(wow) Words Of Wonders Level 522 Answers

(wow) Words Of Wonders Level 522 Answers – Whenever I read a scathing article on any farm, I always remember to add a healthy dose of reality into perspective.

An article explains that XYZ is down X% year-over-year, but if it doesn't mention that the entire market is down 8-32% as part of its analysis, it might be too short-sighted.

(wow) Words Of Wonders Level 522 Answers

As an income investor, I don't care about price volatility. A common question for new investors or those adapting to the income investing mindset is how we can take price action without tying ourselves in knots.

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I try to put real world examples in their perspective. Why? Because we often have vague ideas about the market. We forget that in the end material is about possessions. When you invest in a , it's not just dollars that change on the screen. These are walls, cars, workers, equipment etc. Each column is a business trying to make a profit by following a specific strategy. You own a part of something tangible.

A common reference house helps people understand the fluidity of value. I am my house. I live in it and it protects me from the elements. It has a fixed value. I can find the market value of my home on sites like Zillow. I can get a better estimate by hiring a professional appraiser. I can hire two equally qualified appraisers on the same day and get two different appraisals…home values ​​change constantly. My home may be worth more to one particular buyer than another.

I don't sell my house when the price goes down because I'm afraid it will go down even more – that's ridiculous! As long as my house offers other benefits and I enjoy it, I keep it.

I may decide that this house is not the best choice for me and I may move to another house – bigger or smaller – but the price change alone will not affect my decision. I will only sell the house if it is not the best option for my needs.

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If the value of my house falls with the housing market where I live, a panicked article about falling house prices won't let me drive under an overpass to avoid a knife-edge crash!

So today I want to highlight two houses that have lost value but continue to provide all the benefits I expect from them. Let's take a look at their core worldview and show them why I'm not moving and why you might want to.

Oxford Lane Capital (OXLC) invests in CLO equity positions. Collateral loans are instruments that invest in bank loans, also known as “higher loans”. These are the best, most secure corporate loans with B/B+ credit rating.

A CLO manages a portfolio of these loans and sells liquidity rights using a “waterfall” style payment system. Those willing to pay a higher premium buy AAA stocks, which pay first and have lower returns. The capital portion is paid last and the balance is received. There is no fixed commitment, so capital is the share of capital that participates in profits, allowing for very high returns.

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Debt rates drop in 2022 The increasingly hawkish Fed lowered the cost of all loans. Even US Treasuries feel the rage and are considered “risk free”!

Therefore, it is not surprising that corporate loans, which carry the risk of the borrower not being able to repay as agreed, have also become cheaper. So OXLC is paying a nosebleed and is priced below the decline in NAV and premium to NAV, which comes with a premium of 20% per annum, today OXLC is trading at NAV. .

Those facts woke up all kinds of bears. Allegations that OXLC “destroyed capital”, “diluted shareholders” and paid dividends by selling assets. Neither is true; Let's look at the numbers to confirm this.

Here's an overview of the last five quarters. Note that OXLC's “investment fair value” is relatively flat. OXLC had $1.238 billion in revenue last quarter. USD, and last year – 1.155 billion.

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That seems pretty anemic considering the $164 million. Addition of USD preferred shares and debt. Looking at these numbers, one can conclude that OXLC has not grown at all and the NAV per share has declined by 30%. Bears watch these headlines and hear their own stories.

Note how the total capitalization of OXLC CLOs has increased from $1.164 billion. 1.646 billion USD an increase of 40%! Remember, these are debt investments, so OXLC has more debt today than it did a year ago.

A step further, OXLC invested 1.726 billion in USD cost basis own investments (CLO equity + warehouse investments) and fair value of 1.238 billion. US dollar. It is 488 million. USD unrealized loss difference or about $3.07 per share.

A year ago, 1.237 billion was invested in OXLC. USD, it was 1.155 billion. This 82 million USD difference represents an unrealized loss of approximately $0.70 per share.

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Excluding unrealized losses, OXLC Q2 NAV in 2022 will be $7.67 ($6.97 + $0.70). In Q2 2023, the NAV will be $8.00 ($4.93 + $3.07). OXLC paid a dividend of $0.8775 during the period.

In other words, it conclusively proves that 100% NAV has fallen due to price fall. It is not an excess dividend, OXLC shares are not issued at a discount, unrealized credit losses (realized losses are not stated on a cost basis) or any other theory that may be provided.

The only question that needs to be answered now is whether the unrealized losses will turn into realized losses or will those paper losses ever recover in the future.

We're firmly in the second camp. OXLC CLOs charge less than equivalent fees for equity positions, and borrowers must pay the full face value of the loan. In a typical CLO, say $100 million. USD, parts of the “debt” may have 90 million rights. Principal amount in USD. The value of the share of the property is based on the remaining 10 million. Ideally, $100 million will be repaid, so the debt portion will be fully repaid and the equity portion will be $10 million in proceeds. In the real world, some of that $10 million will be lost by default. The historical average is about 3%, which means a stock buyer should expect to receive more than $7 million on the investment. So stock buyers like OXLC generally prefer to buy at prices closer to $4-$6/$100.

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Since they essentially get the last $10 of debt, it makes sense that equity CLO levels would fall further when debt prices fall. Let's look at loan prices in 2022. Second half of the year.

When you see credit trading at $96, it doesn't bother you, it's a discount, but not what most credit investors call “depressed” and a warning sign that the market is waiting for a default. On the contrary, the discount created by the reality is that the interest on new loans today is much higher than on loans taken 1-2 years ago. They pay $100 when they repay the loan. An extra $4? This will go straight into OXLC's pocket to be reinvested at current (lower) prices or paid out as dividends.

Permanent losses occur when borrowers actually default on their loans. OXLC priced in this reality when buying equity positions. Defaults are at record lows as firms face 2020-21 spending by refinancing at historically low interest rates. They have spent much of the pandemic boosting liquidity and strengthening balance sheets. Some are unnecessary, others are due to unwillingness to invest in development. As a result, corporate balance sheets are healthier than ever. We have not seen reckless use and reckless spending historically lead to an increase in defaults.

Even in a recession, we believe the number of corporate defaults and bankruptcies will remain relatively low. In that case, OXLC will recoup more than $3 in losses when borrowers default, with additional increases if defaults are at or below the historical average.

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Because fixed income prices are so low, we want to buy preferred stocks at this price. The central bank is still half hawk, but there is light at the end of the tunnel. Also, recession clouds are on the horizon and using preferred stocks can help protect our income.

Preferred stock can be a great source of high income, but preferred stock is usually not very liquid. Building a great portfolio takes patience and time. The

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