Originally Posted by
ValueNZ
Time to rethink risk. Taking on more debt doesn't automatically mean extra risk, it is highly dependent on the terms of the debt. A blanket 40% rule makes no sense.
Here is an extract from the Q3 Vltava Fund letter which discusses risk.
"Suppose your investment objective is to beat inflation over the long term. This is a perfectly realistic and reasonable goal in practice – to strive to increase the real value of your investments. What will be the source of risk for you in this case? The risk will be something that will threaten or even prevent you from achieving this goal. If you base your investments on holding cash, you will achieve the lowest possible volatility. According to standard financial theory, your portfolio will therefore have minimal risk. In practice, however, this will ensure that you will never achieve your investment goal of real appreciation, because the real value of money declines over time. Cash therefore represents the greatest risk in terms of the probability of achieving your investment goal. As Warren Buffett says, stocks are more volatile than cash or bonds, but they are safer in the long run."
My investment goal is to produce a return that beats the SP500 over a long period of time. I believe that OCA taking on more debt decreases risk in my opinion, as the likelihood that I make a return that outperforms the SP500 over the long term increases. For example, OCA being able to significantly grow it's occupational rights agreements in the future, say 20% CAGR, then OCA will be able to leverage this debt which is interest-free, non-callable, and shouldn't ever decrease significantly over any short timeframe.
The same goes for Oceania's bank/bond debt which is ultra cheap, and the bank debt is set to refinance 5 years from now. More of this debt would be a good thing.