money. It’s because I expect the 7 billion to grow.

And if I’d made that trade — that I’m just suggesting now — if I’d made that 27 years ago and said, “Will you take 17 million for the float you have, no tax to be paid, the float for which you just paid 8-million-7 when we bought the companies, and gotten out of the insurance business,” I might’ve said yes in those days.

But it would’ve been a terrible mistake. It would’ve been a mistake to do it 10 or 12 years ago with 300 million. It is not worth $7 billion to us to forego being in the insurance business forever at Berkshire Hathaway

Even though it would all be, you know, it would be — if it were nontaxed profits, so we got the full 7 billion, pure addition to equity — we would not take it. And we wouldn’t even think about it very long. So as Charlie says, that is not the answer that we would’ve given some time back. But it’s a very valuable business'.

[Daytr]

If you had that predictive ability you'd be short selling at $1.30.

So, did you short sell OCA at that price or are you admitting your macro analytics is BS.

OCA or most NZ stocks weren't & mostly still aren't on my radar. The platform I trade on offers only a only a couple of NZ companies available to trade & normally through a listing elsewhere I.e Rocket Lab or Xero.
Most NZ companies are either too small or lack liquidity.

The way you frame your questions is not only nasty, it displays ignorance.

[SailorRob]

OCA or most NZ stocks weren't & mostly still aren't on my radar. The platform I trade on offers only a only a couple of NZ companies available to trade & normally through a listing elsewhere I.e Rocket Lab or Xero.
Most NZ companies are either too small or lack liquidity.

The way you frame your questions is not only nasty, it displays ignorance.


Rubbish nothing nasty about it at all and displayed a very shrewd judgement rather than ignorance.

Just a simple question that wasn't answered well.

Why then are you not using your 'analytics' abilities to find other companies that are massively overvalued and obvious that they are and obvious the time frame in which they will correct, companies that you incredible trading app can handle?

[Daytr]

Rubbish nothing nasty about it at all and displayed a very shrewd judgement rather than ignorance.

Just a simple question that wasn't answered well.

Why then are you not using your 'analytics' abilities to find other companies that are massively overvalued and obvious that they are and obvious the time frame in which they will correct, companies that you incredible trading app can handle?

Simply that's not what I do, well much of anyway and it was answered perfectly well.

I love the way you guys continually fish for a gotchya moment. It's very childish.

Do you choose not to invest in a company if you think it's overvalued or even fully valued? I would hope so.

Sometimes a company isn't liked by the market, we have seen that with OCA, Tesla & Facebook in recent times, only for the latter two to surge back.

In these sort of instances I step back & wait.
I may or may not participate at a point where I see value. Sometimes I'm invested elsewhere so can't take advantage, sometimes I miss the boat.

I very rarely short individual stocks let alone quality stocks. I do quite regularly short global markets,.I.e indices, fx, commodities etc, but more often than not I am long. My short positions are generally much smaller than my long positions.

[X-men]

This dog is finally awake?? Prospect of interest cut price in the year 2024??

Strong buying actions!

[winner69]

This dog is finally awake?? Prospect of interest cut price in the year 2024??

Strong buying actions!

And Mum and Dad punters looking for bargains and updating their portfolios over holiday break …common occurrence this time I understand with the big end of town on holiday

[SailorRob]

And Mum and Dad punters looking for bargains and updating their portfolios over holiday break …common occurrence this time I understand with the big end of town on holiday

The big end that can never outperform an index fund.

[winner69]

This dog is finally awake?? Prospect of interest cut price in the year 2024??

Strong buying actions!

Out of that 69-74 trading range

Starts new year at 76 cents

We will never never see 74 cents again

[ronaldson]

Yes, my view is 80c by the end of January. The wall of sellers has paused for thought and when they reflect it will be good thoughts.

OCA and ARV are restructuring away from rest homes and market conditions are allowing progress to be made with these "held for sale" divestments. Once completed ( maybe by 31 March? ) we will all see a different picture more representative of how it will be going forward.

[ValueNZ]

This dog is finally awake?? Prospect of interest cut price in the year 2024??

Strong buying actions!

Equally strong selling actions. Every buyer has a seller.

[X-men]

Broke 75c...wow......been a while

[winner69]

Broke 75c...wow......been a while

Never to be seen again X-men

[X-men]

Never again!!! Otherwise happy to see the takeover at 70c....lol

[mike2020]

Never again!!! Otherwise happy to see the takeover at 70c....lol

That would be great, they could strip out the buildings, sell the land and make out like Ron Briley! I mean, not EXACTLY like Ron, of course, just the corporate raider part.

[nztx]

That would be great, they could strip out the buildings, sell the land and make out like Ron Briley! I mean, not EXACTLY like Ron, of course, just the corporate raider part.


Hahaha .. very good .. but then this sector & slow growth lines might not have been attractive to him :)

[Baa_Baa]

Is the good buying almost over already?

The bottom SP was 58% off the ATH, nice for buyers or accumulators, and even though we're still 44% discount to NTA, the SP is up 18% already from the recent lows, breakout up through the 200EMA (very uncommon lately), with resistance overhead at .80, .84 and .91.

It's been a long time since the ATH Feb'21 and a retest Aug'21 that failed, since then it's been a buyers market. So it's important if you're into OCA to know whether the low SP is already in? Market sentiment says it is. With inflation likely to diminish in 2024 and property prices perking up, along with a substantial backlog of OCA properties for sale, the SP could move more quickly upwards than some might expect.

See the Covid crash, just a very few short weeks smashed the SP and the brave (foolish, no not in hindsight) bought it, they're/we are really happy with that. The modern day times have signalled a stupid market devaluation massively below NTA which has corrected somewhat lately.

Those sitting on the sidelines might like to consider what it takes to convince them to take a positon, accumulate a position, or perhaps miss out, or worse chase the SP higher. Our wallets will be slammed shut soon enough when we have our fill. This is a shorter term SP two-bagger easily imo, and in the out years, a lot more, not including a return to dividends reinvestment.

Long term value investing is probably not de jure on a 'share trader' discussion group.

The Covid crash showed us that even boring RV's can be smashed by the market, but they can come back very quickly as well. We should only be interested imo, as to whether we're buying right for the long term, and now is as good as more times recently. Others might have different motives.

GLTAH.
BAA

[SailorRob]

Is the good buying almost over already?

The bottom SP was 58% off the ATH, nice for buyers or accumulators, and even though we're still 44% discount to NTA, the SP is up 18% already from the recent lows, breakout up through the 200EMA (very uncommon lately), with resistance overhead at .80, .84 and .91.

It's been a long time since the ATH Feb'21 and a retest Aug'21 that failed, since then it's been a buyers market. So it's important if you're into OCA to know whether the low SP is already in? Market sentiment says it is. With inflation likely to diminish in 2024 and property prices perking up, along with a substantial backlog of OCA properties for sale, the SP could move more quickly upwards than some might expect.

See the Covid crash, just a very few short weeks smashed the SP and the brave (foolish, no not in hindsight) bought it, they're/we are really happy with that. The modern day times have signalled a stupid market devaluation massively below NTA which has corrected somewhat lately.

Those sitting on the sidelines might like to consider what it takes to convince them to take a positon, accumulate a position, or perhaps miss out, or worse chase the SP higher. Our wallets will be slammed shut soon enough when we have our fill. This is a shorter term SP two-bagger easily imo, and in the out years, a lot more, not including a return to dividends reinvestment.

Long term value investing is probably not de jure on a 'share trader' discussion group.

The Covid crash showed us that even boring RV's can be smashed by the market, but they can come back very quickly as well. We should only be interested imo, as to whether we're buying right for the long term, and now is as good as more times recently. Others might have different motives.

GLTAH.
BAA


Well if nobody else will say it... I will. Bloody good post Baa_Baa as usual.

Happy New Year mate.

[Maverick]

Well if nobody else will say it... I will. Bloody good post Baa_Baa as usual.

Happy New Year mate.

Thankyou SR !
I was hanging off the edge of my seat to say it but glad you did Sailor. Damn fine post BaaBaa.

Yes, 2024 is our year …you called it ....fully agree , OCA will be a 2 bagger this time in 12 months, I say 2.5x.
My maths and hard learned negative market sentiment of the last 2 years ( therefore only a pe 12.5) says $1.15 mid 2024 and maths with an anticipated improved property sentiment to neutral (so now pe 15 as it will have proven very good eps growth for 2 periods and some debt reduction by then ) has next Christmas at $1.70.

Eps growth is going to be undeniable that even "Craig's" are going to change their mind.

[RupertBear]

Is the good buying almost over already?

The bottom SP was 58% off the ATH, nice for buyers or accumulators, and even though we're still 44% discount to NTA, the SP is up 18% already from the recent lows, breakout up through the 200EMA (very uncommon lately), with resistance overhead at .80, .84 and .91.

It's been a long time since the ATH Feb'21 and a retest Aug'21 that failed, since then it's been a buyers market. So it's important if you're into OCA to know whether the low SP is already in? Market sentiment says it is. With inflation likely to diminish in 2024 and property prices perking up, along with a substantial backlog of OCA properties for sale, the SP could move more quickly upwards than some might expect.

See the Covid crash, just a very few short weeks smashed the SP and the brave (foolish, no not in hindsight) bought it, they're/we are really happy with that. The modern day times have signalled a stupid market devaluation massively below NTA which has corrected somewhat lately.

Those sitting on the sidelines might like to consider what it takes to convince them to take a positon, accumulate a position, or perhaps miss out, or worse chase the SP higher. Our wallets will be slammed shut soon enough when we have our fill. This is a shorter term SP two-bagger easily imo, and in the out years, a lot more, not including a return to dividends reinvestment.

Long term value investing is probably not de jure on a 'share trader' discussion group.

The Covid crash showed us that even boring RV's can be smashed by the market, but they can come back very quickly as well. We should only be interested imo, as to whether we're buying right for the long term, and now is as good as more times recently. Others might have different motives.

GLTAH.
BAA

Another great post thanks BAA BAA, would give you a positive rep comment but need to share the love first :D

[Muse]

People are glutton for your mutton, BaaBaa.

[SailorRob]

Thankyou SR !
I was hanging off the edge of my seat to say it but glad you did Sailor. Damn fine post BaaBaa.

Yes, 2024 is our year …you called it ....fully agree , OCA will be a 2 bagger this time in 12 months, I say 2.5x.
My maths and hard learned negative market sentiment of the last 2 years ( therefore only a pe 12.5) says $1.15 mid 2024 and maths with an anticipated improved property sentiment to neutral (so now pe 15 as it will have proven very good eps growth for 2 periods and some debt reduction by then ) has next Christmas at $1.70.

Eps growth is going to be undeniable that even "Craig's" are going to change their mind.


I think you've just given me another year of picking up shares in the 60's and 70's Mav :drool:

[Maverick]

I think you've just given me another year of picking up shares in the 60's and 70's Mav :drool:
haha ….my expectations do seem ridiculously frothy and as Blackpeter keeps reminding us…”no one can predict the future.”

but maths are maths , That $420m pile of finished stock is selling on track, DHB rates have risen , both property and inflation sentiment is turning and old people are getting older.

Of course my target $1.70 SP seems pie in the sky from down here but I’ll betcha you’re tongue in cheek hope of getting a few more at 70c will seem equally bizzare come next Christmas.

Tell ya what Sailor. Whoever is closest buys the beer next January…deal? :)

[davflaws]

Of course my target $1.70 SP seems pie in the sky from down here but I’ll betcha you’re tongue in cheek hope of getting a few more at 70c will seem equally bizzare come next Christmas.

Tell ya what Sailor. Whoever is closest buys the beer next January…deal? :)

Tell ya what - anything over $1.40 and I'll buy beer for both of you!

[X-men]

I will buy U n sailor Moon a lap dance if SP reaches $1.70 this Christmas...😁

Russian, Thai....your choice.

Note: blue pills will be provided

[WAIKEN]

ARVs share price today of 1.14 is well above its recent low of 0.90. The party that was rebuffed by the ARV board may strike ARV again but will also have OCR on their radar. Other parties will also. Deeply discounted NTAs don't hang around for ever. The whole tenor of economists and property guru's property assessments have suddenly become more bullish and we have a property supportive government. I agree that 1.70 could be reached by Dec 2024. By then the NTA will have risen further. RV buyers homes are predicted to be up 5-8% in value which gives them more buying firepower.

[RTM]

Is the good buying almost over already?


Yeah, good post. Pleased you had the almost in there, believe for those who have not bought a few for their portfolios, still pretty good buying. But I’d have to believe that, my last top up was @ 74c. About 4% of my portfolio.

[SailorRob]

I will buy U n sailor Moon a lap dance if SP reaches $1.70 this Christmas...😁

Russian, Thai....your choice.

Note: blue pills will be provided

If you do the lap dance, I'm in.

[SailorRob]

haha ….my expectations do seem ridiculously frothy and as Blackpeter keeps reminding us…”no one can predict the future.”

but maths are maths , That $420m pile of finished stock is selling on track, DHB rates have risen , both property and inflation sentiment is turning and old people are getting older.

Of course my target $1.70 SP seems pie in the sky from down here but I’ll betcha you’re tongue in cheek hope of getting a few more at 70c will seem equally bizzare come next Christmas.

Tell ya what Sailor. Whoever is closest buys the beer next January…deal? :)

No deal, you have the odds in your favour!

Will happily buy you a beer when the chance presents itself though.

I should go dig out your other $2 by Xmas posts 🤣

[RTM]

If you do the lap dance, I'm in.

Either way that's pretty funny !

[X-men]

Ok sailor moon....U are on the top...

[Maverick]

No deal, you have the odds in your favour!

Will happily buy you a beer when the chance presents itself though.

I should go dig out your other $2 by Xmas posts ��
Yep that's a fair call, I did say that quite some time ago.

Also in that time OCA traded on a PE multiple of 19 at its peak. ( RYM at 32) .Seems fanciful now but also in that long forgotten era, inflation was not even a thing, FHB interest morgage costs were 2%, and analysts were praising anyone increasing build rates.

OCA was being bagged for not offering flat fee for life and not ramping up its prices faster. RYM thought going into high end vertcle apartments was the bees knees. ARV just couldn't buy enough villages and SUM ...development land.

BUT, 2024 will see us yet again head someway back into that direction.

While I'm saying that OCA is gonna have good profit growth from here on, just the warming of this awful sentiment alone ( PE re-expansion) will be enough to drive the share price . In fact all RVs will benefit across the board., except maybe RAD.

[nztx]

Ok sailor moon....U are on the top...


Stoppit .. I might be tempted to grab some of this with all the attention it's getting :)

[ronaldson]

ARV up sharply today is food for thought. No reason for OCA to be left behind if the smaller RV stocks with deeper discounts are re-rated.

Even RAD is off its low point!

[Baa_Baa]

ARV up sharply today is food for thought. No reason for OCA to be left behind if the smaller RV stocks with deeper discounts are re-rated.

Even RAD is off its low point!

ARV up 9 cents, quite the move in one day!

OCA won't be left behind, but it might be a while until they show the sell down of available properties. Who would want to be the OCA property sales boss right now, not me.

That's the crux of it, imo, they have to move the backlog of properties. No ifs or buts, they have to move them. Reporting date is not far away, a lot of that backlog, has to be sold.

[ValueNZ]

I’m very interested Value, why do you have such an inordinate measure of OCA.
My own views on OCA are blatant and my weighting is easy to guess. I’m curious why would a smart young fella like yourself , in the age of diversification, go allmost “ all in” .
So why such conviction and why only OCA in the RV sector?
( if you do reply , maybe pop it onto the OCA thread)
1. Why in the age of diversification would I go “all in”
I don’t necessarily agree with the idea that diversifying into many different assets makes for a less risky portfolio. Sure, for the majority people it makes total sense, as they can only lose so much on any given position. But if you are investing under Graham's definition (defined as anything that upon thorough analysis promises safety of principle and an adequate return) and you are very confident in your analysis plus there is a sufficient margin of safety there is no reason why you shouldn’t feel comfortable having very large positions as a percentage of your total portfolio.


The idea that you should put money into your 30th best idea instead of your best one is absurd. The exception to this IMO is if you enjoy the intellectual exercise of being a shareholder in many companies and keeping up to date with how the companies are all going through annual reports and such. But I think it’s fair to say to expect worse results with 30 stocks, but also less volatile, than had you gone with your best 10 stocks.




2. Why OCA?
Put simply I think OCA is a great business selling for dirt cheap.


The great thing about the RV business model is the generation of float. Float is the cash that the retirement villages receive from the customers through an occupational rights agreement. This cash is then reinvested back into developing more property, where they can continue building the float up as well as making a profit through deferred management fees. Float can be viewed as an interest-free, non-callable loan that will never be paid down.
https://lh7-us.googleusercontent.com/Hn5V3s6srPkq5IMPvjfnSkRdsy_XpID65mxsbTVEmj61dmDjic B-2xtJTcc7CMEP3jl13ymg4HB_9A9Kk9yfjem1Cv8oABTtw0yHeV 3Eks_8x2EN-kxZV1j98quAhPR0Hio4vULWGYE1-nOK7h9C5OY
CAGR of 15.3% growth since 2012
CAGR of 20.8% since 2017


There is a large number of unsold but finished property that are being sold down, along with property constantly being developed. Conservatively let's say the float can continue to be grown at 15% P.A for the next 10 years, with a return on capital of 4%.


Via a spreadsheet I have calculated that in 10 years a sum of 1.3 billion will have been earnt, discounted (10% p.a) to 826 million. Plus it would easily go for a P/E of 15, which would go for 2.9 billion or discounted to 1.2 billion. Overall, I estimate that Oceania has a NPV of at least 2 billion calculated using extremely conservative estimates. There is so much margin of safety at these prices it’s ridiculous.




3. Why only OCA in the RV sector?
Mostly because OCA is/was the cheapest in relation to both float and equity, and I figure no one RV has a significant edge over the other and I imagine their growth should be somewhat equal.


I can’t seem to find it but I had calculated a price to float/equity ratio for all the companies to see which was trading at the steepest discount. From memory it went OCA, ARV, RYM, SUM, RAD, with OCA being significantly cheaper than all others. RAD had a horrific capital structure when compared to the rest.



This is a very basic overview of my thoughts on OCA, there's alot more that could be discussed like insider ownership. I hope my post generates some healthy debate, If you think I’m wrong or right tell me your reasons why!

[mistaTea]

1. Why in the age of diversification would I go “all in”
I don’t necessarily agree with the idea that diversifying into many different assets makes for a less risky portfolio. Sure, for the majority people it makes total sense, as they can only lose so much on any given position. But if you are investing under Graham's definition (defined as anything that upon thorough analysis promises safety of principle and an adequate return) and you are very confident in your analysis plus there is a sufficient margin of safety there is no reason why you shouldn’t feel comfortable having very large positions as a percentage of your total portfolio.


The idea that you should put money into your 30th best idea instead of your best one is absurd. The exception to this IMO is if you enjoy the intellectual exercise of being a shareholder in many companies and keeping up to date with how the companies are all going through annual reports and such. But I think it’s fair to say to expect worse results with 30 stocks, but also less volatile, than had you gone with your best 10 stocks.




2. Why OCA?
Put simply I think OCA is a great business selling for dirt cheap.


The great thing about the RV business model is the generation of float. Float is the cash that the retirement villages receive from the customers through an occupational rights agreement. This cash is then reinvested back into developing more property, where they can continue building the float up as well as making a profit through deferred management fees. Float can be viewed as an interest-free, non-callable loan that will never be paid down.
https://lh7-us.googleusercontent.com/Hn5V3s6srPkq5IMPvjfnSkRdsy_XpID65mxsbTVEmj61dmDjic B-2xtJTcc7CMEP3jl13ymg4HB_9A9Kk9yfjem1Cv8oABTtw0yHeV 3Eks_8x2EN-kxZV1j98quAhPR0Hio4vULWGYE1-nOK7h9C5OY
CAGR of 15.3% growth since 2012
CAGR of 20.8% since 2017


There is a large number of unsold but finished property that are being sold down, along with property constantly being developed. Conservatively let's say the float can continue to be grown at 15% P.A for the next 10 years, with a return on capital of 4%.


Via a spreadsheet I have calculated that in 10 years a sum of 1.3 billion will have been earnt, discounted (10% p.a) to 826 million. Plus it would easily go for a P/E of 15, which would go for 2.9 billion or discounted to 1.2 billion. Overall, I estimate that Oceania has a NPV of at least 2 billion calculated using extremely conservative estimates. There is so much margin of safety at these prices it’s ridiculous.




3. Why only OCA in the RV sector?
Mostly because OCA is/was the cheapest in relation to both float and equity, and I figure no one RV has a significant edge over the other and I imagine their growth should be somewhat equal.


I can’t seem to find it but I had calculated a price to float/equity ratio for all the companies to see which was trading at the steepest discount. From memory it went OCA, ARV, RYM, SUM, RAD, with OCA being significantly cheaper than all others. RAD had a horrific capital structure when compared to the rest.



This is a very basic overview of my thoughts on OCA, there's alot more that could be discussed like insider ownership. I hope my post generates some healthy debate, If you think I’m wrong or right tell me your reasons why!

Very compelling thesis from you and SR. The float alone is enough to make anyone drool.

But what is your theory on why the market has mispriced OCA for so long?

[winner69]

ARV up 9 cents, quite the move in one day!

OCA won't be left behind, but it might be a while until they show the sell down of available properties. Who would want to be the OCA property sales boss right now, not me.

That's the crux of it, imo, they have to move the backlog of properties. No ifs or buts, they have to move them. Reporting date is not far away, a lot of that backlog, has to be sold.

Yes BaaBaa, they have to start moving then

Next week we should get an idea of how overall sector sales are going when Summerset report their December quarter sales

[ValueNZ]

Very compelling thesis from you and SR. The float alone is enough to make anyone drool.

But what is your theory on why the market has mispriced OCA for so long?
The float is definitely enough to make anyone that has a clue how the business model works drool. Apparently that is hardly anyone otherwise it'd be priced into the market...

I honestly have no clue as to why OCA has been mispriced as badly as it has. Nor do I know how long it will continue for.

[Maverick]

Value, that's a well thought out response to my questions.
I'll get back over the next few days but for now thanks for sharing.

[winner69]

ARV up sharply today is food for thought. No reason for OCA to be left behind if the smaller RV stocks with deeper discounts are re-rated.

Even RAD is off its low point!

Ronaldson ……What happened to ARV today …gave up yesterdays big gain

Funny things happen during holiday break.

[Baa_Baa]

Ronaldson ……What happened to ARV today …gave up yesterdays big gain

Funny things happen during holiday break.

Yes, good point winner, thin trading can move the market quite a lot, but can't and doesn't sustain it, about a 1000 shares found $1.19 yesterday (should have looked earlier, didn't realise it was so thin on the ask side) whereas 160k brought it back to to reality today. Average is still low at ~180k.

[Maverick]

Value ,
That was an inspiring post. I, too, hope it leads to healthy debate.
Thank You for putting in so much effort.
You asked for feedback, here's mine, it is written as only my opinion and in high regard of you and your work. Do not feel at all criticized, . …

Point 1 . diversification.
That is a topic so big it deserves its own thread. I'm currently reading “ the psychology of money “. It helps explain why you and I are undiversified and feel totally logical while other intelligent folk see us as pure madness . Like you, I too see diversifying too much , as averaging down and yet almost everyone else would see it as a non negotiable.
I do though, remind myself often of 2 opposing sayings to remind me of the gravity of both un and pro- diversification….
“A man finds treasure in a field, covers it over,, then goes and sells EVERYTHING he has and buys that field” …Bible… maximizing profits.
“He who bets the farm will eventually lose it”...probably from some guy who lost his farm.

Diversification is a personal perspective that cannot be argued as it is derived from one's own experiences.And we all think we are right.

2. RV’s are great because of “the float” .
Absolutely ! …but… instos are only looking a year or two ahead.
The float is even now hard to explain to most at this point, its just too soon.. That's for the end game and it will be highly coveted then, but IMO not now. So I don't consider that a reason to own any RV’s in 2024.
I do very much like your forward projections, and especially the graph, but again it's for years ahead and I have observed , especially lately , the market not caring much at all further than 6-12 months forward.
If you are honestly looking many years ahead then I'm seriously impressed and you are a true investor . However, I do notice people tend to change their minds when share prices fall.

3. OCA because it's the cheapest. (mostly on the float ratio).
That's a dodgy reason…” being cheap” that is.
The float I've already brushed aside but sometimes things are just cheap for a good reason. Thats not a good enough reason alone to be all in.
But, I do think using the NTA reason as you have is very valid. This is despite the general rhetoric now saying NTA is bogus…thats bullsh#t…. These buildings are never going to be cheaper to build. So I agree with you that NTA is valid to heavily invest.Yep, you can right now buy a premium new building for 50% of what it cost to build. Go and stand inside one and touch it…yep , maybe you can still smell the new paint and carpet, you can now own it for half price of its cost!
Now there alone is enough reason to be “all in”.

I also agree with the unsold stock comments by you being a big reason to own OCA. . Warning though, as BaaBaa has pointed out . ..They need to sell and soon…they have to sell or else bad stuff happens. IMO those sales rates /prices and margins are vital to deciding OCAs fate.

prices , margins and sales volumes are the vital key now.

IMO , to have such a high conviction and not “lose the farm” on this one stock then you need to be rock solid on these 3 metrics.

Theres already Loads of clues and specific OCA data out there now on sales and prices if you scour and look. Plus the 3 competitors all offering their own specific perspectives and data. The CFO has told us in the latest report the margins as per regions. Brent was recently unusually specific about sales at Helier and ChCh . SUM are just about to update some shortly too …info is everywhere if you know what to do with it.
To be as “all in “ as you and I are then that's where real effort and physical foot work is paramount. (something analysts don't have time to do which gives us the edge if we bother).

So when Sailor , Davflaws , I and some other posters meet up for that beer in January 2025, (apparently with a free lap dance) you should join us. You've got the right stuff mate.

[mistaTea]

Value ,
That was an inspiring post. I, too, hope it leads to healthy debate.
Thank You for putting in so much effort.
You asked for feedback, here's mine, it is written as only my opinion and in high regard of you and your work. Do not feel at all criticized, . …

Point 1 . diversification.
That is a topic so big it deserves its own thread. I'm currently reading “ the psychology of money “. It helps explain why you and I are undiversified and feel totally logical while other intelligent folk see us as pure madness . Like you, I too see diversifying too much , as averaging down and yet almost everyone else would see it as a non negotiable.
I do though, remind myself often of 2 opposing sayings to remind me of the gravity of both un and pro- diversification….
“A man finds treasure in a field, covers it over,, then goes and sells EVERYTHING he has and buys that field” …Bible… maximizing profits.
“He who bets the farm will eventually lose it”...probably from some guy who lost his farm.

Diversification is a personal perspective that cannot be argued as it is derived from one's own experiences.And we all think we are right.

2. RV’s are great because of “the float” .
Absolutely ! …but… instos are only looking a year or two ahead.
The float is even now hard to explain to most at this point, its just too soon.. That's for the end game and it will be highly coveted then, but IMO not now. So I don't consider that a reason to own any RV’s in 2024.
I do very much like your forward projections, and especially the graph, but again it's for years ahead and I have observed , especially lately , the market not caring much at all further than 6-12 months forward.
If you are honestly looking many years ahead then I'm seriously impressed and you are a true investor . However, I do notice people tend to change their minds when share prices fall.

3. OCA because it's the cheapest. (mostly on the float ratio).
That's a dodgy reason…” being cheap” that is.
The float I've already brushed aside but sometimes things are just cheap for a good reason. Thats not a good enough reason alone to be all in.
But, I do think using the NTA reason as you have is very valid. This is despite the general rhetoric now saying NTA is bogus…thats bullsh#t…. These buildings are never going to be cheaper to build. So I agree with you that NTA is valid to heavily invest.Yep, you can right now buy a premium new building for 50% of what it cost to build. Go and stand inside one and touch it…yep , maybe you can still smell the new paint and carpet, you can now own it for half price of its cost!
Now there alone is enough reason to be “all in”.

I also agree with the unsold stock comments by you being a big reason to own OCA. . Warning though, as BaaBaa has pointed out . ..They need to sell and soon…they have to sell or else bad stuff happens. IMO those sales rates /prices and margins are vital to deciding OCAs fate.

prices , margins and sales volumes are the vital key now.

IMO , to have such a high conviction and not “lose the farm” on this one stock then you need to be rock solid on these 3 metrics.

Theres already Loads of clues and specific OCA data out there now on sales and prices if you scour and look. Plus the 3 competitors all offering their own specific perspectives and data. The CFO has told us in the latest report the margins as per regions. Brent was recently unusually specific about sales at Helier and ChCh . SUM are just about to update some shortly too …info is everywhere if you know what to do with it.
To be as “all in “ as you and I are then that's where real effort and physical foot work is paramount. (something analysts don't have time to do which gives us the edge if we bother).

So when Sailor , Davflaws , I and some other posters meet up for that beer in January 2025, (apparently with a free lap dance) you should join us. You've got the right stuff mate.




Nice post - and good thoughts on consolidation vs diversification.

If you have a high conviction stock, understand the business etc etc then it would be illogical to just put 2% of your cash into it and spread the rest across another 49 stocks… you may as well just index then (which a lot of people do, with enviable long term results).

A lot of the thinking stems from EMT. It is absolutely true that markets are NOT perfectly efficient as the likes of Buffet, Munger et al could not have achieved above average results long term if it was.

The problem is (and something I got sucked into too) is that the anti-EMT team decided that, because markets are not always efficient (fact) it automatically follows that the market is mispriced more often than not.

Which causes people like us to eschew Bogle’s solid advice over the last 5 decades to just index.

The reality is, markets are reasonably efficient most of the time. And there is power in that because it means you can look up a stock and get an immediate sense of what it probably is worth right now.

This in turn enables you to pick a few stocks you like (maybe 10 if you like to consolidate) and average into them. If you just sit on your ass and ignore the ticker price you will almost certainly get the outsized returns you want.

Do not fool yourselves into thinking that you are the only guys who understand float, and everyone else (analysts plus overseas instos) are mistaken. I have made that mistake myself.

If the market says OCA is worth half a billion, then it probably is worth about that. A value gap of half a billion dollars or so on the NZX (which seems to be what you are proposing given you and others think OCA is trading at a 50% discount) would be unlikely to last very long. Don’t kid yourselves, there are plenty of instos who are greedy and have teams of people, along with sophisticated computing models that would allow them to take advantage very quickly.

Considering OCA has a market cap of around $500M yet an EV of around $1.1B is worth a bit of a pause for thought though.

It has taken me a while to come around to the idea that markets are reasonably efficient most of the time (and I am also a consolidator - big time). But it is proving to be more useful than thinking I am smarter than the rest and have some kind of special knowledge about a given business that everyone else seems to struggle to grasp. Because I really don’t. That doesn’t mean I can’t spot a good opportunity, but it does mean that I don’t know everything about the business as much as I would love to think I do.

So if you like OCA, for all of the characteristics you describe then go in balls deep. You can pay the EV of $1.1B and if OCA really is a great business then you will do just fine long term.

But in the meantime, we don’t kid ourselves.

My humble 2 cents, as usual.

[Daytr]

Value ,
That was an inspiring post. I, too, hope it leads to healthy debate.
Thank You for putting in so much effort.
You asked for feedback, here's mine, it is written as only my opinion and in high regard of you and your work. Do not feel at all criticized, . …

Point 1 . diversification.
That is a topic so big it deserves its own thread. I'm currently reading “ the psychology of money “. It helps explain why you and I are undiversified and feel totally logical while other intelligent folk see us as pure madness . Like you, I too see diversifying too much , as averaging down and yet almost everyone else would see it as a non negotiable.
I do though, remind myself often of 2 opposing sayings to remind me of the gravity of both un and pro- diversification….
“A man finds treasure in a field, covers it over,, then goes and sells EVERYTHING he has and buys that field” …Bible… maximizing profits.
“He who bets the farm will eventually lose it”...probably from some guy who lost his farm.

Diversification is a personal perspective that cannot be argued as it is derived from one's own experiences.And we all think we are right.

2. RV’s are great because of “the float” .
Absolutely ! …but… instos are only looking a year or two ahead.
The float is even now hard to explain to most at this point, its just too soon.. That's for the end game and it will be highly coveted then, but IMO not now. So I don't consider that a reason to own any RV’s in 2024.
I do very much like your forward projections, and especially the graph, but again it's for years ahead and I have observed , especially lately , the market not caring much at all further than 6-12 months forward.
If you are honestly looking many years ahead then I'm seriously impressed and you are a true investor . However, I do notice people tend to change their minds when share prices fall.

3. OCA because it's the cheapest. (mostly on the float ratio).
That's a dodgy reason…” being cheap” that is.
The float I've already brushed aside but sometimes things are just cheap for a good reason. Thats not a good enough reason alone to be all in.
But, I do think using the NTA reason as you have is very valid. This is despite the general rhetoric now saying NTA is bogus…thats bullsh#t…. These buildings are never going to be cheaper to build. So I agree with you that NTA is valid to heavily invest.Yep, you can right now buy a premium new building for 50% of what it cost to build. Go and stand inside one and touch it…yep , maybe you can still smell the new paint and carpet, you can now own it for half price of its cost!
Now there alone is enough reason to be “all in”.

I also agree with the unsold stock comments by you being a big reason to own OCA. . Warning though, as BaaBaa has pointed out . ..They need to sell and soon…they have to sell or else bad stuff happens. IMO those sales rates /prices and margins are vital to deciding OCAs fate.

prices , margins and sales volumes are the vital key now.

IMO , to have such a high conviction and not “lose the farm” on this one stock then you need to be rock solid on these 3 metrics.

Theres already Loads of clues and specific OCA data out there now on sales and prices if you scour and look. Plus the 3 competitors all offering their own specific perspectives and data. The CFO has told us in the latest report the margins as per regions. Brent was recently unusually specific about sales at Helier and ChCh . SUM are just about to update some shortly too …info is everywhere if you know what to do with it.
To be as “all in “ as you and I are then that's where real effort and physical foot work is paramount. (something analysts don't have time to do which gives us the edge if we bother).

So when Sailor , Davflaws , I and some other posters meet up for that beer in January 2025, (apparently with a free lap dance) you should join us. You've got the right stuff mate.




Hi Mav, you are the 2nd or 3rd poster who has said that OCA needs to sell unsold stock quickly.
Open question.
Why the urgency?
Cheers Daytr

[SailorRob]

If the market says OCA is worth half a billion, then it probably is worth about that. A value gap of half a billion dollars or so on the NZX (which seems to be what you are proposing given you and others think OCA is trading at a 50% discount) would be unlikely to last very long. Don’t kid yourselves, there are plenty of instos who are greedy and have teams of people, along with sophisticated computing models that would allow them to take advantage very quickly.


The all knowing market said that OCA was worth 1.1 billion 2 years ago, following your logic - then it was probably worth about that.

So how did the actual value of the business change by over half a billion in 2 years, becoming worth half as much as it was.

So this logic states that the value of actual businesses can and does swing by 50% in a year all over the NZX all the time.

But we also know this is not true.

So what gives.

Either way;

The price of OCA at $1.60 was WAY wrong

Or the price of OCA at 69c was WAY wrong

[Rawz]

V good post mistaTea and yes valid reply by SRob.

[SailorRob]

Value ,
That was an inspiring post. I, too, hope it leads to healthy debate.
Thank You for putting in so much effort.
You asked for feedback, here's mine, it is written as only my opinion and in high regard of you and your work. Do not feel at all criticized, . …

Point 1 . diversification.
That is a topic so big it deserves its own thread. I'm currently reading “ the psychology of money “. It helps explain why you and I are undiversified and feel totally logical while other intelligent folk see us as pure madness . Like you, I too see diversifying too much , as averaging down and yet almost everyone else would see it as a non negotiable.
I do though, remind myself often of 2 opposing sayings to remind me of the gravity of both un and pro- diversification….
“A man finds treasure in a field, covers it over,, then goes and sells EVERYTHING he has and buys that field” …Bible… maximizing profits.
“He who bets the farm will eventually lose it”...probably from some guy who lost his farm.

Diversification is a personal perspective that cannot be argued as it is derived from one's own experiences.And we all think we are right.

2. RV’s are great because of “the float” .
Absolutely ! …but… instos are only looking a year or two ahead.
The float is even now hard to explain to most at this point, its just too soon.. That's for the end game and it will be highly coveted then, but IMO not now. So I don't consider that a reason to own any RV’s in 2024.
I do very much like your forward projections, and especially the graph, but again it's for years ahead and I have observed , especially lately , the market not caring much at all further than 6-12 months forward.
If you are honestly looking many years ahead then I'm seriously impressed and you are a true investor . However, I do notice people tend to change their minds when share prices fall.

3. OCA because it's the cheapest. (mostly on the float ratio).
That's a dodgy reason…” being cheap” that is.
The float I've already brushed aside but sometimes things are just cheap for a good reason. Thats not a good enough reason alone to be all in.
But, I do think using the NTA reason as you have is very valid. This is despite the general rhetoric now saying NTA is bogus…thats bullsh#t…. These buildings are never going to be cheaper to build. So I agree with you that NTA is valid to heavily invest.Yep, you can right now buy a premium new building for 50% of what it cost to build. Go and stand inside one and touch it…yep , maybe you can still smell the new paint and carpet, you can now own it for half price of its cost!
Now there alone is enough reason to be “all in”.

I also agree with the unsold stock comments by you being a big reason to own OCA. . Warning though, as BaaBaa has pointed out . ..They need to sell and soon…they have to sell or else bad stuff happens. IMO those sales rates /prices and margins are vital to deciding OCAs fate.

prices , margins and sales volumes are the vital key now.

IMO , to have such a high conviction and not “lose the farm” on this one stock then you need to be rock solid on these 3 metrics.

Theres already Loads of clues and specific OCA data out there now on sales and prices if you scour and look. Plus the 3 competitors all offering their own specific perspectives and data. The CFO has told us in the latest report the margins as per regions. Brent was recently unusually specific about sales at Helier and ChCh . SUM are just about to update some shortly too …info is everywhere if you know what to do with it.
To be as “all in “ as you and I are then that's where real effort and physical foot work is paramount. (something analysts don't have time to do which gives us the edge if we bother).

So when Sailor , Davflaws , I and some other posters meet up for that beer in January 2025, (apparently with a free lap dance) you should join us. You've got the right stuff mate.



I guess the way I see it is that irrespective of OCA ever being able to generate any profit at all from their operations - the real business is reinvesting float to get more float, the perpetual free money machine. As you've pointed out that float will be spat out if and when they choose, if you then look at what it will be able to earn invested in different things and discount that back to today while factoring in its growth, it all works out really well even if they never make 'money' from the operating business.

I don't care if it's a stock to own in 2024 or what instos think or any of that. I treat it as a 100% owned family business.

While I agree in this case, one thing I'll push back on a little is the NTA and cost of building. If you build a 20 thousand square foot Les Mils gym in Wairoa then the fact that you built it cheaper than you ever could in the future means little. The assets have to be able to produce money (and these can). But in and of itself NTA means very little. The NTA of the CCR unit we built at the Refinery was near 400 million dollars, would cost over a billion now. But it's worth nothing.

The other point of ValueNZ's holding size is he is just starting out and this is the first stock he bought, thus 100% and then he diversified into a few others. Rather than a single decision to massively concentrate into OCA.

Also I think my thousand of words about lower stock prices etc I have overcomplicated things massively, let me make a simple case.

If you KNOW for certain (lets just assume somehow) that OCA will trade at $3 a share in 18 Months time, then the very last thing you want is the stock price rising now, you'd want it falling.

Why? So you can buy as much as possible, sell your vehicles, sell your children, your house everything. Also you'd tell your family, your friends anyone who would listen. This is obvious.

The problem is that you DON'T know.

So anyone who wants a stock they own to go up now (assuming they don't need the money which they shouldn't if invited in equities) means that they don't have confidence in its future value or their own analysis. They need the market to agree with them.

Many stocks I own fall into this category, but some don't.

So if Mav is supremely confident in the future value of OCA then he would not want it going up now. This is obvious.

This is the difference between Buffett and the rest of us.

[X-men]

We all know that....oca is traded below NTA, plenty of stocks , bla bla....so on...even an uber driver said the same sheet.

Unfortunately, the market is spoken...values this dog at 75c...

[Rawz]

ValueNZ says the float has a 15% CAGR over the last 10years and that’s awesome and the reason why OCA is great.

Will that ever translate to EPS growth or BV per share growth of a similar number?

I see a lot of companies grow revenue very well by selling $1 coins for 80cents. Is this what OCA are doing and how they can grow the float so well?

[mistaTea]

The all knowing market said that OCA was worth 1.1 billion 2 years ago, following your logic - then it was probably worth about that.

So how did the actual value of the business change by over half a billion in 2 years, becoming worth half as much as it was.

So this logic states that the value of actual businesses can and does swing by 50% in a year all over the NZX all the time.

But we also know this is not true.

So what gives.

Either way;

The price of OCA at $1.60 was WAY wrong

Or the price of OCA at 69c was WAY wrong

At both points in time - $1.60 and 69c - the market valued the business according to how the business was performing, debt profile and expectations of future prospects based on other things such as future earnings as well as the macro environment.

And it continues to do so.

I suspect you will do well with OCA using your buy and hold strategy. I am just making an (unwelcome, perhaps) suggestion that you guys should not think you are smarter than everyone else. Because you really aren’t.

And I repeat, I know this from hard experience.

Don’t be the guy with a 130 IQ who thinks it is 160…

Or in my case the guy with an 80 who thought it was 200! Ha!

[SailorRob]

At both points in time - $1.60 and 69c - the market valued the business according to how the business was performing, debt profile and expectations of future prospects based on other things such as future earnings as well as the macro environment.

And it continues to do so.

I suspect you will do well with OCA using your buy and hold strategy. I am just making an (unwelcome, perhaps) suggestion that you guys should not think you are smarter than everyone else. Because you really aren’t.

And I repeat, I know this from hard experience.

Don’t be the guy with a 130 IQ who thinks it is 160…

Or in my case the guy with an 80 who thought it was 200! Ha!

So to be clear,

Do you believe that the actual value (forget about the market) changed by 50% in 2 years?

So it was worth over twice as much recently as it is now?

This of course could be true, but do you believe it to be so?

Could a private buyer buy the company for its current market cap?

[ronaldson]

Ronaldson ……What happened to ARV today …gave up yesterdays big gain

Funny things happen during holiday break.

Yes, funny things do ( and they often provide a trading opportunity, so look out for them ) and ARV subsequently retreated as you point out.

However the fact is that some bought at elevated levels and by doing so set a postive tone/momentum. So the trend is much more likely to be higher rather than lower going forward as others rethink their views as to the stocks inherent value. So I expect ARV will edge higher during January. And that will make OCA even cheaper on a relative basis so it should gain strength also.

For those who are focused upon whether OCA is shifting "product" it is clear that the general residential property market is moving more freely than it was at times in 2023. The real reshaping of OCA lies in it divesting its most basic resthome style facilities, which are not, nor probably ever will be, generators of a decent return on investment due to dependency upon government policy in terms of bed subsidy rates ( which will never ever be generous ) and wage overhead for what are 24 hour operations in a challenged sector. It seems OCA has already made some incremental progress in downsizing that part of its activities and that should be more evident at the next reporting date, although sale costs/redundancies/chattel and plant write downs and the like inevitably take some gloss off the immediate outcome when you do that.

So it will be a better balanced company in future, and the conditions that affect underlying profitability will improve. I wonder how many included OCA in their 2024 competition "picks"? Will be interesting to see, when the first update is published (my recollection is that I only chose it as a reserve, but being a "Senior" my memory is already suspect ).

Best wishes to all Forum readers and posters if you are a holder (like me) for a better year than 2023.

[mistaTea]

So to be clear,

Do you believe that the actual value (forget about the market) changed by 50% in 2 years?

So it was worth over twice as much recently as it is now?

This of course could be true, but do you believe it to be so?

Could a private buyer buy the company for its current market cap?

To be clear, I think the market gives a REASONABLE approximation to what a business is worth MOST of the time.

That valuation includes an expectations of future earnings, property values, interest rates, other macro trends etc etc.

Plus or minus some percentage the value of OCA was $1.60 2 years ago.

The expectations of what OCA can produce have clearly deteriorated. And so now 75c (plus or minus) is the value of the business, correct.

And if you are right in your reasoning, OCA will be worth much more in the future. But they will depend on a number of factors.

Let me ask you, why did the SP drop from $1.60 to 69c?

Did absolutely nothing happen and the market just work up one way and decided to destroy value?

[SailorRob]

To be clear, I think the market gives a REASONABLE approximation to what a business is worth MOST of the time.

That valuation includes an expectations of future earnings, property values, interest rates, other macro trends etc etc.

Plus or minus some percentage the value of OCA was $1.60 2 years ago.

The expectations of what OCA can produce have clearly deteriorated. And so now 75c (plus or minus) is the value of the business, correct.

And if you are right in your reasoning, OCA will be worth much more in the future. But they will depend on a number of factors.

Let me ask you, why did the SP drop from $1.60 to 69c?

Did absolutely nothing happen and the market just work up one way and decided to destroy value?

The market cannot destroy value.

I don't believe the value of OCA has changed very much at all.

But that's what makes a market.

I also don't believe the value of gamestop changed very much at all.

I don't believe that Lizz Coutts put equity in at $1.30 when the actual value of the company changed very quickly to 67c.

But if I thought the market price was the value then I would have a day job.

[SailorRob]

I also don't believe that you could buy the whole company for anything close to 75c a share.

Neither does anyone else.

So we need to be able to explain that as well.

[mistaTea]

I also don't believe that you could buy the whole company for anything close to 75c a share.

Neither does anyone else.

So we need to be able to explain that as well.

We can go back and forth all day about the merits (or lackthereof) of Mr Market and how close he is to the truth most of the time (or not).

But the fact remains, those of you who are the most bullish on OCA cannot articulate the Bear case that the red tot the market has.

According to you guys, there is just no explanation whatsoever - one day Mr Market de decided to offer OCA half off and has continued to do so for a prolonged period of time with no reasoning whatsoever.

That kind of thing happened back in Graham’s day often, but much much less common now that investing is a serious business helped (hindered?) with powerful computing models.

There is a reason Munger said it is way harder now to get good deals compared to when he and Buffett were absolutely killing it 25+ years ago.

I do think you should revisit the Bear case and articulate it.

But you won’t.

[mike2020]

I will and I think it has been a case of many moving parts. I have long said interest rates, property values and general market sentiment drove it up. I remember clearly one of Robbo's speech's that resonated like "let em eat cake" when talking about the RV industry, govt contributions, and he clearly viewed the industry as property speculators untaxed who could fund care for govt. That and people moving back into TDs, like they moved out as interest rates dropped. Remember "prepare for negative rates" anyone?

The tide has tuned. Sentiment is changing. All I need to see is sales.

[SailorRob]

We can go back and forth all day about the merits (or lackthereof) of Mr Market and how close he is to the truth most of the time (or not).

But the fact remains, those of you who are the most bullish on OCA cannot articulate the Bear case that the red tot the market has.

According to you guys, there is just no explanation whatsoever - one day Mr Market de decided to offer OCA half off and has continued to do so for a prolonged period of time with no reasoning whatsoever.

That kind of thing happened back in Graham’s day often, but much much less common now that investing is a serious business helped (hindered?) with powerful computing models.

There is a reason Munger said it is way harder now to get good deals compared to when he and Buffett were absolutely killing it 25+ years ago.

I do think you should revisit the Bear case and articulate it.

But you won’t.


Of course there are many explanations that I could pontificate at length about, the point is that none of them have anything to do with the future cash flows of the business discounted to today unless your discount rate has risen a lot (as most peoples have).

I rarely disagree with Munger but today we have instant ability to buy and sell ay security in a second in the pocket of billions of people, we have social media, we have ESG, we have Jim Cramer and CNBC, we have high frequency trading, we have way more 'products' we have a much shorter investing time frame average, we have idiocy in spades, we have huge concentration in the markets, I could go on and on...

So all of this creates massive opportunity, not less.

I could not articulate the Bear case really when I filled up at 39c - I could see the worry with Covid ripping through the homes etc but I couldn't see how it would change the value that much.

I also would not and did not pay $1.60 as I could see that it wasn't expensive but no way did I see any massive value or margin of safety.

Mav himself pointed out one of the reasons, it's all about this year and what will produce returns now. Nobody can see out into the future.

If you're talking about why this company will rerate this year, I have no idea... and that's all most people care about.

The bear case is they will not be able to earn an appropriate return on assets, but even low single digits is fine by me.

Why can these amazing computer models you speak of just simply beat the market return?????

If it's such as serious business then why can I beat 98 out of 100 pro managers in NZ? Just by buying an ETF????

Why has Berkshire been undervalued by nearly 50% for decade after decade?

[thebusinessman]

But the fact remains, those of you who are the most bullish on OCA cannot articulate the Bear case that the red tot the market has.

According to you guys, there is just no explanation whatsoever - one day Mr Market de decided to offer OCA half off and has continued to do so for a prolonged period of time with no reasoning whatsoever.


I feel like you're hitting a good point here. If the economy really suffers over the next decade or so (as we're all thinking long term here) then we won't have a healthy and vibrant property market, which means depressed prices and longer times to sell, which means RV sales will also slow or be repriced, or both.

I suspect "the market" is looking just a few years ahead where this seems like a real contributing factor, and hence the mis-pricing of the shares vs thinking long term.

If the world goes to the crapper for a while, everything suffers, but funeral homes and retirement villages aren't likely to run out of customers and in just one decade we're going to have a demand-side for RV that is significantly increased from today's numbers.

Perhaps a good rephrasing of the question is: just how forward-looking is the market, really?

[mistaTea]

Of course there are many explanations that I could pontificate at length about, the point is that none of them have anything to do with the future cash flows of the business discounted to today unless your discount rate has risen a lot (as most peoples have).

I rarely disagree with Munger but today we have instant ability to buy and sell ay security in a second in the pocket of billions of people, we have social media, we have ESG, we have Jim Cramer and CNBC, we have high frequency trading, we have way more 'products' we have a much shorter investing time frame average, we have idiocy in spades, we have huge concentration in the markets, I could go on and on...

So all of this creates massive opportunity, not less.

I could not articulate the Bear case really when I filled up at 39c - I could see the worry with Covid ripping through the homes etc but I couldn't see how it would change the value that much.

I also would not and did not pay $1.60 as I could see that it wasn't expensive but no way did I see any massive value or margin of safety.

Mav himself pointed out one of the reasons, it's all about this year and what will produce returns now. Nobody can see out into the future.

If you're talking about why this company will rerate this year, I have no idea... and that's all most people care about.

The bear case is they will not be able to earn an appropriate return on assets, but even low single digits is fine by me.

Why can these amazing computer models you speak of just simply beat the market return?????

If it's such as serious business then why can I beat 98 out of 100 pro managers in NZ? Just by buying an ETF????

Why has Berkshire been undervalued by nearly 50% for decade after decade?



I just think you have a blind spot is all, and to be careful.

Your case for OCA being a good investment and the price at the moment being attractive is well articulated. Lots of great stuff in there.

But no matter how flat you make a pancake, there is always two sides. And your inability to entertain anything outside of your thesis is a blind spot in my view.

This is not in any way meant to come across as a personal attack. I got nothing but love for SR. I enjoy his posts and he has saved me a sh1t tonne of money by helping me switch to IBKR etc.

And SR is doing just fine without mistaTea’s bright ideas.

This is just an observation I thought might be useful to consider as part of the ongoing discussion.

[winner69]

……..

So it will be a better balanced company in future, and the conditions that affect underlying profitability will improve. I wonder how many included OCA in their 2024 competition "picks"? Will be interesting to see, when the first update is published (my recollection is that I only chose it as a reserve, but being a "Senior" my memory is already suspect ).

Best wishes to all Forum readers and posters if you are a holder (like me) for a better year than 2023.

Ron ….picked 40 times and reserve 11 times …158 entries

Pretty well loved eh

Quick skim through IFT was top of the pops with 42

Market voting machine?

[Muse]

I just think you have a blind spot is all, and to be careful.

Your case for OCA being a good investment and the price at the moment being attractive is well articulated. Lots of great stuff in there.

But no matter how flat you make a pancake, there is always two sides. And your inability to entertain anything outside of your thesis is a blind spot in my view.

This is not in any way meant to come across as a personal attack. I got nothing but love for SR. I enjoy his posts and he has saved me a sh1t tonne of money by helping me switch to IBKR etc.

And SR is doing just fine without mistaTea’s bright ideas.

This is just an observation I thought might be useful to consider as part of the ongoing discussion.

Good post and discussion…

[kiora]

Well its a good discusion regarding pros & cons for Oca

Retirement stocks not my cupof tea but

Reading the tea leaves it has to be all about cash flow???

Bull case sell heaps of units

Bear case don't sell heaps of units

Take your pick,risk/reward

Some get lucky but sitting on a laggard for a long time but can be a frustrating exercise

[SailorRob]

Well I'm bloody glad of my blind spots that's for sure.

[Maverick]

Hi Mav, you are the 2nd or 3rd poster who has said that OCA needs to sell unsold stock quickly.
Open question.
Why the urgency?
Cheers Daytr
Daytr, “Urgency” is the wrong word …I said “soon” , and by “soon”, I mean in the next 2 years.
Selling quicker than that will mean they sold them too cheap. Fortunately OCA does not have a funding/debt issue to require “urgency”.

Firstly on debt…The analyst's primary focus right now is on debt and how are all the RVs going to reduce it. It's a fad that will change but it's the biggie right now after RYMs rather dramatic fall from grace.

Back to OCA , of all the RV’s they are in a unique position right now. They have a load of finished product ($420m) and by selling it soon over the next 2 years will delight the analysts with their balance sheet focus and significantly boost profits for investors who have patiently waited for this crossroad.( If achieved , the market will then want to re-rate this stock and 75c will be inappropriate)

If they can't sell many then the model is a failure , debt doesn't go down , and discounting is the next option. No need to expand those consequences further, its bad! (so the market would be right at todays 75 cents).

So in predicting this binary outcome, can a hicksville local get a head start on the analysts and global hedge funds out there?
I say yes. Percy did it with Turners.

Even this post will be of some use to the 4 or so NZ analysts as they are used to only dealing with SUM and RYM villas until now, rather than OCA high end apartments. They will also be learning on the hoof too.
The stunting problem for them is that they have to go an analyze some semi conductor company or airnz next week. I am seriously impressed by their abilities.

For you especially Value (as I also admire how put effort into understanding) here are a few of my GENERAL learned new sales patterns, bare in mind each village is unique as to; location , local competition, cold or warm start , timing of the market and village size:
This info doesn't come from the top brass, they are very proper with what they can tell me if they haven't already told you. This info comes from years of observation and repeated site visits over various stages . A small example just recently is a load of cool intel from the barrister lady of a fairly new delivery. It's striking how proud, knowledgeable and connected ALL the staff are with their respective villages.

Observations and conversations;
-Pre Sales are tiny, usually at most half a dozen and these are the top units.
-Starting with an empty tower is just bloody slow and hard yakka for the first 6-12 months.
-A year from opening the community vibe starts to build , critical mass happens, folk have had enough time to decide to “pull the trigger” , referrals from residents start happening, and the thing starts selling nicely .
-Residents take ages to decide to move in. It’s their last house purchase and they want to get it right. ( example , a resident has just signed up after going to the open day 2.5 years ago. )
-The most expensive units sell first.
-As villages get much bigger and mature the new sales are slower as the set rate of inward residents are offered resales in the mix. Yes, OCA do focus on resales as the village staff both care for the family they've got to know over the years and also OCAs contracts mean they are up for costs if it takes too long to resell. (likely upcoming reform changes are already in practice )
-Once a village sells down over 2 years then the pace of inward residents is greater than available units. Waiting lists form.
-I back calculate that sales for any individual village over a HY has a ceiling of about 15 in a neutral property market.
-National housing sales rates significantly affect RV sales rates.
-Summer has more sales than winter.

I suspect many folk, like I used too, imagine that there should be a queue clamouring in a line to get in on open day. You can now see how selling a villa off a plan is just soooo much faster and easier.
RYM should have rung me before diving into intensive vertical buildings.:)

What about OCA current sales?
So right now Helier , from the lobby, should be looking like an empty showpiece. Fortunately Brent has told us the sales numbers to date of about 12 late November ( which are actually faster than expected, which he also commented on).
I am really surprised how many new CHCH have already sold (⅓) , again much faster than usual. This will be in part to the fact that there is already a vibe from adjacent apartments already sold down a few years ago.
Hamilton was a shocker at the beginning but sales are cranking well now and they haven't dropped prices to do it. In fact OCA have never dropped prices and have always said that is not the factor that slows sales.

There you go Value, I I hope that helps you and gives you structure for your work and context of new sales for others who are interested.
Resale's are easy , they are linear due to waiting lists.
IMO you sure picked a good time to be donkey deep in OCA.( that's just my opinion).


I suspect you will do well with OCA using your buy and hold strategy. I am just making an (unwelcome, perhaps) suggestion that you guys should not think you are smarter than everyone else. Because you really aren’t.

And I repeat, I know this from hard experience.

Don’t be the guy with a 130 IQ who thinks it is 160…

Or in my case the guy with an 80 who thought it was 200! Ha!

Your experience and intelligent pushback is VERY welcome Mista Tea, sharing countering ideas is what this forum should be about. As far as not being as smart as I reckon I am...you been talking to my wife?!
Above I have tabled 2 of my reasons, reducing debt and growing profit that OCA is going to rerate this year.
Then there's obviously warming property/ inflation sentiment…None of that is particularly smart but it is going to potentially have a meaningful outcome. ( if sales go on track - finding that out is the part where someone far less smart like me will win over Wall St) .

I'm firmly saying IMO things are going to get rather sporty for OCA this year onwards.

And you are absolutely right about us common folk being not as high IQ as others out there who are setting stock prices. But this deficit can be made up for with perseverance, specific focus, hard work , and good ol` local knowledge unavailable overseas. Making money is one of the few areas ( politics being the other) where being too intelligent in real life actually seems to work against people.

Agreed ...certainly not a concern you or I need to worry about. ha!
;)

[winner69]

Mav, love it when you comment ‘things are going to get rather sporty for OCA this year onward’

Many agree with you …after all 40;picked OCA in the competition …and 11 more hoping they need to replace something and OCA goes in

[Baa_Baa]

@Maverick, thanks for another insightful post. I don't think people realise how much time and effort you put into your analysis, especially the part about visiting the RV's and talking to the staff and residents. Thanks for sharing, it's very much appreciated.

[SailorRob]

Mav, you've got a blind spot mate.


The stunting problem for them is that they have to go an analyze some semi conductor company or airnz next week. I am seriously impressed by their abilities.

They also have to attend their compulsory Te Reo classes, stress about their mortgages and explain to their wives why if they are such good analysts that they have to work for a wage. Then the rainbow session, the 2 hours in traffic a day and all the corporate nonsense, compliance etc... I could go on.


To be clear, I think the market gives a REASONABLE approximation to what a business is worth MOST of the time.

That depends on what you define 'reasonable' and 'most'. Let's all do an exercise together, go and look at the stock price chart of 10 random businesses with a market cap over a billion dollars. Pull up a 12 Month chart, you may use any year. Now see the % variation between the highest and lowest price. I will tell you something for nothing. The value of that business did not change anything close to that much during the year... This is obvious. But OCA you say has supposedly been mispriced for a long time? Damn the Refinery was dramatically mispriced for most of the entire 20 years I was there. The entire bond market of the entire world was mispriced for a long time. I could name dozens of stocks that were and are mispriced for a long time.

Many businesses are mispriced for many many years if not decades.


You guys should not think you are smarter than everyone else. Because you really aren’t.

I certainly do not think I am smarter than everyone else. I just think I am smarter than most people. But this is not really a requirement here... Issac Newton got smashed in the South Sea Bubble... Doctors are among the worst investors on the planet.... Uber smart people make terrible investors... It's about a combination of some level of basic understanding, 5th Form Math and the correct behaviour.

Remember rates have gone from the lowest in all of recorded history to historical norms in record time as well... I'm reading a great book at the moment called 'the price of time'.

Also... It's not just OCA, the whole sector has traded in a similar fashion, so our blind spot must be for the industry not just the company.

[SailorRob]

@Maverick, thanks for another insightful post. I don't think people realise how much time and effort you put into your analysis, especially the part about visiting the RV's and talking to the staff and residents. Thanks for sharing, it's very much appreciated.

Seconded.... Cheers Mav

[mistaTea]

Mav, you've got a blind spot mate.



They also have to attend their compulsory Te Reo classes, stress about their mortgages and explain to their wives why if they are such good analysts that they have to work for a wage. Then the rainbow session, the 2 hours in traffic a day and all the corporate nonsense, compliance etc... I could go on.



That depends on what you define 'reasonable' and 'most'. Let's all do an exercise together, go and look at the stock price chart of 10 random businesses with a market cap over a billion dollars. Pull up a 12 Month chart, you may use any year. Now see the % variation between the highest and lowest price. I will tell you something for nothing. The value of that business did not change anything close to that much during the year... This is obvious. But OCA you say has supposedly been mispriced for a long time? Damn the Refinery was dramatically mispriced for most of the entire 20 years I was there. The entire bond market of the entire world was mispriced for a long time. I could name dozens of stocks that were and are mispriced for a long time.

Many businesses are mispriced for many many years if not decades.



I certainly do not think I am smarter than everyone else. I just think I am smarter than most people. But this is not really a requirement here... Issac Newton got smashed in the South Sea Bubble... Doctors are among the worst investors on the planet.... Uber smart people make terrible investors... It's about a combination of some level of basic understanding, 5th Form Math and the correct behaviour.

Remember rates have gone from the lowest in all of recorded history to historical norms in record time as well... I'm reading a great book at the moment called 'the price of time'.

Also... It's not just OCA, the whole sector has traded in a similar fashion, so our blind spot must be for the industry not just the company.

I do think it is accurate to say that most stocks are valued near enough to their true worth most of the time.

There are examples when stocks are clearly under or over valued (dotcom bubble anyone?) but that is not the case MOST of the time.

I am sure there are many examples you can show me where there are fluctuations in price in a relatively short time. And I take your point - how can a business be ‘worth’ $1B today and then $600M a month later? It makes no sense!

Except we have to remember that at all times investing and speculating is based on EXPECTATIONS. Where the expectations change suddenly then you can see big shifts in market value.

If the market as a whole expects more headwinds for a business than you do, then if you are proven right and buy in when the pice drops you can make good money. But even if you do make money, in most cases you cannot necessarily say the market was ‘wrong’ as such. Hindsight will make it appear that way, but in a lot of cases the lower expectations were very rational.

Regardless, the point is that there is usually a rational explanation for why a stock price drops. The market expectation has usually changed for the worse, and I think it is a good idea to understand the reasoning behind the drop better than the market does as part time your analysis (otherwise you quite literally have a blind spot in my view).

Look at a stock I really like - OXY. Massive price volatility.

At one point during covid the stock dropped to about $10 a share! Why? With everything shutting down there was a worry (expectation) that oil prices would fall through the floor for Christ only knows how long.

That expectation did not play out and if you bought shares at $9 a pop a couple of years back you would be sitting pretty today. But was the market ‘wrong’ at the time? No, not really.

Even now OXY sells at a low PE, in part because the market is concerned about oil prices given lower demand, uncertainty around China recovery etc. So OXY is priced in part based on the expectation that oil will sit around $65-70 a barrel for the foreseeable future.

I have a different expectation and am keen to buy like Buffett is at these prices. If my expectation plays out and we observe higher average oil prices that’s great and I will make some bank… BUT IT DOES
NOT MEAN THAT THE MARKET IS ‘WRONG’ TODAY.

It just means I have located a company where my expectations are more bullish than the rest of the market.

Of course, if oil prices turn out to be lower than I and the market expected then I will be left with my d1ck in my hand looking like more of a mug than usual and in hindsight we will be talking about how wrong the market was too because they ‘clearly’ overvalued the stock etc etc.

It’s all about expectations mate. But there is a reason why a stock price moves either way - you just have to be humble enough to be open to exploring the other side of the coin.

[SailorRob]

I do think it is accurate to say that most stocks are valued near enough to their true worth most of the time.

There are examples when stocks are clearly under or over valued (dotcom bubble anyone?) but that is not the case MOST of the time.

I am sure there are many examples you can show me where there are fluctuations in price in a relatively short time. And I take your point - how can a business be ‘worth’ $1B today and then $600M a month later? It makes no sense!

Except we have to remember that at all times investing and speculating is based on EXPECTATIONS. Where the expectations change suddenly then you can see big shifts in market value.

If the market as a whole expects more headwinds for a business than you do, then if you are proven right and buy in when the pice drops you can make good money. But even if you do make money, in most cases you cannot necessarily say the market was ‘wrong’ as such. Hindsight will make it appear that way, but in a lot of cases the lower expectations were very rational.

Regardless, the point is that there is usually a rational explanation for why a stock price drops. The market expectation has usually changed for the worse, and I think it is a good idea to understand the reasoning behind the drop better than the market does as part time your analysis (otherwise you quite literally have a blind spot in my view).

Look at a stock I really like - OXY. Massive price volatility.

At one point during covid the stock dropped to about $10 a share! Why? With everything shutting down there was a worry (expectation) that oil prices would fall through the floor for Christ only knows how long.

That expectation did not play out and if you bought shares at $9 a pop a couple of years back you would be sitting pretty today. But was the market ‘wrong’ at the time? No, not really.

Even now OXY sells at a low PE, in part because the market is concerned about oil prices given lower demand, uncertainty around China recovery etc. So OXY is priced in part based on the expectation that oil will sit around $65-70 a barrel for the foreseeable future.

I have a different expectation and am keen to buy like Buffett is at these prices. If my expectation plays out and we observe higher average oil prices that’s great and I will make some bank… BUT IT DOES
NOT MEAN THAT THE MARKET IS ‘WRONG’ TODAY.

It just means I have located a company where my expectations are more bullish than the rest of the market.

Of course, if oil prices turn out to be lower than I and the market expected then I will be left with my d1ck in my hand looking like more of a mug than usual and in hindsight we will be talking about how wrong the market was too because they ‘clearly’ overvalued the stock etc etc.

It’s all about expectations mate. But there is a reason why a stock price moves either way - you just have to be humble enough to be open to exploring the other side of the coin.

Imagine buying a crap load of OXY warrants at $3 each when everyone's trading accounts auto sold them without them even knowing.

Most of the mispricing was bankruptcy risk. I didn't think big dogs would let her go.

I don't care much for the other side of the coin, I literally do not care why people paid nearly a million dollars for three bedroom gang pads in the provinces and I don't care why people are selling me OCA for 69c. All that interests me is my estimate of future cash flows.

I don't care to understand other peoples views if I am comfortable in my own.

It would be like taking financial advice from OCA sellers.

[mistaTea]

Imagine buying a crap load of OXY warrants at $3 each when everyone's trading accounts auto sold them without them even knowing.

Most of the mispricing was bankruptcy risk. I didn't think big dogs would let her go.

I don't care much for the other side of the coin, I literally do not care why people paid nearly a million dollars for three bedroom gang pads in the provinces and I don't care why people are selling me OCA for 69c. All that interests me is my estimate of future cash flows.

I don't care to understand other peoples views if I am comfortable in my own.

It would be like taking financial advice from OCA sellers.

Fair enough.

As I said in an earlier post - you are doing just fine without my ‘bright ideas’.

[SailorRob]

Fair enough. As I said in an earlier post - you are doing just fine without my ‘bright ideas’.

I'm being somewhat facetious, you have good points.

But the worst bear case doesn't see much downside if any over time where the upside is immense. The bear case is that buying here you don't do so well, rather than lose your shirt.

https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

The description here of the liquidity flywheel explains the market pricing of these companies.

[Baa_Baa]

I'm being somewhat facetious, you have good points.

But the worst bear case doesn't see much downside if any over time where the upside is immense. The bear case is that buying here you don't do so well, rather than lose your shirt.

https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

The description here of the liquidity flywheel explains the market pricing of these companies.

Interesting article thank you for posting it. It's intriguing that people seem to want to understand the 'market' when the only thing the 'market' provides is pricing. It is not necessary to 'understand' the market when it is plainly providing pricing every day, and is massively more complicated than understanding a company/business, and mostly irrelevant, like who cares why or what the the 'market' thinks, when what they think is collectively expressed in the price and is discoverable down to the minute.

To understand value though, focus should be on the business metrics. To join the two, the market will offer at times prices below or above value of the business, and very rarely equivalent to value, however you've measured it.

To be able to identify when the market is under or over-pricing a business is very simple, by how much is a bit more complicated as it brings into account timing, whereas valuing the business albeit difficult probably for many end-investors, is but an exercise well worth undertaking, to know whether the market price is under or over our valuation of the business.

I have no respect at all for the bogus theory of efficient market pricing, it is a myth, except for when it presents it's distortions and along with that, the opportunity to time acquisition or disposal of assets, that we already think we know the value of.

[Ferg]

https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

The description here of the liquidity flywheel explains the market pricing of these companies.

Thanks for the article SR. If I can summarise (hopefully correctly & possibly incompletely), the main points seem to be:

market inefficiencies (such as mis-pricing) are structural and behavioural, not informational (given we all have access to the same information)
Such inefficiencies are a result of the 'liquidity flywheel' which is a self-reinforcing cycle of momentum trading by fund managers who hunt as a herd to at least match index performance, despite their views on relative values
Momentum trading works until it doesn't and it often turns suddenly
EMH has false assumptions, in particular who is the buyer
The duration of advisors and fund managers careers is typically a lot shorter than the requisite investment horizon so caveat emptor when employing their services
Differing cost of capital values result in differing valuations for the same asset (to SR's point, the underlying forecast cash flows have not changed, so why should the value?)
Private equity take advantage of such mis-pricing by re-packaging equities into vehicles with a lower cost of capital
To take advantage of mis-pricing, the average investor requires a long term horizon, plenty of patience and they should ignore short term volatility (other than to take advantage of it by, for instance, re-investing dividends at lower prices)


In other words, buy and hold for high conviction mis-priced equities.

[SailorRob]

Interesting article thank you for posting it. It's intriguing that people seem to want to understand the 'market' when the only thing the 'market' provides is pricing. It is not necessary to 'understand' the market when it is plainly providing pricing every day, and is massively more complicated than understanding a company/business, and mostly irrelevant, like who cares why or what the the 'market' thinks, when what they think is collectively expressed in the price and is discoverable down to the minute.

To understand value though, focus should be on the business metrics. To join the two, the market will offer at times prices below or above value of the business, and very rarely equivalent to value, however you've measured it.

To be able to identify when the market is under or over-pricing a business is very simple, by how much is a bit more complicated as it brings into account timing, whereas valuing the business albeit difficult probably for many end-investors, is but an exercise well worth undertaking, to know whether the market price is under or over our valuation of the business.

I have no respect at all for the bogus theory of efficient market pricing, it is a myth, except for when it presents it's distortions and along with that, the opportunity to time acquisition or disposal of assets, that we already think we know the value of.


Very well said.

I don't think that understanding the market is complicated. I think it is totally impossible.

Yes that guy LT3000 is incredible, he's a Kiwi living in Asia and runs a small fund. Some profound stuff on that blog. There is one there on ESG where he makes a very logical case that is very hard to find fault with that if you want to get rid of coal then you get rid of a couple billion people as well. Goes into great detail of steel manufacture etc..

[SailorRob]

Thanks for the article SR. If I can summarise (hopefully correctly & possibly incompletely), the main points seem to be:

market inefficiencies (such as mis-pricing) are structural and behavioural, not informational (given we all have access to the same information)
Such inefficiencies are a result of the 'liquidity flywheel' which is a self-reinforcing cycle of momentum trading by fund managers who hunt as a herd to at least match index performance, despite their views on relative values
Momentum trading works until it doesn't and it often turns suddenly
EMH has false assumptions, in particular who is the buyer
The duration of advisors and fund managers careers is typically a lot shorter than the requisite investment horizon so caveat emptor when employing their services
Differing cost of capital values result in differing valuations for the same asset (to SR's point, the underlying forecast cash flows have not changed, so why should the value?)
Private equity take advantage of such mis-pricing by re-packaging equities into vehicles with a lower cost of capital
To take advantage of mis-pricing, the average investor requires a long term horizon, plenty of patience and they should ignore short term volatility (other than to take advantage of it by, for instance, re-investing dividends at lower prices)


In other words, buy and hold for high conviction mis-priced equities.


Yeah been a while since I read it but I often hear the informational argument made and I somewhat disagree. Yes we all have access to the same information, but who do we know that reads Annual reports? Trade journals? Quarterly reports? Footnotes? Competitors reports? Historical reports? Studies the background of insiders and other owners... I could go on. As Mav said the other day, the fund managers don't have time for this. And then how do they react to this information?

A lot of smart people say there is no information edge... But Mavs information and interpretation compared to Xmen? Yes Xmens $4000 worth of shares isn't moving the market but how many Xmens are there? Let's hope just on but I doubt it.

[Ferg]

Yeah been a while since I read it but I often hear the informational argument made and I somewhat disagree. Yes we all have access to the same information, but who do we know that reads Annual reports? Trade journals? Quarterly reports? Footnotes? Competitors reports? Historical reports? Studies the background of insiders and other owners... I could go on. As Mav said the other day, the fund managers don't have time for this. And then how do they react to this information?

A lot of smart people say there is no information edge... But Mavs information and interpretation compared to Xmen? Yes Xmens $4000 worth of shares isn't moving the market but how many Xmens are there? Let's hope just on but I doubt it.

I suspect quite a few retail investors cursorily read the annual report; in particular the glossy presentation (with selected graphs with lines drawn from the bottom left to the top right), the chairman's report, maybe the CEO's report and if I am correct then that appears to be about it for a vast number of retail investors. It seems very few dive into the financial reports and notes. I do for my high conviction positions to understand the business better. I don't have the time to research a lot of the other elements you listed (over and above press releases) for such investments - to do so would be a full time role as you allude to. So I suspect that whilst we all have access to the same information, a) not all investors are using it and b) those who do, can and do have differing interpretations.

However, I also suspect a lot do not read anything other than online commentary in the hope of riding the coattails of others. I supplement my own research with reading online commentary but I use a "trust but verify" approach to any such analyses that surprise me. Lastly, even if a pro researcher were to look into all the other elements, how many would have the skill to know how that piece of information fits into the bigger picture? And even if they did, to what degree? Take for instance the price of natural gas and its impact on bulk shipper SBLK's profitability: not a well known fact but there is a link nonetheless (natural gas is an input cost into creating VLSFO very low sulphur fuel oil, which is a regulatory requirement unless a ship is fitted with sulphur scrubbers which means it can use the cheaper high sulphur fuel, conferring a cost advantage to the likes of SBLK who have scrubbers fitted to >95% of their fleet). Yes there is an impact, but the exact value is subject to a number of other variables and difficult to quantify - so like I said there can be differing access to information and even with the same info, different people will ascribe differing values.

Slightly off topic but I suspect guys like Keith Gill (aka DFV of GME fame) who appear to be deep value players with immense research prowess may just be very good salesmen who developed a following. I hate to bang on about this but buyer beware for those relying on the analysis of others!

[Lego_Man]

Very well said.

I don't think that understanding the market is complicated. I think it is totally impossible.

Yes that guy LT3000 is incredible, he's a Kiwi living in Asia and runs a small fund. Some profound stuff on that blog. There is one there on ESG where he makes a very logical case that is very hard to find fault with that if you want to get rid of coal then you get rid of a couple billion people as well. Goes into great detail of steel manufacture etc..

I've met him - great guy. Is his fund still going? I know he got caught with a bunch of Russian exposure when the war broke out.

[SailorRob]

I've met him - great guy. Is his fund still going? I know he got caught with a bunch of Russian exposure when the war broke out.


Yeah he is a philosopher and investor extraordinaire.

Pretty sure the fund is still running, he was caught out be he also bought a bunch more when it was down 99% and still technically owns it all just can't sell. If it works out then he could be up many hundreds of percent.

[SailorRob]

Another question we must ask ourselves is that if this was a private business without a daily stock price quote, how then would we know we had massive blind spots and that we were wrong and the market was correct and telling us something that we didn't know?

We would be totally lost, nobody to tell us we're idiots and have made a big blunder.

Perhaps then we would look at the massive cash flows the business produces and ponder what to do with them, then we could decide to reinvest the cash flows to produce even bigger cash flows.

[winner69]

That LTI3000 was a regular poster on Sharetrader in his younger days

We had several robust discussions about some of the stocks he was in to ……..some to love the cheap value plays that often turned out to be cheap for a reason …….think he learnt a fair bit from me and a few other posters

Mind you he picked Atlas Pearls about 20 years ago

[SailorRob]

That LTI3000 was a regular poster on Sharetrader in his younger days

We had several robust discussions about some of the stocks he was in to ……..some to love the cheap value plays that often turned out to be cheap for a reason …….think he learnt a fair bit from me and a few other posters

Mind you he picked Atlas Pearls about 20 years ago


Interesting, can you remember his name on Sharetrader?

You taught him well, he is bloody clued up not that's for sure.

[winner69]

Interesting, can you remember his name on Sharetrader?

You taught him well, he is bloody clued up not that's for sure.

Lyall was Dimebag

[kiora]

Quote from Dimebag

https://www.sharetrader.co.nz/showthread.php?269-OTI/page13
I don't understand why so many people are so concerned about liquidy when they are supposidly making a long-term investment.

To be so concerned, one must be either:
(1) Not a long-term investor at all, because you anticipate the need or inclination to get out in hurry in the near term, especially if there are a few negative company or share price developments; or
(2) Do not trust your judgement enough to lock your money away for 5 years, and anticipate you will be wrong and need to cash out

A true investor isn't concerned about liquidity because they are buying a stake in the company which they don't anticipate a need or inclination to sell in the near term. "Locking-away" one's money for 5 years plus is what should be in prospect.

As to not trusting one's judgement, I would have thought that if this is the case, investing in the stock market at all is perhaps not such a good idea.

Dimebag

[mistaTea]

Another question we must ask ourselves is that if this was a private business without a daily stock price quote, how then would we know we had massive blind spots and that we were wrong and the market was correct and telling us something that we didn't know?

We would be totally lost, nobody to tell us we're idiots and have made a big blunder.

Perhaps then we would look at the massive cash flows the business produces and ponder what to do with them, then we could decide to reinvest the cash flows to produce even bigger cash flows.

I think we would all be better off if the stock market closed for a while and we never received minute by minute quotes on the business.

But I do think you are stretching here a bit. Remember, I am not a proponent of EMT - at no point have I said that the market is always efficient and the stock price is the stock price, no additional thought needed as there are no opportunities.

Clearly that is not true at all.

All I have said is that it is my view that the market as a whole is reasonably efficient most of the time. Most of the time (not all of the time) if you look up a stock and see how its stock price has been tracking over the last wee while, it often gives a decent enough approximation of what the company is probably worth. Within cooee anyway.

Now if you are looking at a company where the chart is spiking up and down massively in short periods of time, I don't think anybody would be able to take anything intelligent away from that in terms of value.

But if you look at a company like KO, for example, the market valuation over the last few years probably is reasonably accurate. A few ups and downs, and the market cap is currently sitting at around $260B.

Well, I think it is likely that this is an indication of what KO is worth and the business probably is worth somewhere between $225 - $275B. It would be a big surprise if I dug into the financials to discover that actually KO is worth $500B and the morons who analyse the stock for the large investment firms have missed a trick! Or that actually KO is only worth $100B and these muppets are overpaying massively.

There will be other examples, as I say, where the SP is all over the place and nobody would claim any level of efficiency. Perhaps there is more opportunity to make money there if you are prepared to do the work.

I do think it is a good idea to understand why the market has set a given value though. Even if you are convinved the value set is wrong, I think it can help the analysis as it might help you focus on a perceived threat (for example) and ensure you have rounded out your due dilligence. You don't believe that is necessary and I accept that.

But your point about being in the dark if the business was private and we didn't have "Mr Market" to educate us every mintute about what our business is worth...

I take your point, but would just caution not to conflate too many issues.

Owning the business privately is the equivalent of being on The Board of a listed company (not a two bit Joe Schmoe shareholder). The reason is that in both instances you would have access to all of the insider information, and you would make your decisions on what to do with the business based on your cashflow, competitor threats, opportunites, market conditions etc.

The only difference is that with a listed company, thousands of men and women scrutinise the decisions the board make in the context of the overall market conditions, opportunities, threats etc and then set a price for the business in real time based on those expectations. For the long term investor, the constant updates for quoted value is of little value, as there is no intention to sell ever (unless something changes in the business that is undesirable - but not because of changes to quoted value).

In the private business scenario you obviously don't have that. You make your plans and then will track the progress and get a sense of whether your business is increasing or decreasing in value based on how well your strategy is executed and whether it is achieving the desired results. You won't be thinking about the likely value of your business every day, but you will think about it. And when the day comes to sell, all of those decisions you made ultimately do get scrutinises by "Mr Market" who ultimately sets the price. There is no escaping him.

In the end, I am not even sure that we actally disagree hugely. We both do not believe in EMT (in the theoretical purist sense)... but where we may differ is my view that most of the time the stock price is a reasonable approximation of the value of most businesses. Perhaps you believe that most of the time the stock price is divorced from the reality of underlying intrinsic value.

Or perhaps we are both half right :cool:

Either way, we both like to invest with long time horizons and consolidate into a small number of businesses. Provided we refrain from being too active, I am sure we will both come out just fine regardless of any differences of how we view the market and its role (if any) in establishing the value of a business (or any other asset for that matter).

[percy]

Quote from Dimebag

https://www.sharetrader.co.nz/showthread.php?269-OTI/page13
I don't understand why so many people are so concerned about liquidy when they are supposidly making a long-term investment.

To be so concerned, one must be either:
(1) Not a long-term investor at all, because you anticipate the need or inclination to get out in hurry in the near term, especially if there are a few negative company or share price developments; or
(2) Do not trust your judgement enough to lock your money away for 5 years, and anticipate you will be wrong and need to cash out

A true investor isn't concerned about liquidity because they are buying a stake in the company which they don't anticipate a need or inclination to sell in the near term. "Locking-away" one's money for 5 years plus is what should be in prospect.

As to not trusting one's judgement, I would have thought that if this is the case, investing in the stock market at all is perhaps not such a good idea.

Dimebag

Another of his posts I found really interesting.
This liquidy issue is perhaps one of the biggest reasons that micro-caps have outperformed their larger-cap counterparts by a significant margin for so many years.

Liquidity scares so many buyers away that great growth companies can sell for rediculously low prices.

As the company grows, and the stock goes up, liquidity steadily improves such that more investors are prepared to buy in. As more investors buy in, the stock goes up and liquidity improves and this cycle can prove very profitable for early holders.

The best opportunities are always where you have a fundamentally attractive proposition where the majority of investing folk dare not tread.

Illiquid micro-caps appear to be prime candidates.

[SailorRob]

I think we would all be better off if the stock market closed for a while and we never received minute by minute quotes on the business.

But I do think you are stretching here a bit. Remember, I am not a proponent of EMT - at no point have I said that the market is always efficient and the stock price is the stock price, no additional thought needed as there are no opportunities.

Clearly that is not true at all.

All I have said is that it is my view that the market as a whole is reasonably efficient most of the time. Most of the time (not all of the time) if you look up a stock and see how its stock price has been tracking over the last wee while, it often gives a decent enough approximation of what the company is probably worth. Within cooee anyway.

Now if you are looking at a company where the chart is spiking up and down massively in short periods of time, I don't think anybody would be able to take anything intelligent away from that in terms of value.

But if you look at a company like KO, for example, the market valuation over the last few years probably is reasonably accurate. A few ups and downs, and the market cap is currently sitting at around $260B.

Well, I think it is likely that this is an indication of what KO is worth and the business probably is worth somewhere between $225 - $275B. It would be a big surprise if I dug into the financials to discover that actually KO is worth $500B and the morons who analyse the stock for the large investment firms have missed a trick! Or that actually KO is only worth $100B and these muppets are overpaying massively.

There will be other examples, as I say, where the SP is all over the place and nobody would claim any level of efficiency. Perhaps there is more opportunity to make money there if you are prepared to do the work.

I do think it is a good idea to understand why the market has set a given value though. Even if you are convinved the value set is wrong, I think it can help the analysis as it might help you focus on a perceived threat (for example) and ensure you have rounded out your due dilligence. You don't believe that is necessary and I accept that.

But your point about being in the dark if the business was private and we didn't have "Mr Market" to educate us every mintute about what our business is worth...

I take your point, but would just caution not to conflate too many issues.

Owning the business privately is the equivalent of being on The Board of a listed company (not a two bit Joe Schmoe shareholder). The reason is that in both instances you would have access to all of the insider information, and you would make your decisions on what to do with the business based on your cashflow, competitor threats, opportunites, market conditions etc.

The only difference is that with a listed company, thousands of men and women scrutinise the decisions the board make in the context of the overall market conditions, opportunities, threats etc and then set a price for the business in real time based on those expectations. For the long term investor, the constant updates for quoted value is of little value, as there is no intention to sell ever (unless something changes in the business that is undesirable - but not because of changes to quoted value).

In the private business scenario you obviously don't have that. You make your plans and then will track the progress and get a sense of whether your business is increasing or decreasing in value based on how well your strategy is executed and whether it is achieving the desired results. You won't be thinking about the likely value of your business every day, but you will think about it. And when the day comes to sell, all of those decisions you made ultimately do get scrutinises by "Mr Market" who ultimately sets the price. There is no escaping him.

In the end, I am not even sure that we actally disagree hugely. We both do not believe in EMT (in the theoretical purist sense)... but where we may differ is my view that most of the time the stock price is a reasonable approximation of the value of most businesses. Perhaps you believe that most of the time the stock price is divorced from the reality of underlying intrinsic value.

Or perhaps we are both half right :cool:

Either way, we both like to invest with long time horizons and consolidate into a small number of businesses. Provided we refrain from being too active, I am sure we will both come out just fine regardless of any differences of how we view the market and its role (if any) in establishing the value of a business (or any other asset for that matter).

The first question you ask anyone who talks about intrinsic value (that nobody ever asks) is what's the discount rate.

Intrinsic value can be vastly different for 2 different people.

[mistaTea]

The first question you ask anyone who talks about intrinsic value (that nobody ever asks) is what's the discount rate.

Intrinsic value can be vastly different for 2 different people.

Yes true, but when you are trying to estimate the value of a business (using DCF ideally) you never land on a precise value that you can hang your hat on.

You land on a range, within which the value of the business is likely.

Just like the market value is often a close approximation - within cooee…

[mistaTea]

Before my time on ST there was a guy called Phaedrus who often posted. More of a TA than a Buffett-style, fundamental analysis, buy and hold investor from what I gather...but quite a legend.

After he made tonnes of money I believe he retired altogether in 2011 and is living out his days on a yacht somewhere.

Anyway, he had a lot of interesting posts - all sorts of gems.

This was one of them: https://www.sharetrader.co.nz/showthread.php?8469-Buying-in-a-Downtrend&p=350434&viewfull=1#post350434

I think some of the points he raised is relevant to this forum. I don't agree with every point he makes, but it is a good word of caution for us all.

[airedale]

Phaedrus, a gentleman always ready with good advice even when he was under attack from the slings and cheapshot arrows of those who disagreed with him.
He said that he took a big hit in the 1987 crash, then realised that he had to take the lesson and change his strategy. He then used TA and of course "never bought in to a downtrend"
I think that the yacht is in the south of France and I hope that he is still alive and well.

[SailorRob]

Phaedrus, a gentleman always ready with good advice even when he was under attack from the slings and cheapshot arrows of those who disagreed with him.
He said that he took a big hit in the 1987 crash, then realised that he had to take the lesson and change his strategy. He then used TA and of course "never bought in to a downtrend"
I think that the yacht is in the south of France and I hope that he is still alive and well.

Yeah the last thing you want is to buy something that's getting cheaper. You want to be buying more expensive things. Sure way to retire young....

[SailorRob]

Before my time on ST there was a guy called Phaedrus who often posted. More of a TA than a Buffett-style, fundamental analysis, buy and hold investor from what I gather...but quite a legend.

After he made tonnes of money I believe he retired altogether in 2011 and is living out his days on a yacht somewhere.

Anyway, he had a lot of interesting posts - all sorts of gems.

This was one of them: https://www.sharetrader.co.nz/showthread.php?8469-Buying-in-a-Downtrend&p=350434&viewfull=1#post350434

I think some of the points he raised is relevant to this forum. I don't agree with every point he makes, but it is a good word of caution for us all.

Sounds like an idiot.

Personally I like buying cheaper, but if they offered me a company free then I'd vomit??

Stoplosses!

So tell your estate agent that if anyone offers you 800k for the house you could sell right now for a million, tell em you got a deal.

Brain dead.

I guess what he's saying has relevance for a certain type of 'investor' who's bought into bollox to begin with.

If I followed the advice he gives then I would be destitute.

[winner69]

Phaedrus, a gentleman always ready with good advice even when he was under attack from the slings and cheapshot arrows of those who disagreed with him.
He said that he took a big hit in the 1987 crash, then realised that he had to take the lesson and change his strategy. He then used TA and of course "never bought in to a downtrend"
I think that the yacht is in the south of France and I hope that he is still alive and well.

Think Mr P has a canal boat and cruising the canals of France

[mistaTea]

Sounds like an idiot.

Personally I like buying cheaper, but if they offered me a company free then I'd vomit??

From what I have seen, Phaedrus was a really slick TA. He looks at investing differently from us (which I don't think makes him an idiot).

I don't agree with some of the things he put in that post (like automatically selling out once a stock dropped by x% from yout buy in price).

But I do take a lot out of his thinking, including being careful not to try to catch a falling knife (been there, done that) and then spend all your energy justifying why the stock is 'even better now' because hey thank ya look how cheap it got!

There does come a point (and I know this will be anathema to you SR) where if enough time goes by and there is still a big discrepency between what the market says and what you say... the market is right. Let's not debate what that timeframe might be, but agree that ultimately the market gets the final say.

In his post he does offer some good cautionary advice and you can pick the bits (if any) that resonate.

This section of his post applies to OCA in particular I think:



These "toxic" threads share many similarities and are quite easily identified. Here are a few pointers :-
Watch for a preponderance of overly loyal extremely positive contributions.
Any negative posters are "run off the thread".
When negative posters are accused of "downramping" you can be sure that all objectivity has been lost.
Look out for multitudinous "cut and paste" entries of scarcely relevant articles from the net.
Beware of threads where anyone posting a negative comment is personally attacked.
Dissenting views should be encouraged, not rubbished. We learn nothing from those that agree with us.
Watch for comments on "ignorant" selling by institutions, techies etc - by people that think they know better.

[percy]

Phaedrus, a gentleman always ready with good advice even when he was under attack from the slings and cheapshot arrows of those who disagreed with him.
He said that he took a big hit in the 1987 crash, then realised that he had to take the lesson and change his strategy. He then used TA and of course "never bought in to a downtrend"
I think that the yacht is in the south of France and I hope that he is still alive and well.

A gentleman who was always ready to offer helpful friendly advice.
I also hope he is well and enjoying life.

[winner69]

Sparky the Clown was another very successful investor who posted on Sharetrader

Had a few traits Rob would have appreciated

[Lego_Man]

TA at its worst is quackery, mumbo jumbo.

At its best it's an insurance policy/check on market dynamics you may have missed. Effectively is a way of expressing the market/supply demand dynamics for the security, which in the short term is very influential for price. It's a way of trying to stack odds in your favour for buy/sell decisions. The way Phaedrus used it was very good IMO.

[Aaron]

Sparky the Clown was another very successful investor who posted on Sharetrader

Had a few traits Rob would have appreciated

Got helpful advice from both Phaedrus and Sparky.

Phaedrus was more a technical analyst, he said he did some basic fundamental research into companies then used his TA to follow trends buying low and selling high. When I challenged him that TA can't predict the future, he agreed and said it tells you what is happening to the price "now" and you need to act accordingly. He also agreed no one can pick the exact top or bottom.

Sparky was looking at growth companies which according to Ben Graham can be too much like predicting the future but I guess Sparky was a growth/value investor.

Not sure why I am posting this pointless bs but feeling a bit melancholy at the mention of two successful (I assume) investors who gave me good advice. Not that I have acted on it.

I hope they are both doing well.

[winner69]

Mike Taylor who founded PIE Funds was also regular Sharetrader poster years ago

Another poster was one of the guys who left PIE and set up Discovery Funds which is doing extremely well

[Ggcc]

Sparky the Clown was another very successful investor who posted on Sharetrader

Had a few traits Rob would have appreciated
Do miss that poster. Another person with loads of knowledge to share, but could share it with everyone in a positive way.

[percy]

Do miss that poster. Another person with loads of knowledge to share, but could share it with everyone in a positive way.

Yes I miss Sparky too .
A well mannered intelligent friendly helpful investor.
Very well connected to the Auckland business community.

[Valuegrowth]

Another of his posts I found really interesting.
This liquidy issue is perhaps one of the biggest reasons that micro-caps have outperformed their larger-cap counterparts by a significant margin for so many years.

Liquidity scares so many buyers away that great growth companies can sell for rediculously low prices.

As the company grows, and the stock goes up, liquidity steadily improves such that more investors are prepared to buy in. As more investors buy in, the stock goes up and liquidity improves and this cycle can prove very profitable for early holders.

The best opportunities are always where you have a fundamentally attractive proposition where the majority of investing folk dare not tread.

Illiquid micro-caps appear to be prime candidates. I have picked stocks like Dimebag. I am used to those types of stocks.Found few multibaggers as well.

[SailorRob]

I have picked stocks like Dimebag. I am used to those types of stocks.Found few multibaggers as well.


Sure mate, sure.

[SailorRob]

From what I have seen, Phaedrus was a really slick TA. He looks at investing differently from us (which I don't think makes him an idiot).

I don't agree with some of the things he put in that post (like automatically selling out once a stock dropped by x% from yout buy in price).

But I do take a lot out of his thinking, including being careful not to try to catch a falling knife (been there, done that) and then spend all your energy justifying why the stock is 'even better now' because hey thank ya look how cheap it got!

There does come a point (and I know this will be anathema to you SR) where if enough time goes by and there is still a big discrepency between what the market says and what you say... the market is right. Let's not debate what that timeframe might be, but agree that ultimately the market gets the final say.

In his post he does offer some good cautionary advice and you can pick the bits (if any) that resonate.

This section of his post applies to OCA in particular I think:


Everything you say seems to stem from the SkyTV experience. I could have told you that was likely to happen before the first share was bought. Now way anyone can have any insight into the future earnings of anything like that, pointless trying.

Remember I'm not a OCA bag holder trying to justify myself - my average price would be well South of current and I want it LOWER, so I'm not trying to justify myself after the stock has dropped or the market has had its way with me... I am begging the market to do what ALL other investors fear - make the price go DOWN way wayyyyyy down.

[Ferg]

So I suspect that whilst we all have access to the same information, a) not all investors are using it and b) those who do, can and do have differing interpretations.

On reflection overnight I need to correct this. EMT/EMH assumes we all have access to the same information but we don't. Take for example Maverick and the outstanding work he does visiting various sites around the country (my shout when you are next over this way). Maverick alone has access to the information he has gathered and created, unless he chooses to share that with others. No-one else can possess that information without replicating the hard yards put in by Maverick. Analysts try to short circuit this process with Head Office interviews etc. but that is not the same information. I'm also aware some investors undertake similar site visit research and undertake key personnel interviews with senior staff which is not generally available to others. So the assumption that we all have access to the same information is incorrect.

[SailorRob]

From what I have seen, Phaedrus was a really slick TA. He looks at investing differently from us (which I don't think makes him an idiot).

Well he could have chosen a different vessel than a canal boat with his billions.

There does come a point (and I know this will be anathema to you SR) where if enough time goes by and there is still a big discrepency between what the market says and what you say... the market is right. Let's not debate what that timeframe might be, but agree that ultimately the market gets the final say.

No this is not correct - what would need to happen is there be a big discrepancy between what you thought the business performance would be and what it actually is. The market can stay irrational longer than you can stay solvent. It's not what I say vs the market, it's the business performance vs the market.

In his post he does offer some good cautionary advice and you can pick the bits (if any) that resonate.

This section of his post applies to OCA in particular I think:

I've had a stock I own go up 600% in a single day this year and that made me down only 98.5% on my purchase price... But I didn't buy any more nor did I sell, and had a small sizing. As the business changed...

[SailorRob]

On reflection overnight I need to correct this. EMT/EMH assumes we all have access to the same information but we don't. Take for example Maverick and the outstanding work he does visiting various sites around the country (my shout when you are next over this way). Maverick alone has access to the information he has gathered and created, unless he chooses to share that with others. No-one else can possess that information without replicating the hard yards put in by Maverick. Analysts try to short circuit this process with Head Office interviews etc. but that is not the same information. I'm also aware some investors undertake similar site visit research and undertake key personnel interviews with senior staff which is not generally available to others. So the assumption that we all have access to the same information is incorrect.


Exactly right and this further backs up my point that the information side cannot provide any edge is rubbish for reasons discussed yesterday and for the brilliant reason you just brought up.

[mistaTea]

Everything you say seems to stem from the SkyTV experience. I could have told you that was likely to happen before the first share was bought. Now way anyone can have any insight into the future earnings of anything like that, pointless trying.

Remember I'm not a OCA bag holder trying to justify myself - my average price would be well South of current and I want it LOWER, so I'm not trying to justify myself after the stock has dropped or the market has had its way with me... I am begging the market to do what ALL other investors fear - make the price go DOWN way wayyyyyy down.

Sky TV and NZOG have been two big factors in my experience than continue to shape my views on how to consolidate with value in mind without completely dismissing Mr Market altogether.

Let us hope I get the balance right!

And you are doing well with OCA, no doubt. Def not implying that you are a bag holder or anything like that.

[SailorRob]

Sky TV and NZOG have been two big factors in my experience than continue to shape my views on how to consolidate with value in mind without completely dismissing Mr Market altogether.

Let us hope I get the balance right!

And you are doing well with OCA, no doubt. Def not implying that you are a bag holder or anything like that.


Only the future will tell if I do well or not, fair bit of luck so far in purchases and sales which were forced on me by Mr Market.

Yes if the market prices a business way South of what you do then you should ask why, but I guess with OCA I just find it hard to believe that the 'market' which comprises of everyone from sophisticated insiders to Bovine Discharge and Daytr, that they together know something or see something that I don't.

I mean when Berkshire traded down to 255/260 in 2022 and I put my entire redundancy payout into it and then some, I just couldn't believe it. And Buffett was buying in spades. Think about that. People were selling to Buffett, why? Christ I have no idea. Someone removing one of their testes with a rusty spoon would make far more sense to me than that but I don't know why the hell they were selling to us?

If it had continued South into the 100's I still wouldn't understand. I guess I'd wonder but I'd never know.

[SailorRob]

Also, remember this isn't a huge position for me and I was not touching North of 90c so although I rave about it here imagine me talking about my big positions.

Still massively undervalued north of $1 or even $1.60 but the lower the better for me.

95% of people think it's more risky at 75c than it was at $1.60 - this alone explains some of the price action.

[mistaTea]

Also, remember this isn't a huge position for me and I was not touching North of 90c so although I rave about it here imagine me talking about my big positions.

Still massively undervalued north of $1 or even $1.60 but the lower the better for me.

95% of people think it's more risky at 75c than it was at $1.60 - this alone explains some of the price action.

I agree with all of your points. You are well versed in the Buffet-style of investing, and I love that. Could learn a lot from your approach.

Though remember, all I have really suggested is that it is good to understand the counterfactual too.

Was not intending to poke the wasps nest with my musings!

[SailorRob]

I agree with all of your points. You are well versed in the Buffet-style of investing, and I love that. Could learn a lot from your approach.

Though remember, all I have really suggested is that it is good to understand the counterfactual too.

Was not intending to poke the wasps nest with my musings!


All good robust respectful debate and I like the challenge.

Whenever I buy anything I do ponder why the seller wants to sell it to me at x price. Honestly I think most of what drives anyone to sell OCA is why they think the price will do in the short term, rather than what the business will do. Maybe the two are related as well.

One of the very best posts about what could go wrong with OCA and it was in response to me harping on about the free leverage, was 'what if they lose money on the investments they make with the float' so saying that borrowing for free doesn't make sense if you lose the money. Great point. However as with insurance I am happy for them to break even to grow the float. Many reasons why what they are doing with the funds makes sense and is very low risk.

Remember I DESPISE property companies like Argosy they are filthy 'investments' that SR would not touch with a pole.

[Muse]

On reflection overnight I need to correct this. EMT/EMH assumes we all have access to the same information but we don't. Take for example Maverick and the outstanding work he does visiting various sites around the country (my shout when you are next over this way). Maverick alone has access to the information he has gathered and created, unless he chooses to share that with others. No-one else can possess that information without replicating the hard yards put in by Maverick. Analysts try to short circuit this process with Head Office interviews etc. but that is not the same information. I'm also aware some investors undertake similar site visit research and undertake key personnel interviews with senior staff which is not generally available to others. So the assumption that we all have access to the same information is incorrect.

Interesting tangent. Some instos & indeed private investors can create their own unique insights through commercial due diligence but with respect to publicly available stuff they have a huge time advantage in how they assess it.

Take for instance a reasonable sized manager like Fisher or Milford. For a particular fund or active strategy they’d have a portfolio manager who calls the shots but supplemented by a number of in house buyside research analysts whose job is to do deep dives on the commercial, financial and valuation aspects of a listed company. They will have access to a Bloomy, CapIQ, Reuters Ikon or Iress Terminal. Those are pretty powerful - providing access to all the sell side research, industry research, comparable company valuations and transactions in a heartbeat. You can suck the financial statements right out of the platform into excel including breaking out all the subtotals at the front of the pack with the details in the notes. Get all P&L, BS and CF statements, structure it how you like, make in half year summing to annual, in about 5 minutes. Something looks curious you can click on it, and it takes you directly to the source and all the notes on that one line. Plus a whole lot more.

Some platforms let you download the sell side analyst models. Say a firm holds Joe Blog analyst at Barclays in high regard but doesnt like the assumptions or wacc noted in the research report. So they can download the model and play with the inputs or use it as a head start on building or supplementing their own.

They’ll usually have an annual subscription to a commercial due diligence service like Third Bridge or GLG where they can talk to industry CEOs, CFO, strat managers or operational managers - both past and present - within a week of submitting a brief to the agency. So if you had a big position in say MFT you could get the low down on port volume movements in key ports, the strategic direction of competitors, who is building what capacity where, the sentiment or level of activity from competitors. Its fast and reasonable way some of these firms can stay on top of industry issues and supplement their own networks which one would hope are extensive and used.

That doesnt mean instos are necessarily better investors than those without those resources - it may just save them a lot of time or, cynically, allow them to operate with less staff per investment or as a % of FUM which could have drawbacks.

And at the end of the day the portfolio manager makes the call - and they are just as fallible as the rest of us with their own pre determined views, biases, and subject to all the same heuristic traps. They could very well ignore or rationalise away what their analysts are saying because of some strongly held belief. Who here hasnt done that at some point - ignoring their own research or better sense? The older I get the more I come to believe unused information is useless information.

[mistaTea]

Interesting tangent. Some instos & indeed private investors can create their own unique insights through commercial due diligence but with respect to publicly available stuff they have a huge time advantage in how they assess it.

Take for instance a reasonable sized manager like Fisher or Milford. For a particular fund or active strategy they’d have a portfolio manager who calls the shots but supplemented by a number of in house buyside research analysts whose job is to do deep dives on the commercial, financial and valuation aspects of a listed company. They will have access to a Bloomy, CapIQ, Reuters Ikon or Iress Terminal. Those are pretty powerful - providing access to all the sell side research, industry research, comparable company valuations and transactions in a heartbeat. You can suck the financial statements right out of the platform into excel including breaking out all the subtotals at the front of the pack with the details in the notes. Something looks curious you can click on it, and it takes you directly to the source and all the notes on that one line.

Some platforms let you download the sell side analyst models. Say a firm holds Joe Blog analyst at Barclays in high regard but doesnt like the assumptions or wacc noted in the research report. So they can download the model and play with the inputs or use it as a head start on building or supplementing their own.

They’ll usually have an annual subscription to a commercial due diligence service like Third Bridge or GLG where they can talk to CEOs, CFO, strat managers or operational managers - both past and present - within a week of submitting a brief to the agency. So if you had a big position in say MFT you could get the low down on port volume movements in key ports, the strategic direction of competitors, who is building what capacity where, the sentiment or level of activity from competitors. Its fast and reasonable way some of these firms can stay on top of industry issues and supplement their own networks which one would hope are extensive and used.

That doesnt mean instos are necessarily better investors than those without those resources - it may just save them a lot of time or, cynically, allow them to operate with less staff per investment or as a % of FUM which could have drawbacks.

And at the end of the day the portfolio manager makes the call - and they are just as fallible as the rest of us with their own pre determined views, biases, and subject to all the same heuristic traps. They could very well ignore or rationalise away what their analysts are saying because of some strongly held belief. Who here hasnt done that at some point?

Thanks for sharing this.

The notion from some posters that seem to imply that most of the ‘market makers’ , instos etc are just a bunch of muppets who only speculate and don’t really ‘understand’ the businesses that they invest their clients money in is asinine.

Dangerous too, I think.

We are definitely not smarter than most of the big players.

[Baa_Baa]

We are definitely not smarter than most of the big players.

Probably not, but we who take this investing thing seriously are WAY more invested in our independent analysis and decisions, it's our own money, not the money of some dumb passive clients who trust someone else with making their investment decisions for them, by 'analysts' who still have a day job to make a living, whereas if they were any good at it they would be putting their own money on the line and making their own decisions, for themselves.

Why are they still working as an analyst, a broker and fund manager? It's not their money that they're investing, it's dumb money and their own money is probably tied up in servicing some high interest home loan or the latest hotshot SUV, 'bach' at Omaha, the bigger boat, or a bank deposit that they're losing on against interest. The 'investment advisor' / 'broker' sector is the most hypocritical counterintuitive 'investor' sector that I can think of. Preying on the uninformed while generally not following their own advice.

I'd rather make my own mistakes, and successes, than rely on some toady who has nothing to lose except a commission from my ineptitude relying on them to make decisions for me.

[mistaTea]

Probably not, but we who take this investing thing seriously are WAY more invested in our independent analysis and decisions, it's our own money, not the money of some dumb passive clients who trust someone else with making their investment decisions for them, by 'analysts' who still have a day job to make a living, whereas if they were any good at it they would be putting their own money on the line and making their own decisions, for themselves.

Why are they still working as an analyst, a broker and fund manager? It's not their money that they're investing, it's dumb money and their own money is probably tied up in servicing some high interest home loan or the latest hotshot SUV, 'bach' at Omaha, the bigger boat, or a bank deposit that they're losing on against interest. The 'investment advisor' / 'broker' sector is the most hypocritical counterintuitive 'investor' sector that I can think of. Preying on the uninformed while generally not following their own advice.

I'd rather make my own mistakes, and successes, than rely on some toady who has nothing to lose except a commission from my ineptitude relying on them to make decisions for me.

I mean, that entire diatribe is just a list of assumptions and accusations you cannot possibly verify.

But it makes for a good story!

[Baa_Baa]

I mean, that entire diatribe is just a list of assumptions and accusations you cannot possibly verify.

But it makes for a good story!

But not as good a story as not pissing away my money on SKT, until it made me a a lot of money, unlike you who freaked out when it was finally recovering and incredibly, you sold at a loss. SKT is my best performing investment of 2023. How was it for you? I didn't need a broker analyst to tell me that.

The internet is a big thing with a long memory that you cannot and will not avoid, you have no interest in OCA that you have so far disclosed, just leveraging the investors who have more common sense and patience than you do.

[Muse]

Probably not, but we who take this investing thing seriously are WAY more invested in our independent analysis and decisions, it's our own money, not the money of some dumb passive clients who trust someone else with making their investment decisions for them, by 'analysts' who still have a day job to make a living, whereas if they were any good at it they would be putting their own money on the line and making their own decisions, for themselves.

Why are they still working as an analyst, a broker and fund manager? It's not their money that they're investing, it's dumb money and their own money is probably tied up in servicing some high interest home loan or the latest hotshot SUV, 'bach' at Omaha, the bigger boat, or a bank deposit that they're losing on against interest. The 'investment advisor' / 'broker' sector is the most hypocritical counterintuitive 'investor' sector that I can think of. Preying on the uninformed while generally not following their own advice.

I'd rather make my own mistakes, and successes, than rely on some toady who has nothing to lose except a commission from my ineptitude relying on them to make decisions for me.

I more or less agree with the comments about financial advisers and sell side analysts, though MistaTee and I were more talking about the actual buyside institutions and I personally wouldnt put them in the same bucket. Bonuses and remuneration are directly tied to performance. Am sure the portfolio managers want to perform as well as they can within the constraints of their mandate because their comp is linked to performance, their future viability is tied to their medium term performance and the firm wants performance to grow fum which grows earnings. And its a green eyed competitve industry.

In the alternate asset space the firm & its shareholders will put in heaps into the underlying funds - sometimes up to 7.5%. Not sure about listed equity active managers.

Lots of instos did MFB so clearly they just as capable of making huge mistakes as the rest of us. But I dont think your characterisation of actual fund managers as staffed by lazy third rate investors is app. Indeed - if one was a particularly good investor - they should go and start a fund management business as the economics are sublime and I’m sure they all maintain active personal investment portfolios.

Back to some of the recent discussion the liquidity flywheel is a great one. A lot will depend on the level of insto ownership before liqudity flees and how much is left when it stabilises - as the price will be set by the marginal investor - who is often retail.

[Muse]

But not as good a story as not pissing away my money on SKT, until it made me a a lot of money, unlike you who freaked out when it was finally recovering and incredibly, you sold at a loss. SKT is my best performing investment of 2023. How was it for you? I didn't need a broker analyst to tell me that.

The internet is a big thing with a long memory that you cannot and will not avoid, you have no interest in OCA that you have so far disclosed, just leveraging the investors who have more common sense and patience than you do.

BaaBaa unless I’ve missed it I havent seen MT say anything about OCA worth getting annoyed over - just good discussion from what I can see.

Re SKT thats great it was a good performer for you in 2023 (me too, though I sold in 2023). But MT’s result is crystalised - yours isnt (I presume you still hold?) So in this volatile world it could continue to be a fine investment but its also possible it could go south and you could end up with a return only a fraction of his. Realised vs unrealised. Just something to reflect on.

[mistaTea]

BaaBaa unless I’ve missed it I havent seen MT say anything about OCA worth getting annoyed over - just good discussion from what I can see.

Re SKT thats great it was a good performer for you in 2023 (me too, though I sold in 2023). But MT’s result is crystalised - yours isnt (I presume you still hold?) So in this volatile world it could continue to be a fine investment but its also possible it could go south and you could end up with a return only a fraction of his. Realised vs unrealised. Just something to reflect on.

Yes indeed. And BB likes to go on and on about SKT every time he gets cross with me…according to him I can never post about anything now due to SKT.

I also didn’t realise I had to be a holder of OCA to contribute something meaningful for the discussion.

Re: Sky - for some context, I completely lost faith in management after the mediaworks fiasco and could not in good conscience continue to hold. I ate $10K on that investment which amounted to about a 1.3% loss.

If BB really wanted to rub my nose in it he would focus more on the opportunity cost of me holding SKT over that period, not the small loss on the stock.

Still, I sleep fairly well at night. The proceeds paid off the rest of my mortgage as interest rates went sky high, and I still have a bunch invested in the US.

Though SKT has since rebounded after the takeover talk, and have paid a couple more dividends since I sold…I don’t think there is much in it at all after tax (if anything) given what I have done with the money since.

Can move this over to the SKT thread but did want to give some context because BB does love to crucify me!

[SailorRob]

Probably not, but we who take this investing thing seriously are WAY more invested in our independent analysis and decisions, it's our own money, not the money of some dumb passive clients who trust someone else with making their investment decisions for them, by 'analysts' who still have a day job to make a living, whereas if they were any good at it they would be putting their own money on the line and making their own decisions, for themselves.

Why are they still working as an analyst, a broker and fund manager? It's not their money that they're investing, it's dumb money and their own money is probably tied up in servicing some high interest home loan or the latest hotshot SUV, 'bach' at Omaha, the bigger boat, or a bank deposit that they're losing on against interest. The 'investment advisor' / 'broker' sector is the most hypocritical counterintuitive 'investor' sector that I can think of. Preying on the uninformed while generally not following their own advice.

I'd rather make my own mistakes, and successes, than rely on some toady who has nothing to lose except a commission from my ineptitude relying on them to make decisions for me.

Bloody hell Baa_Baa, I read this and thought I was reading my own post.

[SailorRob]

Interesting tangent. Some instos & indeed private investors can create their own unique insights through commercial due diligence but with respect to publicly available stuff they have a huge time advantage in how they assess it.

Take for instance a reasonable sized manager like Fisher or Milford. For a particular fund or active strategy they’d have a portfolio manager who calls the shots but supplemented by a number of in house buyside research analysts whose job is to do deep dives on the commercial, financial and valuation aspects of a listed company. They will have access to a Bloomy, CapIQ, Reuters Ikon or Iress Terminal. Those are pretty powerful - providing access to all the sell side research, industry research, comparable company valuations and transactions in a heartbeat. You can suck the financial statements right out of the platform into excel including breaking out all the subtotals at the front of the pack with the details in the notes. Get all P&L, BS and CF statements, structure it how you like, make in half year summing to annual, in about 5 minutes. Something looks curious you can click on it, and it takes you directly to the source and all the notes on that one line. Plus a whole lot more.

Some platforms let you download the sell side analyst models. Say a firm holds Joe Blog analyst at Barclays in high regard but doesnt like the assumptions or wacc noted in the research report. So they can download the model and play with the inputs or use it as a head start on building or supplementing their own.

They’ll usually have an annual subscription to a commercial due diligence service like Third Bridge or GLG where they can talk to industry CEOs, CFO, strat managers or operational managers - both past and present - within a week of submitting a brief to the agency. So if you had a big position in say MFT you could get the low down on port volume movements in key ports, the strategic direction of competitors, who is building what capacity where, the sentiment or level of activity from competitors. Its fast and reasonable way some of these firms can stay on top of industry issues and supplement their own networks which one would hope are extensive and used.

That doesnt mean instos are necessarily better investors than those without those resources - it may just save them a lot of time or, cynically, allow them to operate with less staff per investment or as a % of FUM which could have drawbacks.

And at the end of the day the portfolio manager makes the call - and they are just as fallible as the rest of us with their own pre determined views, biases, and subject to all the same heuristic traps. They could very well ignore or rationalise away what their analysts are saying because of some strongly held belief. Who here hasnt done that at some point - ignoring their own research or better sense? The older I get the more I come to believe unused information is useless information.


This was a hell of a post Muse.

All I can think of is the great quote by Jake the Muss.

'Too much weights, not enough speed work. Dumb ^*&%'

There has certainly been a lot written on why these folk are at a huge disadvantage to us, one of the better summaries is in 'Contrarian Investment Strategies' by David Dreman.

You highlighted Fisher... Recently I went over 10 years worth of 7 of their funds and they beat the NZX in about 4, maybe 6 of the 70 combined years.

Fast paced data analysis from aggregated sources in between Te Reo lessons and social media might not b the ticket to riches.

And if I had a dollar for every time that Warren and Charlie has said that all the stuff these guys are taught in finance school is bollox then I'd have another share of Berkshire.

[SailorRob]

We are definitely not smarter than most of the big players.

Why then can we destroy them and all their efforts by buying an index fund and then doing nothing at all?

Why can I just buy Berkshire and absolutely smash almost every single one of them over the next decade if they are so much smarter than I am?

[winner69]

Summerset sales on a roll …hope Oceania sales doing the same - remember what Mav said they’ve got to start selling the excess number of unsold units.

The Q4 2023 result was a record for both new sales and resales, and a significant contributor to Summerset also achieving a record full year result of 1,103 total settlements for the twelve months to 31 December 2023.

[ValueNZ]

Probably not, but we who take this investing thing seriously are WAY more invested in our independent analysis and decisions, it's our own money, not the money of some dumb passive clients who trust someone else with making their investment decisions for them, by 'analysts' who still have a day job to make a living, whereas if they were any good at it they would be putting their own money on the line and making their own decisions, for themselves.

Why are they still working as an analyst, a broker and fund manager? It's not their money that they're investing, it's dumb money and their own money is probably tied up in servicing some high interest home loan or the latest hotshot SUV, 'bach' at Omaha, the bigger boat, or a bank deposit that they're losing on against interest. The 'investment advisor' / 'broker' sector is the most hypocritical counterintuitive 'investor' sector that I can think of. Preying on the uninformed while generally not following their own advice.

I'd rather make my own mistakes, and successes, than rely on some toady who has nothing to lose except a commission from my ineptitude relying on them to make decisions for me.

10/10 post Baa Baa, I'd give you a reputation point if the site allowed me.

[mistaTea]

Why then can we destroy them and all their efforts by buying an index fund and then doing nothing at all?

Why can I just buy Berkshire and absolutely smash almost every single one of them over the next decade if they are so much smarter than I am?

Because of the fees most of them charge mean that their net result generally lags 'the market' as a whole. But without them, there would be no market to index.

Not a terrible model to say "I have different expectations than the market seems to have for OCA. I am probably not smarter than everyone, so let me unpick their pessimism a little here. If I still think my bull case for OCA is more likely than the worry warts, fantastic - I'm going in deep."

There really isn't much in that to get antsy about I don't think.

Continuing economic uncertainty had OXY drop to $57 today. A fair price for what is known today set by people with a higher IQ than mine. My long term expectations still differ though, so I grabbed another 200 shares this morning. But I understand why the price is what it is today and I think it makes my story/rationale for continuing to buy well rounded.

As Charlie might say - think it over a little more and you will come to agree with me. Because you are smart, and I am right.

[SailorRob]

Because of the fees most of them charge mean that their net result generally lags 'the market' as a whole. But without them, there would be no market to index.

Not a terrible model to say "I have different expectations than the market seems to have for OCA. I am probably not smarter than everyone, so let me unpick their pessimism a little here. If I still think my bull case for OCA is more likely than the worry warts, fantastic - I'm going in deep."

There really isn't much in that to get antsy about I don't think.

Continuing economic uncertainty had OXY drop to $57 today. A fair price for what is known today set by people with a higher IQ than mine. My long term expectations still differ though, so I grabbed another 200 shares this morning. But I understand why the price is what it is today and I think it makes my story/rationale for continuing to buy well rounded.

As Charlie might say - think it over a little more and you will come to agree with me. Because you are smart, and I am right.

I can't even really understand what you're saying let alone agree.

I have no idea what set the price of oxy today. Was it economic uncertainty? I have no way of knowing that.

[Snoopy]

It might help as well to see how massively undervalued the market has these RV's based even on NTA right now. Like if they could sell all their assets now and pay out shareholders, we'd get a lot more than the market price right now. Not that I want to see any takeovers, but you'll get my point I'm sure.


Here is the argument that OCA shareholders will never be able to cash out at net asset backing for the OCA shares they own. That discount to asset backing for all periods bar the freakish circumstances of near zero borrowing rates during Covid, is destined to remain at 50% of NTA, or thereabouts, forever.

"The discount to asset backing has a lot to do simply with the way the assets are packaged from an asset class standpoint, and the different costs of capital that apply to different investor constituencies and asset classes. New Zealand's cities and their super-prime real estate prices, which include those city sited retirement complexes, are valued on the books (and in the real world by house buyers) at cap rates as low as 3% (and often closer to 2% net of costs and tax). In a world with low (in historical terms, not compared to the Covid period) interest rates, this is not an unrealistically low yield for super-prime assets with favourable trends in rent revisions, A-grade tenants, long lease terms (for the lifetime of the tenant in the case of the retirement villages), and an income stream that is inflation protected (in the long term anyway, when rights of occupation roll over). Even a modest pace of 2% annual rental growth (below historical averages) would generate all-in after-tax returns of some 4%, which with inflation protection, is very attractive relative to bonds and other high-grade debt."

"However, the issue is that active equity managers - who are the natural buyers of OCA stock - are not bench marked against cash and high-grade bond returns, or even high-grade real estate. OCA, as a listed company, is part of the "listed equities" bucket, and the performance of the institutions that purchase OCA are therefore bench marked against equity market indices, rather than cash or bonds or property prices. The average stock in New Zealand is currently priced with an expected return of perhaps 8%, which is another way of saying the cost of (listed) equity in NZ is currently about 8%. If equity managers were to buy OCA and realise only a 4% return (which they likely would if the stock was priced at 1x book), but the index was to generate 8% pa, it would be of little benefit to the fund manager to argue to their clients that the returns are low risk and quite attractive relative to fixed income. The clients would say, we allocated you money to get "equities exposure", and you're only up 4% and the market is up 8%, and that is not satisfactory performance. Because OCA is part of the "listed equities" bucket, it is expected to deliver "listed equities" returns of 8%."

"Consequently, listed on public markets, the assets that underlie OCA are priced with a cost of capital reflective of NZ equities in general, which is a cost of capital that bears no relation to the cost of capital private buyers of prime A-grade real estate are subject to. Because OCA's underlying assets generate only perhaps 4%, this requires the stock trade at about one half of book value."

The above is adapted commentary from our former esteemed forum member Lyall Taylor.
https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

Except Lyall was not talking about OCA, but a stock called 'Hong Kong Land' (HKL), which owns super prime real estate in Hong Kong and Singapore. All I did was take out the references to HKL, substitute OCA and voila! Lyall's logic resonates with me, despite the commentary being ostensibly about a different listed stock in a different property and stock market.

SNOOPY

[Ferg]

New Zealand's cities and their super-prime real estate prices, which include those city sited retirement complexes, are valued on the books (and in the real world by house buyers) at cap rates as low as 3%
Snoopy: I thought that text looked familiar. Before scaring people quoting capitalisation rates of 3%....why not use the actual discount rates disclosed in the OCA annual report? Page 52 has the figures you are seeking.


That discount to asset backing ...[snip]... is destined to remain at 50% of NTA, or thereabouts, forever.
Forever is a big call. That assumes required rates of return are always in excess of the discount rates used for property valuations. In light of the figures disclosed by OCA on page 52, that implies a required rate of return similar to what one would want from Central Africa or South America, or maybe even SML bonds.....so are you sure about "forever" given the comparative value is a function of 2 independent variables?

[winner69]

Snoopy: I thought that text looked familiar. Before scaring people quoting capitalisation rates of 3%....why not use the actual discount rates disclosed in the OCA annual report? Page 52 has the figures you are seeking.


Forever is a big call. That assumes required rates of return are always in excess of the discount rates used for property valuations. In light of the figures disclosed by OCA on page 52, that implies a required rate of return similar to what one would want from Central Africa or South America, or maybe even SML bonds.....so are you sure about "forever" given the comparative value is a function of 2 independent variables?

I see Summerset valuers use discount rates for investment properties and capitalisation rates for care units

Suppose it depends on the methodology used

[Ferg]

I see Summerset valuers use discount rates for investment properties and capitalisation rates for care units

Suppose it depends on the methodology used
Therein lies the issue. Per Lyall's amended quote from Snoopy it assumes the properties were valued using cap rates, whereas OCA properties were valued using discount rates. I see Snoops has edited his post, but using a different metric in an amended quote from a different country etc is not the criteria I would use to eliminate a potential investment per the original post.

Edit: and the author acknowledges the varying metrics:


real estate prices ...[snip]... are valued on the books ... at cap rates
versus

the assets that underlie OCA are priced [on public markets] with a cost of capital reflective of NZ equities in general, which is a cost of capital that bears no relation to the cost of capital private buyers of prime A-grade real estate are subject to

[winner69]

That good sales update from Summerset today has got the RV a roll with share prices up …like SUM +3.8% and ARV up 3.5%

Even Oceania has put on a cent to 76 cents

[Daytr]

But not as good a story as not pissing away my money on SKT, until it made me a a lot of money, unlike you who freaked out when it was finally recovering and incredibly, you sold at a loss. SKT is my best performing investment of 2023. How was it for you? I didn't need a broker analyst to tell me that.

The internet is a big thing with a long memory that you cannot and will not avoid, you have no interest in OCA that you have so far disclosed, just leveraging the investors who have more common sense and patience than you do.

So you held on to a loser & you got some of your money back and you use this as a basis to rubbish someone else.

And rubbish whole industries that you obviously really know little about. You choose to manage your own money, good for you.
Others don't for various reasons, perhaps they don't have the time, knowledge or experience or at an age where it suits them not to take too much risk. Within those funds choices range from aggressive & conservative so investors choices can also impact the returns.

The biggest issue I have with most fund managers in NZ is that they aren't fund managers at all but in a chain who are all clipping the ticket. They are merely brokers well at least for the offshore allocation.

An adviser here will take someone's money under their investment umbrella & then the funds generally will go to the likes of a BlackRock or Vanguard etc & they might even sub it out again to a smaller adviser.
However when your money is invested in some of these behemoths they can't be nimble.
And it's very hard for them to beat the indices by much as they are such a large players in those indices.

Good for you, your investment in SKT bounced back, but it's just ugly rubbing someone's nose in it. Have you never lost money on an investment? Its also nothing to shout about if this was your best investment in 2023.

Anecdotally here's a we tip for you though. Since SKT put their prices up, I know quite a few who have dropped their subscription. Me included.

Plenty of sport going back to free to air & long may it continue. Other streaming services much cheaper. In the other four streaming services I pay for cost in total not much more than the cost of Sky & that was just the Sports package.

Just to add, if you hung on to that dog SKT for so long & it's now your best performing stock, perhaps you should be looking into those fund managers you deride.
Unlike OCA the story changed significantly years ago.

[SailorRob]

Here is the argument that OCA shareholders will never be able to cash out at net asset backing for the OCA shares they own. That discount to asset backing for all periods bar the freakish circumstances of near zero borrowing rates during Covid, is destined to remain at 50% of NTA, or thereabouts, forever.

"The discount to asset backing has a lot to do simply with the way the assets are packaged from an asset class standpoint, and the different costs of capital that apply to different investor constituencies and asset classes. New Zealand's cities and their super-prime real estate prices, which include those city sited retirement complexes, are valued on the books (and in the real world by house buyers) at cap rates as low as 3% (and often closer to 2% net of costs and tax). In a world with low (in historical terms, not compared to the Covid period) interest rates, this is not an unrealistically low yield for super-prime assets with favourable trends in rent revisions, A-grade tenants, long lease terms (for the lifetime of the tenant in the case of the retirement villages), and an income stream that is inflation protected (in the long term anyway, when rights of occupation roll over). Even a modest pace of 2% annual rental growth (below historical averages) would generate all-in after-tax returns of some 4%, which with inflation protection, is very attractive relative to bonds and other high-grade debt."

"However, the issue is that active equity managers - who are the natural buyers of OCA stock - are not bench marked against cash and high-grade bond returns, or even high-grade real estate. OCA, as a listed company, is part of the "listed equities" bucket, and the performance of the institutions that purchase OCA are therefore bench marked against equity market indices, rather than cash or bonds or property prices. The average stock in New Zealand is currently priced with an expected return of perhaps 8%, which is another way of saying the cost of (listed) equity in NZ is currently about 8%. If equity managers were to buy OCA and realise only a 4% return (which they likely would if the stock was priced at 1x book), but the index was to generate 8% pa, it would be of little benefit to the fund manager to argue to their clients that the returns are low risk and quite attractive relative to fixed income. The clients would say, we allocated you money to get "equities exposure", and you're only up 4% and the market is up 8%, and that is not satisfactory performance. Because OCA is part of the "listed equities" bucket, it is expected to deliver "listed equities" returns of 8%."

"Consequently, listed on public markets, the assets that underlie OCA are priced with a cost of capital reflective of NZ equities in general, which is a cost of capital that bears no relation to the cost of capital private buyers of prime A-grade real estate are subject to. Because OCA's underlying assets generate only perhaps 4%, this requires the stock trade at about one half of book value."

The above is adapted commentary from our former esteemed forum member Lyall Taylor.
https://lt3000.blogspot.com/2020/07/market-inefficiency-liquidity-flywheels.html

Except Lyall was not talking about OCA, but a stock called 'Hong Kong Land' (HKL), which owns super prime real estate in Hong Kong and Singapore. All I did was take out the references to HKL, substitute OCA and voila! Lyall's logic resonates with me, despite the commentary being ostensibly about a different listed stock in a different property and stock market.

SNOOPY


Yes, you're missing something very major here though.

But as far as property companies such as Argosy etc... this is what I have always been saying. Assets are only worth what they can produce in cash capitalised at an appropriate rate...

OCA totally different for obvious reasons.

[Baa_Baa]

So you held on to a loser & you got some of your money back ...

Just to add, if you hung on to that dog SKT for so long & it's now your best performing stock, perhaps you should be looking into those fund managers you deride.
Unlike OCA the story changed significantly years ago.

Thanks for the encouragement, but not sure where you got the "held onto a loser", or "hung onto that dog SKT", perhaps your vivid imagination? I bought in for the first time when the chart confirmed the turnaround in financials, after doing my FA and deciding it would be a good investment, and waiting literally years for the bottom. My average is well below the current SP and including dividends, my total return so far is 22.8% pa.

[Daytr]

Thanks for the encouragement, but not sure where you got the "held onto a loser", or "hung onto that dog SKT", perhaps your vivid imagination? I bought in for the first time when the chart confirmed the turnaround in financials, after doing my FA and deciding it would be a good investment, and waiting literally years for the bottom. My average is well below the current SP and including dividends, my total return so far is 22.8% pa.

Well done, my bad made an assumption.

Good luck with SKT going forward, it will be interesting to see if they can hang onto those gains.

[SailorRob]

As we've been discussing why the pros are so crap I've been biting my tongue to bring up the resident former professional that once lived like a rock star punching out 100% plus year after year...



So you held on to a loser & you got some of your money back and you use this as a basis to rubbish someone else.

Wrong, perhaps you should understand what you're talking about before commenting. Go and read back thorough the SKT thread and you might learn Baa_Baas basis.

And rubbish whole industries that you obviously really know little about.

How is it obvious Baa_Baa knows little about the industry??

You choose to manage your own money, good for you.

Certainly is.


Others don't for various reasons, perhaps they don't have the time, knowledge or experience or at an age where it suits them not to take too much risk.

Too much risk! Hahaha...

Within those funds choices range from aggressive & conservative so investors choices can also impact the returns.

The biggest issue I have with most fund managers in NZ is that they aren't fund managers at all but in a chain who are all clipping the ticket. They are merely brokers well at least for the offshore allocation.

An adviser here will take someone's money under their investment umbrella & then the funds generally will go to the likes of a BlackRock or Vanguard etc & they might even sub it out again to a smaller adviser.
However when your money is invested in some of these behemoths they can't be nimble.
And it's very hard for them to beat the indices by much as they are such a large players in those indices.

Good for you, your investment in SKT bounced back, but it's just ugly rubbing someone's nose in it. Have you never lost money on an investment? Its also nothing to shout about if this was your best investment in 2023.

Again... Do you know the details here and the history? No.

Anecdotally here's a we tip for you though. Since SKT put their prices up, I know quite a few who have dropped their subscription. Me included.

He doesn't need your tips bro

Plenty of sport going back to free to air & long may it continue. Other streaming services much cheaper. In the other four streaming services I pay for cost in total not much more than the cost of Sky & that was just the Sports package.

Just to add, if you hung on to that dog SKT for so long & it's now your best performing stock, perhaps you should be looking into those fund managers you deride.
Unlike OCA the story changed significantly years ago.

Oh man it's good you stopped there

[Daytr]

As we've been discussing why the pros are so crap I've been biting my tongue to bring up the resident former professional that once lived like a rock star punching out 100% plus year after year...

About to head to bed. Thanks for that, it will get me off to sleep nicely.

[Snoopy]

Before scaring people quoting capitalisation rates of 3%....why not use the actual discount rates disclosed in the OCA annual report? Page 52 has the figures you are seeking.


From AR2023 p55

------------------------

Valuation of Freehold Land and Buildings

The valuation approach for the freehold land and buildings as at 31 March 2023 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (“EBITDAR”) under the assumption a positive cash flow will be generated into perpetuity.

------------------------

My interpretation of this is that OCA properties are valued on an income capitalisation approach. The mention of discounted cashflow I believe is likely to refer to properties under construction or redevelopment. IOW properties to which no income is attached today, but from which a steady income will be expected upon completion in years to come. The 'discount rate' you refer to in AR2023 p52 is 14-20%, with an average rate of 15%. But I don't believe this has any bearing on the 'income capitalisation approach' that would be used for the valuation completed buildings (which is most of them).

A 3% return on a nine hundred thousand dollar house would produce an annual 'income before tax gross return' of 0.03 x $900k = $27,000, or $519 per week. What Lyall is saying is that this kind of return is not good enough for sharemarket investors. But if sharemarket investors buy that house at half price, then the yield on the new shareholder capital outlaid will double to 6%. Thus to our sharemarket investor purchasing units in this listed entity 'on market', the yield doubles to 6%, which sounds a more reasonable proposition.

I do not understand why you have brought those high discount rates into the argument. I don't think they are relevant.



Forever is a big call. That assumes required rates of return are always in excess of the discount rates used for property valuations. In light of the figures disclosed by OCA on page 52, that implies a required rate of return similar to what one would want from Central Africa or South America, or maybe even SML bonds.....so are you sure about "forever" given the comparative value is a function of 2 independent variables?


Again I don't accept an average discount rate of 15% as a basis for property valuation for completed OCA property. Perhaps rather than saying a 50% discount rate will persist forever (and putting that 50% number on it) what I should have said was: "A listed owner of residential property can expect to see the market value of their shares reduce so that the expected overall return from the shares purchased 'at the right price' on market closely matches the expected returns from most other listed shares in non-housing industries." This 'discounting effect' on listed residential property is structural and permanent.

SNOOPY

[Ferg]

Snoopy - your interpretation for completed investment property is 100% incorrect. What does the heading say on page 52? And what is the heading for page 55? I recommend you read all of the relevant pages again. Had you read the notes in detail you would not have come to your erroneous conclusion. You are referring to the subset of care suites and have omitted the investment properties subject to ORAs and DMFs. And the full quote for which you only provided the first half confirms the high capitalisation rates. The full quote (for care suites freehold land & buildings) is:


"The valuation approach for the freehold land and buildings as at 31 March 2023 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (“EBITDAR”) under the assumption a positive cash flow will be generated into perpetuity. Capitalisation rates used for the 31 March 2023 valuation range from 11.25% to 16.25 % with a median value of 12.50%
{and}
The significant unobservable input used in the fair value measurement of the Group’s portfolio of completed land and buildings is the capitalisation rate applied to earnings. A significant decrease/ (increase) in the capitalisation rate would result in significantly higher / (lower) fair value measurement.
Why would you purposely omit the part in bold and then question the discount rates that had similar values? Perplexing.

I can help you:

pages 51/52: "3.1 Village Assets: Investment Property (continued)"

Investment Property under Development
CBRE Limited and Colliers Limited (together the ‘external valuers’) provided valuations of development land in respect of investment property under development as at 31 March 2023.

The fair value of investment property is determined by the Directors having taken into consideration the valuation conducted by the external valuers as independent registered valuers and the cost of work undertaken in relation to investment property under development.

Completed Investment Property
As required by NZ IAS 40 Investment Property, the valuation of investment property is adjusted for cash flows relating to refundable occupation licence payments, residents’ share of resale gains and management fees receivable recognised separately on the Consolidated Balance Sheet and also reflected in the valuation model. The Group’s interest in all completed investment property was valued on 31 March 2023 by CBRE Limited and Colliers Limited, at a total of $744.7m (March 2022: $592.9m)."

The following assumptions have been used to determine fair value:
Significant Input : Description : 2023
Discount rate : The pre-tax discount rate : 14.0% - 20.0 % (median: 15.0 %)

Unobservable Inputs
The significant unobservable inputs used in the fair value measurement of the Group’s portfolio of completed investment property are the discount rate and property price growth rate.

It is there in black and white. Property under development is at directors valuation and completed investment properties are valued using discounted cash flows. Your interpretation of completed investment properties is incorrect.

What you have referred to is an entirely different section under the heading "Care Assets: Property, Plant and Equipment (continued)".

You say:

Again I don't accept an average discount rate of 15% as a basis for property valuation for completed OCA property.
Please understand what you are looking at before posting. It doesn't matter what you believe or accept given the rates I quoted are the rates that were used.

Full quote:

From AR2023 p55
------------------------
Valuation of Freehold Land and Buildings

The valuation approach for the freehold land and buildings as at 31 March 2023 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (“EBITDAR”) under the assumption a positive cash flow will be generated into perpetuity.

------------------------
My interpretation of this is that OCA properties are valued on an income capitalisation approach. The mention of discounted cashflow I believe is likely to refer to properties under construction or redevelopment. IOW properties to which no income is attached today, but from which a steady income will be expected upon completion in years to come. The 'discount rate' you refer to in AR2023 p52 is 14-20%, with an average rate of 15%. But I don't believe this has any bearing on the 'income capitalisation approach' that would be used for the valuation completed buildings (which is most of them).

A 3% return on a nine hundred thousand dollar house would produce an annual 'income before tax gross return' of 0.03 x $900k = $27,000, or $519 per week. What Lyall is saying is that this kind of return is not good enough for sharemarket investors. But if sharemarket investors buy that house at half price, then the yield on the new shareholder capital outlaid will double to 6%. Thus to our sharemarket investor purchasing units in this listed entity 'on market', the yield doubles to 6%, which sounds a more reasonable proposition.

I do not understand why you have brought those high discount rates into the argument. I don't think they are relevant.

Again I don't accept an average discount rate of 15% as a basis for property valuation for completed OCA property. Perhaps rather than saying a 50% discount rate will persist forever (and putting that 50% number on it) what I should have said was: "A listed owner of residential property can expect to see the market value of their shares reduce so that the expected overall return from the shares purchased 'at the right price' on market closely matches the expected returns from most other listed shares in non-housing industries." This 'discounting effect' on listed residential property is structural and permanent.

SNOOPY

[Snoopy]

Snoopy - your interpretation for completed investment property is 100% incorrect. What does the heading say on page 52? And what is the heading for page 55? I recommend you read all of the relevant pages again.


Oh dear it looks like I was suffering from 10 O'clock at night syndrome. I must remember not to post detailed stuff after that hour. Yes I now see the header on page 52 refers to "Village Assets: Investment Property" and the header on page 55 refers to "Care Assets: Property Plant and Equipment". I didn't read those headers the first time through because they were written in light brown which I see as a subordinate colour to black, particularly as it is written in the same sized font as the main text. IOW those headers did not look like headers to me so I didn't read them. The other reason I didn't read them was that I was not expecting the valuation techniques for 'Investment Property' and 'Care Suites' to be any different. If I start with an erroneous assumption that the valuation techniques for both investment properties and care suites are the same, I become blind on a skim read to any mention of differences in valuation techniques resulting in different numbers.

I have now re-read the two sections more carefully.

From p52 on Investment Properties: For the year ended 31 March 2023. The following assumptions have been used to determine fair value:
Significant Input Description 2023:
a/ Discount rate The pre-tax discount rate 14.0% - 20.0 % (median: 15.0 %)
bi/ Modelled property price growth rate (0-4 years) : 0.0%-3.0%
bii/ Modelled property price growth rate (5+ years) : 2.5%-3.5%

From p55 on Care Suites: Capitalisation rates used for the 31 March 2023: An income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach.
Valuation range from 11.25% to 16.25 % with a median value of 12.50%

I still don't see the justification for using different valuation methods for Investment Properties and Care Suites. That seems an unnecessary tweak to muddy the waters of two ostensibly similar income streams.

I think there is something to be said for Buffett's line of not investing in stuff you don't fully understand! Having said that, the median value for the pre-tax investment property discount rate and the median value for the capitalisation rate for care suites (both emboldened above) are quite similar.

Nevertheless the point I was trying to make has been further muddled by my not distinguishing between internal company capitalisation rates, and the expected return of an investor putting their own capital into OCA (I think of the return on invested capital as a kind of capitalised return rate). An investor is not looking at a cashflow return of 12-15% on the shares they are buying. Our investor is looking at a return of nearer 3% on asset values, or 6% if you consider our investor has bought the shares at a 50% discount to NTA.

SNOOPY

discl: Not a holder, and have never invested in retirement villages, nor any other property company for that matter

[SailorRob]

Oh dear it looks like I was suffering from 10 O'clock at night syndrome. I must remember not to post detailed stuff after that hour. Yes I now see the header on page 52 refers to "Village Assets: Investment Property" and the header on page 55 refers to "Care Assets: Property Plant and Equipment". I didn't read those headers the first time through because they were written in light brown which I see as a subordinate colour to black, particularly as it is written in the same sized font as the main text. IOW those headers did not look like headers to me so I didn't read them. The other reason I didn't read them was that I was not expecting the valuation techniques for 'Investment Property' and 'Care Suites' to be any different. If I start with an erroneous assumption that the valuation techniques for both investment properties and care suites are the same, I become blind on a skim read to any mention of differences in valuation techniques resulting in different numbers.

I have now re-read the two sections more carefully.

From p52 on Investment Properties: For the year ended 31 March 2023. The following assumptions have been used to determine fair value:
Significant Input Description 2023:
a/ Discount rate The pre-tax discount rate 14.0% - 20.0 % (median: 15.0 %)
bi/ Modelled property price growth rate (0-4 years) : 0.0%-3.0%
bii/ Modelled property price growth rate (5+ years) : 2.5%-3.5%

From p55 on Care Suites: Capitalisation rates used for the 31 March 2023: An income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach.
Valuation range from 11.25% to 16.25 % with a median value of 12.50%

I still don't see the justification for using different valuation methods for Investment Properties and Care Suites. That seems an unnecessary tweak to muddy the waters of two ostensibly similar income streams.

I think there is something to be said for Buffett's line of not investing in stuff you don't fully understand! Having said that, the median value for the pre-tax investment property discount rate and the median value for the capitalisation rate for care suites (both emboldened above) are quite similar.

Nevertheless the point I was trying to make has been further muddled by my not distinguishing between internal company capitalisation rates, and the expected return of an investor putting their own capital into OCA (I think of the return on invested capital as a kind of capitalised return rate). An investor is not looking at a cashflow return of 12-15% on the shares they are buying. Our investor is looking at a return of nearer 3% on asset values, or 6% if you consider our investor has bought the shares at a 50% discount to NTA.

SNOOPY

discl: Not a holder, and have never invested in retirement villages, nor any other property company for that matter

Missing the forrest for the trees.

Correct if you are talking about property companies like Agrosy yes.

But OCA you don't rent the house at a 3% cap.

You build it for a million, 'sell' it for 1.2 million but you still own it 100% and then you 'sell' it again. And again.

The money you get from 'selling' it you can build the next or you can chuck on term deposit or do anything else with a higher return....

You need to read Mavs post about the forward numbers and cash flows to understand.

[Snoopy]

Missing the forest for the trees.

Correct if you are talking about property companies like Agrosy yes.

But OCA you don't rent the house at a 3% cap.

You build it for a million, 'sell' it for 1.2 million but you still own it 100% and then you 'sell' it again. And again.

The money you get from 'selling' it you can build the next or you can chuck on term deposit or do anything else with a higher return....


There is a element in the OCA business model you are glossing over. You need to follow the investor perception of cashflow. Because what the investor sees happening from their perspective will ultimately determine how the investor behaves, and where the share price goes. Let's take your example.

OCA builds a new villa for $1.2m, booking a $200k profit. That $1.2m villa price is real cash flowing into the coffers of OCA. However from a potential shareholder return perspective the return on that villa with a book value of $1.2m is unacceptable. However, if our canny share investor was able to buy that $1.2m villa for $600k, or half price, the cash yield from that property from the investor perspective doubles and becomes acceptable. Such a 'villa deal' is an equivalent deal to buying OCA shares on market at half their asset backing, where OCA shares have been typically trading on the NZX of late.

What we have here are two very different perspectives of the same transaction.

1/ From OCA management perspective, they have booked a 'perpetual free loan' on the full value of their villa (because when the buyer of that villa moves on, another buyer will come in and buy the villa occupancy rights, which means that OCA never has to fork out their own cash to repay the estate of the first occupant) and cashed up an immediate $200k cash profit to boot.
2/ From an OCA shareholder perspective, $1.2m of cash has come into the company. But the villa is only worth $600k if the shareholder is to get an acceptable return on their invested capital. Yet OCA has had to fork out $1m to build the property. Building a villa for $1m when it is only 'worth' $600k to our shareholder means the company has lost $1m-$0.6m = $0.4m, or $400,000 on the deal.

You Sailor Rob are fully focussed on perspective 1, but are seemingly blind to perspective 2 - which looks to me how 'Mr Market' is seeing things.

Sure I am leaving out the fact that the 'float' is occupier equity, not shareholder equity, so it is not shareholder equity that is being lost as Mr Market marks down OCA asset values via the share price as new villas are built. But what you have here from a cashflow perspective is a process where OCA shells out 'real money' to build a series of houses for $1m, which Mr Market promptly values at $600k as soon as they are built. Sure these are unrealised market value losses. And these losses would likely disappear if OCA was broken up and all the villas sold off. But this isn't going to happen. As long as Mr Market is unhappy with the cashflow being spun off from these villa assets, what you have here with OCA and the current return on asset business model is from a new shareholder perspective a perpetual loss making machine. And that means the market value of the float from a potential new shareholder perspective, which you claim to be the secret growth engine that keeps on giving, is at best zero.

Try as I might, I can't see how buying into this company at more than a share price representing half the asset backing is a good deal.

SNOOPY

[winner69]

When you see phrase like “ An income capitalisation approach and/or discounted cash flow analysissupplemented by the direct comparison approach.” you know that the resultant values are just calculated guesses, esp when tagged as Directors assessment of value.

Occasionally it is disclosed that sales prices were x% higher (or lower) than valuation and/or that sale prices are y% of prevailing market prices in the area……no doubt disclosed to give punters some comfort around the valuations.

all academic though as we all know it’s the cycling of that ever growing float that really counts

[SailorRob]

There is a element in the OCA business model you are glossing over. You need to follow the investor perception of cashflow. Because what the investor sees happening from their perspective will ultimately determine how the investor behaves, and where the share price goes. Let's take your example.

OCA builds a new villa for $1.2m, booking a $200k profit. That $1.2m villa price is real cash flowing into the coffers of OCA. However from a potential shareholder return perspective the return on that villa with a book value of $1.2m is unacceptable. However, if our canny share investor was able to buy that $1.2m villa for $600k, or half price, the cash yield from that property from the investor perspective doubles and becomes acceptable. Such a 'villa deal' is an equivalent deal to buying OCA shares on market at half their asset backing, where OCA shares have been typically trading on the NZX of late.

What we have here are two very different perspectives of the same transaction.

1/ From OCA management perspective, they have booked a 'perpetual free loan' on the full value of their villa (because when the buyer of that villa moves on, another buyer will come in and buy the villa occupancy rights, which means that OCA never has to fork out their own cash to repay the estate of the first occupant) and cashed up an immediate $200k cash profit to boot.
2/ From an OCA shareholder perspective, $1.2m of cash has come into the company. But the villa is only worth $600k if the shareholder is to get an acceptable return on their invested capital. Yet OCA has had to fork out $1m to build the property. Building a villa for $1m when it is only 'worth' $600k to our shareholder means the company has lost $1m-$0.6m = $0.4m, or $400,000 on the deal.

You Sailor Rob are fully focussed on perspective 1, but are seemingly blind to perspective 2 - which looks to me how 'Mr Market' is seeing things.

Sure I am leaving out the fact that the 'float' is occupier equity, not shareholder equity, so it is not shareholder equity that is being lost as Mr Market marks down OCA asset values via the share price as new villas are built. But what you have here from a cashflow perspective is a process where OCA shells out 'real money' to build a series of houses for $1m, which Mr Market promptly values at $600k as soon as they are built. Sure these are unrealised market value losses. And these losses would likely disappear if OCA was broken up and all the villas sold off. But this isn't going to happen. As long as Mr Market is unhappy with the cashflow being spin off from these villa assets, what you have here with OCA and the current return on asset business model is from a new shareholder perspective a perpetual loss making machine. And that means the market value of the float from a potential new shareholder perspective, which you claim to be the secret growth engine that keeps on giving, is at best zero.

Try as I might, I can't see how buying into this company at more than a share price representing half the asset backing is a good deal.

SNOOPY

Please do not edit this before I get my hands on a laptop.

[ValueNZ]

There is a element in the OCA business model you are glossing over. You need to follow the investor perception of cashflow. Because what the investor sees happening from their perspective will ultimately determine how the investor behaves, and where the share price goes. Let's take your example.

OCA builds a new villa for $1.2m, booking a $200k profit. That $1.2m villa price is real cash flowing into the coffers of OCA. However from a potential shareholder return perspective the return on that villa with a book value of $1.2m is unacceptable. However, if our canny share investor was able to buy that $1.2m villa for $600k, or half price, the cash yield from that property from the investor perspective doubles and becomes acceptable. Such a 'villa deal' is an equivalent deal to buying OCA shares on market at half their asset backing, where OCA shares have been typically trading on the NZX of late.

What we have here are two very different perspectives of the same transaction.

1/ From OCA management perspective, they have booked a 'perpetual free loan' on the full value of their villa (because when the buyer of that villa moves on, another buyer will come in and buy the villa occupancy rights, which means that OCA never has to fork out their own cash to repay the estate of the first occupant) and cashed up an immediate $200k cash profit to boot.
2/ From an OCA shareholder perspective, $1.2m of cash has come into the company. But the villa is only worth $600k if the shareholder is to get an acceptable return on their invested capital. Yet OCA has had to fork out $1m to build the property. Building a villa for $1m when it is only 'worth' $600k to our shareholder means the company has lost $1m-$0.6m = $0.4m, or $400,000 on the deal.

You Sailor Rob are fully focussed on perspective 1, but are seemingly blind to perspective 2 - which looks to me how 'Mr Market' is seeing things.

Sure I am leaving out the fact that the 'float' is occupier equity, not shareholder equity, so it is not shareholder equity that is being lost as Mr Market marks down OCA asset values via the share price as new villas are built. But what you have here from a cashflow perspective is a process where OCA shells out 'real money' to build a series of houses for $1m, which Mr Market promptly values at $600k as soon as they are built. Sure these are unrealised market value losses. And these losses would likely disappear if OCA was broken up and all the villas sold off. But this isn't going to happen. As long as Mr Market is unhappy with the cashflow being spin off from these villa assets, what you have here with OCA and the current return on asset business model is from a new shareholder perspective a perpetual loss making machine. And that means the market value of the float from a potential new shareholder perspective, which you claim to be the secret growth engine that keeps on giving, is at best zero.

Try as I might, I can't see how buying into this company at more than a share price representing half the asset backing is a good deal.

SNOOPY

What the hell is investor perception of cashflow... There is just cashflow. I also don't have access to a laptop but what I'll say is all that matters is the net discounted cash a business produces over it's life and the price you pay for that. For OCA it is very promising as tiny returns on assets produce huge returns on equity.

[Snoopy]

What the hell is investor perception of cashflow...There is just cashflow.


Cashflow is following the path of money changing hands.

'Investor perception of cashflow' is the value judgement the investor puts on that cashflow, when the said investor assesses whether the company that has parted with their cash has executed a good deal or not.

SNOOPY

[Snoopy]

All that matters is the net discounted cash a business produces over it's life and the price you pay for that. For OCA it is very promising as tiny returns on assets produce huge returns on equity.


'The life of the business' of a retirement village starts with spades on the ground as real cash is spent paying the construction workers to build the complex. The life of the retirement village ends, -as a new investment entity at least- when the whole show is built up, and the residents are moved in. But the return from the business is constrained by the miserly government contribution to keep the operation running. From an investor perspective, those builders just got paid too much and the village ended up being overcapitalised. Fortunately Mr Market has a solution for this problem. Revalue the company 'on market' so that those retirement village book assets that are claimed to be worth $x are repriced to be only worth $0.5x.

That way everybody is happy, except perhaps for the founding investors that built the village!

SNOOPY

[Leemsip]

Thanks Snooppy. That is a useful way to think about this.