Yes, agree, it is hard to see the upside of a "contrarian strategy" - switching from shares to bonds in the hope that interest rates will go down, when interest rates are already on the floor.
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Good quality investment grade bonds are also heavily overvalued, (yield too low) on a risk adjusted basis in my opinion. No question Mr Ryder is a highly astute businessman but I struggle to see the relevance of comparing PE's over a 50 year average (Interest rates were in the late teens, 18% and higher in the 1980's and PE's have to be super realistic in that environment) to the present market PE.
Comparing our market PE with other markets which are also experiencing lowest ever interest rates is something that makes far more sense to me. Perhaps there's more detail on that in his book.
Hi Roger.
Regarding the issue you raise about real estate possibly peaking on both sides of the Tasman, even if this turns out to be the case I don't think it would cause too much of an impact on Ryman's development margins. From past presentations, Ryman have made it quite clear that they sell down the units in their new villages at a substantial discount. This achieves 2 things:
(1) It ensures Ryman gets their development money back which achieves their goal of making each new village self-funding, and
(2) A marked increase in realised value will be seen when in due course the resales begin coming in, even if house prices have dropped.
Here is a graph from Ryman's last presentation which gives an idea just how much house prices would need to drop before any real impact was felt:
Attachment 8116
Having said that, Ryman's development margins for this financial year will be reduced (compared to last financial year) for sure I believe… not necessarily because of any shift in real estate prices but because Ryman's development margin last financial year were very high at 28% and Ryman themselves expect development margins to reduce to the normal 20-25% range for this financial year because:
(1) Labour cost pressures in the market, particularly in Auckland will have a partial impact, and
(2) More so, all the villages currently under construction this financial year will be in their very early opening stage during the annual reporting period, at which time the sell price per unit is even more conservative when compared to the later opening stages which won't occur until the next reporting period. Refer to the chart below for Ryman's take on this:
Attachment 8117
Hi Vaygor1
Thanks mate, always appreciate your input :)
Good buy at this level
But wait! There's more!
I wonder if one day Ryman will create a "share trader" village for us to all sit around and tell our greatest investment stories day after day as we forgot we told them yesterday ..
It could be named the "Kevin Hickman " or "John Ryder" surely for a dollar in on day one , this company must be one of the best wealth creators for NZ investors ?
Any ideas on the top 5 anyone ???
Chuck in a couple of Bloomberg terminals we would be away .....
I hope I am still in this sort of shape at 80 + .....
https://www.youtube.com/watch?v=kDur...ature=youtu.be