Forbar don't want to miss out on OCA's next raise?
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I'm sure there has been plenty of discussion on this previously and a lot of good knowledge on the subject within this forum, but briefly;
How do we know that the industry isn't overbuilding? I guess it comes down a lot to demand forecasts which should be reasonably accurate.
Cheers.
Anyone know if Earl kept his shares? I guess if he sold after leaving then we wouldn't know.
Hi doomster, you clearly forgot to mention that the world is ending in 2026 anyway ... we just need to decide whether this is due to an asteroid collision or due to overpopulation - so, who cares about your boiled cabbage anyway?
https://en.wikipedia.org/wiki/List_o...21st_century_2
No question about demand.
Retirees are only going to move into retirement villages if they can afford to.
As property prices are dropping, it will be harder and harder for the retirees to get a good price for their existing homes to buy into retirement villages.
Why RV share prices are so sensitive to the property cycle - so good on the way up and now, nasty on the way down.
NZ is but in the first year of a potential 5 year down cycle.
No big hurry to ride the cycle down.
Demand is well understood and rising. Just look at the population pyramide.
Price is a function of the real estate market (given that buyers need money from somewhere).
Most analysts expect real estate market to bottom out in 2023 - and given that real estate is always worse in winter, I'd say mid 2023 might be a good guess. It is as well the time when the recession might start to bite and Labour is losing their chances to win again ... which is good for the property market :);
From Tony Alexander's latest article:
https://www.oneroof.co.nz/news/42687Quote:
House prices are going to fall further but the pace of decline has already slowed down in recent months and will likely remain relatively slow for a number of reasons despite the extra pessimism set to come along. Construction costs continue to go up, net migration flows are proving stronger than anticipated, job security remains strong, and the extra hike in interest rates is going to make it even more difficult for the current government to get re-elected late next year.
In fact, with the Reserve Bank forecasting recession from the middle of 2023 the chances of a change in government have increased and this means that as we move through 2023 more investors are likely to start sniffing at the property market in expectation of interest expense deductibility returning.
Clearly there are a great number of extremely uncertain factors in play here even without having to make reference to the also very uncertain international economic and political outlook. But for those people who have the spare cash flow to handle slightly higher interest rates the housing sector is turning more and more in their favour.
From Ferg's post #14092
This was from page 8 of the report:
We have achieved a good level of resales during the period despite operating in a softening housing market. The timing of sales of independent living apartments and villas has been impacted by conditions in the broader residential property market and we are starting to see an increase in the median days to sell these units. However, the price of retirement village units in the sector, including at Oceania’s villages, has historically been well below the median house price in the surrounding catchment areas. As a result of this buffer, Oceania has either maintained or increased pricing for its independent living villas and apartments over the last six months.
Somewhat confused ...
How would you know the length of the housing down cycle - or did you make that bit up?
Did NZ house prices (the red line in the graph below) ever drop for 5 years in a row?
If not - why now?
Attachment 14336
Apart from that - if you talk a 5 years "cycle" - this would be 2.5 year up and 2.5 years down - otherwise its not a "cycle".
Do you know what you are talking about?
A recent Hawkes Bay example is someone sold their home for $680K, and bought into a retirement village for $570K.
If those % differentials remain, then many will still see retirement villages as an option, despite the annual fee, $5900 in this case.
editing mishap / duplicate - deleted
Thanks all, looking at it from a demand perspective, there will be demand for almost any goods and services at the right price and obviously there will always be appropriate demand levels for Oceania's services at the 'right' price.
What I was more getting at was, is there any evidence of overbuilding such that prices will be forced to match demand at prices that don't reflect good returns on the capital invested to create the services and property.
I would not have a clue, but I imagine that if construction of the units and suites is outpacing demand for them then this will be a pricing issue that is separate again from the residential property market.
Property cycle :
1982 - 1987 up
1988 - 1992 down
1993 - 1997 up
1998 - 2002 down
2003 - 2007 up
2008 - 2012 down
2013 - 2018 up
2019 - 2020 down
2020 (note 2020) - 2021 up boosted by record low interest rates
2022 - ? Down
BP - there are those of us who are involved with property development who have to watch the cycle very carefully.
No reason for me to make things up. If my assessment of the cycles are wrong, happy to be proven so.
Who knows, I'm the contrarian and have just bought.. :eek2:
To be fair though Balance, I seem to recall you didn't see the covid boom coming right?
So - with "down" you really mean prices either flat line or growth rates are lower than in upcycles, do you?
I guess with a roughly 10 to 11 years "cycle" it does make sense ... but flat lining prices (I could imagine that) still don't mean prices are going down.
If I take e.g. your "down period" from 2008 to 2012 - prices did go up slower, but they still went up by something like 12% (in 5 years from Jan 2008 to Dec 2012).
But hey, even if property prices as well as building prices flat line from here, what's the damage to retirement villages? Sure - they won't get huge windfall profits from re-valuations - i.e. the next doubling of SP might take a bit longer ... but I don't see this as essential for their business plans.
Good story in NBR (if you can access)
Should allay some fears
https://www.nbr.co.nz/investment/wer...-oceania-boss/
And a cool photo of our brent at work
looks to be following the same pattern of rym after there results .............. timber
Come on bull, rym had a bounce this afternoon. OCA could look at cryogenics and extending lifespan. Not for residents we need the turnover, for shareholders so they can last until the inflection kicks in.
Why are resale apartments going so well and “new apartments” stalled?
I have no answer for now, can anybody else shed some light ?
Maverick thanks for all your detailed information on this forum it is greatly appreciated.
My comment lacks detail however it might clarify your question a little.
OCA is different as you know to the other RV companies in that OCA demolish many units on their brownfield sites.
When they rebuild and report that they deliver an x number of units that does not mean that they have x number of units for sale.
For sale will only be the number of new units minus the number of new units needed to house the residence from the demolished units.
So the unsold delivered units are still occupied but no sale revenue can be gained until the resident from the demolished unit moves on.
No I don’t think you misunderstood. I think what you have pointed out is correct but I don’t think those unsold units fully explain the lower than expected new sales. Mav will have a better idea of the numbers than me re how many fall into the category you mentioned (residents grandparented into new units as part of an acquisition), but I can’t imagine they are the only reason for the low sales.
I think we all know the answer. Retirees are delaying the move where they can because their house is worth $200k less than it was
Sound like the government is planning on pay parity for nurses in retirement villages amongst others. If they are already paying more to retain nurses could be helpful for their bottom line.
Very true, but most people see a lower value from a high point as a loss, even though it is a still a large gain long-term. Then think if they wait they may get that higher number again, all the while missing out on current opportunities in front of them. Human nature and seems to become more common as people get older.....
Reckon you are right on the money with respect to the delay, but the reason for the delay might be more complex. May relate as well to difficulty in finding a buyer who has the finance. If it’s time to downsize due to health, changing plans, advancing years, then I think for many -$200k would be annoying rather than a show stopper.
Should Balance's morbid prediction of a 5 year decline in house prices be correct then some might think this might be a great time to jump into RV license to occupy?
May as well put up the updated EPS trend chart. Just as well earnings don't matter - it's the story that counts.
EPS based on Underlying NPAT since listing. Middle part of chart may be a bit wonly because they changed Balance Dates and the Definiition of Underlaying NPAT (made it a bigger number so the numbers around 2017/2018 may actually be understated on a true comparative basis)
Underlying NPAT is just a guess anyway - the Oceania definition 'Underlying Profit is a non-GAAP measure of financial performance and considered in the determination of dividends. The calculation of Underlying Profit requires a number of estimates to be approved by the Directors in their preparation. Both the methodology and the estimates may differ among companies in the retirement village sector.'
For what its worth here's my chart. I dare not comment
The post War baby boom demographic is inexorable, and these folk have begun to arrive at the sweet spot age for RV occupation, particularly Villas and ILU. Peak care-suite requirement is just a bit further away, but on the horizon.
So any blip just now due to the need to adjust to house price falls is temporary and short term.
It was, and I'm not disputing that or complaining about the content of his information, in any way. What I was commenting on is the sarcastic, repetitive catch phrases that are creeping into his posts. Once is enough if one wants to make a sarcastic point. Repeating it with every post, gets a tad "old." Which is why I only quoted the relevant section of his post.
If you see it as "attacking" so be it. I have been on the receiving end often, from various posters - both publicly and behind the scenes. But when it is happening to me, I'm told "it's just a guy thing" - double standards much.
You know the benefit of hindsight is a wonderful thing. But in share trading its so easy to comment with hindsight. A few posters here are saying 'wouldnt touch them with a barge pole' ' waiting for them to get down to 50cents'. Where were they when the SP was motoring from $1.40 to $1.60. Now when the SP is 80c they are calling it a **** show. I say wow what value.
Here’s the views from 3 experts :
https://www.stuff.co.nz/life-style/h...perts-weigh-in
House prices should stop falling sometime from late 2023 or 2024 so could be 2 year or 3 year down cycle according to said experts.
‘Tony Alexander thinks the housing market’s fortunes may be turning by this time next year.’
‘Kelvin Davidson said this week’s update from the Reserve Bank had changed his view on what might be happening at the end of next year. He said that was now more likely to be the case in 2024 rather than 2023.‘
‘ Miles Workman said ANZ was expecting a 27% peak-to-trough fall in house prices when adjusted for wage growth, or 18% in nominal terms. He said ANZ was previously expecting house prices to find a floor in mid 2023 but that could now come later due to the OCR probably lifting for longer than previously expected.’
Hold on here.Dont folk moving into retirement homes....will still happen.
BTW Balance I detest experts.
If they declare exposure...I will listen.
Yeah pretty much two years of downward adjustment, plateau period, say 3 yrs and then the start of upward trend again.
Overall its always up. Chinese proverb,
“Never sell”. Just think of what you paid for your first home and what it is worth now if you were able to keep it. So all good in Camp OCA. Just bought another 11k at . 78c.
Yes exactly . When I decide to move into one it will be out of necessity because I can no longer enjoy where I am living now because of ill health or maybe loneliness. And it will be to Oceania because they offer the best product based on what I have seen at the Sands.
Brain...Thankyou go well cheers.
Loneliness...thanks for mentioning that.
With the $917,647,000 Deferred management fee/refundable occupation right liability being essentially like insurance float, perhaps a lot better, you could make a strong argument that these funds are better than equity capital and will grow over time. If that is the case then we have a situation where we can purchase 1.882 billion dollars of capital for $550 million, or 29 cents on the dollar. Some of that capital you're buying was injected quite recently.
Anyone see it differently?
No, don't see it differently. Nice to see you're drilling into the underlying investment proposition, and maybe seeing why this (and other RV's) are a good long term investment. Property underpins it, but the business model you describe is way more appealing along with the thesis of demand from a 2-3 decade ongoing aging population.
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.
Over 2.5m shares traded on-market today. The daily turnover is consistently high, even given there are 715m shares on issue, most days over 1m. Clearly there are buyers and there are sellers.
Is someone accumulating in this more recent trading range of, say, 78c to 81c?
They are ultimately protected by replace cost which is sky rocketing and in no circumstances would you be able to replicate the new facilities cheaper than they built them for. It's not the value of the NET tangible assets that matters it's the value of the float which is nearly a billion dollars. Unless you want to mark it all down by 77% then you are in the money.
What’s this billion dollar float you talk about SRob? I’m struggling to get my thick head around the idea sorry
So the $917,647,000 Deferred management fee/refundable occupation license item on the balance sheet is essentially an interest free loan that cannot be called and is only paid back once the next lot of money has come through. It is a thing of immense beauty and the key to understanding the industry.
So it allows them to massively increase the amount of property they own and develop, at no cost or risk. Also worth noting here the terms and rate on their actual conventional debt which is outstanding, one bond is I think 2027 at 2.3% and the other 2028 at 3.3%. So massively negative in real terms.
So a conventional developer like you or I in simple terms, to build a million dollar house, we have to first get a million dollars, then build the house and then to build another one we either have to sell the first, or go to the bank and borrow against the first and maybe get 800k if we are lucky and subject to handing over the title to the first one to the bank and paying interest and introducing all kinds of risk.
OCA has their cake and eats it, they 'sell' the first house for more than a million while still owning it and don't pay any interest on the money they get and they don't have to pay it back (they keep a ton of it too) until it's been 'sold' again, and they do this until the cows come home and then do it some more. So they can never get into trouble with this type of liability, and it reminds me of float in the insurance industry which is fought over like crazy. Only this is way better as float is heavily regulated and you have to put up your own capital too.
Then as they develop more they get more of this free money and develop more... It's one hell of a business, and everyone is missing it as they think you're buying the net tangible assets but no, you are also buying the free billion dollars. I've never seen it discussed here but it's the real key to the business model.
Please forgive an interjection from someone not in or yet invested in the industry. But sometimes those not in the industry are able to see potential solutions more clearly. It seems to me that both care workers and care nurses are under so much pressure these days, that their underlying good nature and commitment to doing good for their residents sees them as slaves to their jobs, and without wage parity to their other health system peers.
The solution came to me in a blinding flash - re-introduce slavery, but with a very important modern twist. Since modern care workers are so wedded to their responsibilities, and work in slave like conditions, it would make sense to 'be honest' and reclassify them -officially- as slaves. This would end all pay parity arguments, threats of strikes or any such bourgeois 'rights' issues, and allow workers to focus solely on their work. Of course,to get care workers to accept such a deal there would have to be 'compensatory offsets'.
Accommodation would all be in house, but to five star standards. Oceanias many unsold apartments would be ideal residential bases for our live-in slave population. This too would provide an instant solution to the excess unsold accommodation stock at Oceania we keep hearing about. 'Five star food' supplied by the cities' finest chefs would be the cuisine starting point. A personal trainer and masseuse for each slave would ensure our people kept in top physical condition. Doctor and dental visits would all be free. A giant personal TV with unlimited access to all the world's streaming services would keep them entertained. All laundry would be done for our slaves. Once a month they would be escorted to town via limousine and a minder to spend a generous clothing allowance, on garments of the finest patterns and made of silk. These minders would be dedicated professionals themselves, employed under the moniker tag 'slave driver'. All worries of their previous life for our slaves, struggling to pay rent, power and food in a hostile climate of rampant inflation would be gone. But, and here is the one disadvantage, they would not be allowed to leave Oceania - which of course would solve the staffing crisis. If they got too old or physically decrepit to do the work, then they would instantly transition from 'worker' to 'inmate', removing all long term care worries.
Once a year, replacing Labour day (because no-one these days works a 40 hour week anyway) the country would have a 'Slave Appreciation Day' (acronym SAD, sounds catchy), where we 'externals' would stop to remember our 'dedicated slave workforce' who would not be able to stop and appreciate themselves - because they would still be working looking after those 'oldies'. My 'elegant solution' does seem to solve most of the industry's problems, including the ever increasing wage bills that shareholders seem to worry about.
SNOOPY
It is an asset in all but a technical sense. Float in the insurance industry is viciously fought over to the point where they're happy to lose money on underwriting in order to gain the float to invest. Look at the amount of this source of funds vs the amount of interest bearing debt, or the amount of equity.
Google 'insurance float' for a quick overview of the concept.
My answer would be that they didn't.
They didn't need to, they wanted to. And it's not all bank debt, looks like just over half is and a fair bit is due to weak exchange rate affecting their USD bonds.
Ultimately this conventional debt allows them to ramp the float faster.
I still can't believe that they only had 61 new sales in first half year
Thats 40 less than same period last year and half the number they sold in pcp2021
They were even selling more new ORAs in 2018
The numbers don't seem to reconcile with the words and images in their reports.
Hey Maverick
Have you noticed that they have stopped breaking sales prices of villas, apartments and care suites between new sales and resales - now only show a combined (new plus resales) figure.
Something they don't want us to see? But it pisses me off when they continually keep changing how they report things.
Never mind, its a wet day today so I'll do my own restating of past numbers to keep a trend I monitor up to date.
I don't think it is of great concern at this stage. Six months is too short a period to positively identify a trend. Winter is always a time for depressed sales. Also the lead time for elderly to sell their house, then sign up for licence to occupy extended due to the interest rate increases, slowing down the purchasers of their home. It takes a little time to get used to accepting a lower price for your house. But it will not stop them selling, as they have very little alternatives. You have to remember elderly just don't have the time as a younger person would to hold fire until better prices may come around the corner. The next full year results will be more telling and then the six months after will define a trend much better.
I think probably the six months ended 30 September were the worst six months for purchasers of dwellings to make decisions to go ahead with purchase or wait.
Hi Winner, nice to hear from you.
Yep, I'm totally with you on that. Everyone has always complained about how complicated and that too much stuff was in their reports but Ive always loved their detail. I guess they are just aligning it with the other guys as none of them break it down either.
Personally I'm a bit disappointed they've done it but like you we just have to adapt.
I'm ok about care suites new and resale prices lumped together. The condition and price of a care suite new or second hand are as good as identical anyway, in fact last HY the second hand C/S where dearer than new C/S by $23k.
Villas dont really matter as they dont really make new villas anyway.
On thinking about it apartments are kind of like the care suites where a second hand Remuera rise apartment is going to be dearer than a brand spanker Awatere one so I guess eventually they all may as well get mixed together I suppose. The teased out detail becomes irrelevant for any practical purposes. Exception being 1HY24 new Helier sales- they will skew things for sure. Hopefully they'll strip those ones out just for fun.
Interestingly The second hand apartment prices would have been really skewed anyway by some resale's soon to start flowing from Browns Bay ( remember a couple originally sold for $2.6 m which are statistically due to recycle as second hand in a couple of years) . Then some in this lot will be "Remuera rise "resale's almost certainly going for more than $1m. So I guess on reflection they may as well amalgamate it all. Second hand care suits and apartments are always going to be as good as the new ones anyway.
BTW , I'm still beavering away in the background on the drop off in APARTMENT NEW SALES which killed any growth in this HY underlying profit. I'm really gutted about that as we were all set to demonstrate good profit growth. How many more times can I tell my wife ..." next time"?
Got some good leads I'm working through and so far I'm happy with about 3-4 acceptable reasons I've found but its too important of an issue to just hope she`ll come right.
BTW I do agree with you Bottom feeder on your good post above , That is one factor defiantly in the mix.
Thanks Mav for those comments. Must be a bit of a worry if you have to keep telling your wife that future is bright and it's just a matter of weathering the current storm.
F123 Underlying NPAT was $266k less than last year. Realised Gains from resales were up $5.8m ($3.0m impact from selling more and $2.8m impact of better prices and margins) but Development Margin on new stuff was down $2.6m (the impact of selling less was $6.0m partially offset from a $3.4m favourable impact of higher prices/margins)
So ORA/Property activity was actually $3.2m than last year but other stuff which I call the day to day 'Operating Surplus' was $2.9m
worse than last year. This Operating Surplus over the years has been positive but lately it has turned negative. The $3.2m difference from last year (negative) isn't obvious as to the cause - I'm just assuming its the impact of all those things like higher wages, govt fees shortfall etc etc ..... but we wouldn't want to see it getting worse would we.
Overall lets hope the new sales problem is just a 'timing' difference andthe next couple of halves will be the really great.
OCA any is too many
It's great to get down in the weeds but ultimately none of this really matters. Everything will be sold eventually and resales will occur eventually.
The big picture is that the float has compounded since May 2016 through September 2022 at 25.5%.
I can tell you with certainty that a business model like this would interest Buffett immensely.
Surely this new annual $200 million govt increase in funding towards pay parity for nurses including ' residential aged care workers' is excellent news also for OCA.
Going to make recruitment & retainment much easier.
https://www.newshub.co.nz/home/polit...rity-deal.html
Yes, sector having a revival on-market this morning. And that announcement is clearly the driver, even thou signaled previously. Nothing like reality to move the market!
This is a material change. OCA pay their nurses at the going public hospital rates anyway. So now that funding can come from DHBs rather than scrounging it from other areas of operation.
Wait there's more.....Kathryn said on the webcast the latest EXTRA pay increase DHBs are giving operators equates to $4/bed/day...that means about $1.5m extra cream to OCA for this 2HY by my estimation. This is on top of the parity deal.
It is clear that the govt are unwinding some of their funding cuts of the last 5 years.
This is a fantastic announcement. For all the posters here who have been waiting for the Govt to recognize they've cut too far and start to improve funding...this is that day.
OCA who has been beaten up the most for its care weighting will be the one that gets revalued the greatest from these 2 funding increases.
One last bit of housekeeping.
Today is the last day for the 1.9c unimputed divi.
Retire sector in favour again .....and share prices on a roll (big time)
The bad times are over
Re Oceania .... we will never never see the 70's again
Probably just a recap on the results meeting but might be some additional comment now that this pay parity funding has been announced.
Attachment 14356
Bought some Oceania bonds at a 6.9% yield. Oceana really got the timing right to get then issued at 3.3 %. Another factor which gives this share some legs.
Mkt liking ARV result...
People do ... otherwise there would not be any bonds for sale :) :
Apart from that ... bonds do have a different risk profile than shares (i.e. they help with risk mitigation in a balanced portfolio) and, if you buy them in high interest times, they are likely to add to the interests a capital gain (if and when interest rates go down).
Not commenting on this particular case, but there clearly are situations where it makes sense to buy bonds over stocks ... and people do.
Discl: Holding currently as well some bonds (though no OCA bonds).
Sobering updated house price prediction from ANZ.
https://www.stuff.co.nz/business/mon...rom-their-peak
Deleted deleted
Economists....i call them visionary...talk sheet no actions. Just like politicians and my boss...talk..talk..talk...no actions,,,expect others to do the mahi.
The economist predicted the housing price would fall when the covid hit. Instead,, the house price is doubling since 2020!!!
Infratil not selling Retire Australia
Probably didn't want to sell at 30%/40% discount to NTA - wait another year or two until sector seem more favourably
Those interested (assuming there was interest) might make a move on Oceania .... shareholders probably happy to accept a buck a share even though our Liz would say it's an opportunistic offer and doesn't refect the true value of the company
That
We have had our inlaws living with us since April having sold their property early this year. They have made offers on numerous properties pitching their price reflecting the medias spin on prices coming down. Their summation is while there is some evidence of prices coming down, it is no where near what is being represented by the media. Lot of click bait going on. Prices pretty much still up there unless you have a desperate vendor.
Lets see:
If you buy OCA010 at current prices, they get you something like 6.5% ... and I'd say the risk of default is negligible. If interest rates drop, you will get on top of that a capital appreciation. Your risk: If interest rates further rise, your capital will drop.
And you are right ... if you buy the share at 82 cents you get a dividend yield of 6.1% (i.e. nearly the same as the bond) ... and the chance (and amount) of a capital appreciation appears to be much higher - but hey, it is still a share, i.e. the overall risk (and certainly the volatility) is higher.
Anyway - I hear what you say, but still could see why conservative investors want some of the bonds in their portfolio as well.
Always good to have a mix of investments. After all while we have ideas of what the future holds, you just cannot be 100% sure. I already have enough shares in OCA and Arvida. Mind you if the price comes down further I will buy some more, but once the price starts to rise, I don't chase the share on the way up. 6.9% doesn't look too bad. Just see what the banks offer. Am reluctant to make them money at my expense.
To clarify and ensure that no one is confused::
Each OCA010 bond has a face value of $1.00 and a rate of 2.3% pa ( Each bond pays out 2.3c pa before tax).
At the last trade of $0.82256 per bond you get at effective rate of 2.796% [ being 2.3c/82.256c as a % ]
The figure of 6.65% you see on the NZX website is your annualised return assuming that you hold the bonds to maturity and get back $1 for each bond (that you only paid 82.256c for ).
Yeah, but if you buy the bond at current prices for a 6.5% yield and rates drop then you have to really think through the capital appreciation as you'd have to sell to realise it and then be stuck with lower rates to reinvest, otherwise you've still got the 6.5% to maturity.
Same if rates rise further, if you sell to realise the loss then you can reinvest at a higher rate.
My point is it's all a wash. You're getting your 6.5% either way. It's all in the cake when you bake it.
Nobody makes money from rates dropping to increase bond values when you think about it properly as what are you going to do?
Same with rising share prices from lower rates... it's a shot in the arm now but lower returns forward so it's all a wash.
Definitely not always good usually it's just diworsification.
Nobody under 60 should hold any certificates of confiscation at all (bonds) unless you're super sophisticated and you're trading around mispricings.
6.9% is a loss of capital and guess who's winning? The shareholders.
Just to clarify. The bonds were issued last year 100million at 3.3%. Every $10000 you invested you get $330, before tax.
I Pur hased the bonds at the quoted interest rate of 6.9 percent. I paid for $10,000 bonds at maturity by the payment of $8,342.16. So I still get the coupon value of interest of $330 a year. But because I paid less it works out to be an interest rate of cash 3.96%. If all remains the same the difference of $1,705.47 I get in five years time, a sort of deferred interest. So over the 5 years in total I get a return averaged out at 8.04%.p.a. Note I. Can sell at ant time. Provided all remains equal, as I get closer to maturity date the bonds can be sold for proportionately more so that I get a piece of the deferred interest. So my return stays at $8.04% p. a..
Where the complications come in is if interest rates become volatile. If interest rates go up markedly, I still get my 8.04 percent to maturity. Unless I sell then I get less. If interest rates drop ie Covid, recession, war foot and mouth. etc then if I hold till maturity, I still get my 8.04 percent. Or If I sell I will get more return on investment. I prese tly hold four shares, which if they go down, I will probably buy more. These shares and industry I know better than others. So I am not looking for other investments. So if it all turns to total ****, I have some safer more secure investments to fall back on. I already have 730,000 OCA, and while I have 95% confidence they will get to $1.30 soon enough, I am not risking everything on that thought. So spare cash is going into bonds at the moment on the way up.. I have other bonds as well. I am retired. I don't have the luxury of losing all of my money and then starting again, such as some of you younger guys and gal's.. So some of my decisions have to border on conservatism.
And I think the gain on maturity is tax free, whereas if you received it as actual interest (like the $330pa in the example) then that income is liable for tax. So bottomfeeder is actually even better off by holding than he/she is indicating.
You clearly know what you're talking about however if you only own 4 companies in the same industry then perhaps you should own bonds in a different company than what you also hold a lot of stock in.
I will go through the bond math later and ask if I have any questions, but if rates drop and you sell the bond, how do you get more return? You get return pulled forward but then you have to find another investment and if it was OCA bonds then you're buying back the bond you just sold less 2 x brokerage costs. Same applies to any other investment - you're faced with lower rates, so wont you end up with roughly the same 8.04% less brokerage?