OCA - Oceania Group - retirement villages

[winner69]

seems we all need to update our efficient frontiers and get Sharpe Ratios working to ensure we are getting the maximum return obtainable for a certain amount of risk taken

Seems all too hard - just use gut feel - 5 stocks or 10 stocks or 15 stocks .... whatever one feels comfortable with ....and es macduffy me old mate 31 is probably a few too many

[Bjauck]

In principle, I agree with that, Beagle. However, your post made me check up on my portfolio - I have 31 equity holdings! Time to take the pruning shears and do a bit of trimming/consolidation.

Is a portfolio like a bush? When it becomes too unruly and straggly, it will benefit from a good judicious prune and subsequently become more bushy

[macduffy]

Is a portfolio like a bush? When it becomes too unruly and straggly, it will benefit from a good judicious prune and subsequently become more bushy

Should become more manageable, at least. Could do with a few more OCA for a start.

[Mr Slothbear]

seems we all need to update our efficient frontiers and get Sharpe Ratios working to ensure we are getting the maximum return obtainable for a certain amount of risk taken

Seems all too hard - just use gut feel - 5 stocks or 10 stocks or 15 stocks .... whatever one feels comfortable with ....and es macduffy me old mate 31 is probably a few too many

sound advice. I’m not a fan of bush but a stable of 5 to 8 is what works for me

i’m not sure on sharps theory but the Kelly formula made sense when described in Mohnish Pabrai’s The Dhando Investor, great book by the way.

[winner69]

You will often see on this forum the term diworseification...which is not even a word but the idea touted is that you cannot really beat the market with a well diversified portfolio of shares.
I know from decades of investing this is complete nonsense and a prudent investor first makes a very sober assessment of their ability to predict the future but nonetheless undertakes deep research and thorough analysis in the hope that with the various key companies in their portfolio they are right 75-90% of the time. Anyone who thinks they can predict the future with 100% God like accuracy and invests accordingly is at best taking an extreme risk approach and more likely, is a reckless fool in my opinion.

Beagle generally good advice, esp for the long term buy and hold passive sort of investor.

From your posts and disclosures about weightings etc it would seem that your portfolio is highly concentrated (not that diversified) on a limited number of shares. That might to a some extent mitigated any unsystematic risk.

I see you as a very active investor and diversification is not really one of your priorities (except maybe your self imposed limit is a form of diversification) but your main portfolio management tool (besides picking a few great stocks and keeping a close eye on them) is managing systematic risk - as your posts say you seem to go heavily into cash quite often - capital preservation I think you call it.

What I'm saying diversification can mitigate unsystematic risk but doesn't mitigate systematic risk...but you actively manage that systematic risk

I hope I'm wrong in saying this - I hope your continued 'preaching' of diversification (and even including bible quotes in your signature) isn't aimed at any particular individual who has a right to their own investing style.




Disc: My 'portfolio' is probably even more concentrated than yours

[Beagle]

Not aimed at anyone Winner, just my Christmas message to all sharing some timeless wisdom. Hard to beat King Solomon's wisdom...stood the test of time.
Back in my Uni days it was thought that one needed a portfolio of at least 13 different companies in completely different sectors to achieve proper diversification and these days you'd probably need to invest overseas to achieve that but I got to thinking what did King Solomon know with investing in 7 or 8 things that modern portfolio theorists looking for the efficient frontier don't ?

Perhaps doing deep research and thorough analysis and keeping abreast of 13 different companies is simply too much and one is simply better to concentrate on doing very deep research and analysis in finding 7 or 8 really high conviction positions ? Is so doing you will never achieve a truly diversified portfolio but perhaps that's the idea ? One will certainly be looking to achieve market outperformance but contemporaneously not be taking any extreme risks with too much of their money in any one thing.

I have also mused at some length that nowhere in King Solomon's statement does it say take 7 or 8 equal sized investments so that opens the door to further outperformance if one weights their investment to shares in which they feel have a compelling opportunity. Perhaps as high as 20, 25% or even 33% for something that's truly compelling is still embracing the core message that King Solomon gave us ?

I set a limit at 15% as an opening buy position because that's where I feel my limit is in terms of remaining objective and keeping a clear head. I am sure others feel more comfortable with higher weightings in any one share and there is some evidence on here that people can still remain objective with that, (a very good example is Maverick who I know has a very large position in OCA but still remains completely objective and doesn't feel the need to defend the share like its a cult if someone has a differing opinion), but there's an awful lot of evidence on here that suggests most investors are prone to myopic vision if they get too big in a company.

I'm sorry if you think I am "preaching". I see it as sharing some timeless wisdom so the young ones and new investors can benefit. When some new investors start idolizing those that take extreme risk positions, I am sorry but I felt someone needed to say something. Your own signature line at present suggests a gung-ho she'll be right approach to take whatever risk you like is appropriate but is it for those very close to or effectively already in retirement ?

No harm in taking refuge in a very large cash position when for example Covid or other big trouble is coming, in fact the Bible suggests this is a very good strategy, as per my signature below
You quoting Ben Graham as a source of wisdom, I think my source is the real truth and much better
That said I still like my modified version of Ben Graham's valuation theory, (you can call it the Beagle theory if you like) but I use 1G as a filter to find GARP (Growth at a reasonable price) stocks. So a fair PE = no growth PE (currently 11.5 with 10 year Govt stock at ~ 1%) + 1 x the expected average growth rate in eps for the next 7 years. I like this theory a lot and use it and find it works very well. This theory suggests to me that OCA is highly likely to be extremely good value as I have set the 1G at 15 and I think they can do this with their business model. Broker estimates for OCA are for underlying eps of 8 cps so at $1.39 brokers are saying its on a forward PE of 17.4 so its not cheap per se but it is very cheap if you think they can grow eps at 15% per annum for the next decade ! The point of inflection in their business redevelopment process is one thing, but it will take time to build earnings momentum. One analyst last week was out with extensive analysis, (I sent you a copy), has them at 18 cps for 03/25, just over 4 years away. 8 cps in FY21 to 18 cps in FY25 gives an average compound growth rate of 22% looking out over the medium term.

One neat trick to getting market outperformance though in my opinion, is to pay nothing or very close to nothing for all the future growth for all time and buy growth companies on a no growth forward PE of about 11.5. Really good examples at present are HLG, (should do 55 cps this year and are on a forward PE of 12) and HGH.
Using 1G on Heartland I get a fair forward PE of about 17.5 (11.5 + 6), currently priced like its never going to grow in the future which is plainly absurd as is HLG which has excellent prospects with its Glassons brand in Australia.

I hold quite a few other positions but none of them are as really high conviction as those three noted above. TRA have been building momentum nicely though and our GNE term deposit is going well too. PAZ very promising on the unlisted market and Barramundi warrants should do really well this year, so there's four others to round out 7 picks key selections.\

Everyone needs to find their own investing methodology but measuring one's success against some benchmark like they would have achieved through investment in an index tracking fund makes profound common sense. If one finds they are consistently underperforming the NZX50 year after year after year maybe its time to reconsider one's investment style or simply hand their money over to be professionally managed for them ?

Anyway herewith ends the sermon. I might have some new wisdom in an updated signature from Proverbs for you next month

[James108]

About 8-10 holdings for me is about right. But I try and be very honest with myself about when I might know better than the market and when I probably don't. And a lot of the time I probably don't.

Some companies I own that appear well run but large and very complicated, I don't pretend I could ever get a knowledge edge and make a deep 'value' buy. e.g. Infratil, Ebos, Freightways, ATM. But most of these shares have still done very well for me (although I actually bought and then almost immediately sold Mainfreight years ago, I must be one of the only people in the world to lose money owning Mainfrieght shares lol)

Other companies I have done a lot of work on and I feel I understand very well, usually less complicated and smaller e.g. Scales, Summerset, Oceania, HLG. Or I am the smartest person in an empty room e.g. Smartpay.

If a company in the former camp has a share price drop e.g. ATM I don't pretend I know more than the market and I don't chase it down because I almost certainly don't (and I feel a lot of people are in this camp whether they know it or not). On the other hand if I sense value in the latter category I will often chase the price down as there is a chance I am a better judge of value than the market. I have learnt to be very strict in the value of additional parcels I buy though as I may be wrong. E.g. when L4 lockdown was announced this in my view de-risked oceania ALOT and at 42 cents a share presented very good value. Because I already had a model for Oceania I knew what it was worth in 'normal' times and I thought through 3-4 different scenarios, valued each outcome and assigned (guessed) a chance for each eventuality this then presented a value far in excess of the share price which left a lot of room for my error.

[Beagle]

For what its worth I currently have 11 positions although 2 of them are in listed investment companies (Marlin and Barramundi warrants) and between them they have nearly 40 different companies. Really only 9 of my own positions and ostensibly handing over the rest to be professionally managed. Maybe at heart I am a simple bean counter and when I run out of fingers to count on I feel lost lol

[macduffy]

I must admit being partly responsible but we seem to have strayed a long way from OCA! Perhaps the discussion of portfolio composition would be better having its own thread.

[winner69]

Harry Markowitz said that in investing “the only free lunch is diversification”