Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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With all the talk of productivity, cost competitiveness, the currency and interest rates, and because we are rolling over tens of millions in TD’s (that were paying five per cent) I thought it worth sharing what Term Deposit (TD) rates are on offer now (see ‘More’ below). We have written extensively about the loss of purchasing power now affecting hundreds of thousands of retiring boomers so the low rates are nothing short of shocking and understandably force many investors to buy high yielding stocks like Telstra.
In this Australian article published 27 October 2012 Roger discusses how behaving counterintuitively may result in better performance for your portfolio. Read here.
From Roger Montgomery & Russell Muldoon.
Although we are asked regularly to give our opinion on where we think the stock market is heading, we are loathe to make such predictions because we simply don’t know how to accurately and consistency forecast short term share prices. As you know, we believe that in the short run share prices are moved by unintelligent and emotionally unstable influences and these are unpredictable.
Furthermore, it’s the performance of the businesses that we hold that will determine the return to our investors over the longer run because over longer periods of time, prices follow business performance. The direction of largest two hundred market-weighted stocks that make up the index are not going to help us so predicting the direction of the index is a bit of a waste of time. Usually.
On a few occasions throughout the years, we have sounded a cautionary alarm when the aggregate market price of our portfolio is either at, or has exceed, the valuations of its constituents.
This week, of the 16 completed holdings in The Montgomery [Private] Fund, more than half are now trading at, or in excess of our assessment of fair value. This is the result of strong price appreciation in the past two months.
Last week the retail fund, The Montgomery Fund, celebrated its two-month birthday and thanks to some canny timing of the launch (rather than any skill, which cannot be attributed to a fund that is 8 weeks old) it has recorded a return of approximately 10.2% against its benchmark’s return of 5.75%. While we all have to crawl before we walk, I am pleased with the fund’s first steps.
Investors in the fund can look forward to receiving their first bi-monthly update in early November detailing the performance, major holdings, and the composition of the portfolio.
Over recent weeks we have received a number of questions about The Montgomery Fund and I thought it would be a good idea to try and answer some of those questions here.
If you have any more, feel free to post them and we will endeavor to answer them.
The first thing to point out is that Montgomery Investment Management is now the investment manager for two products. They are, The Montgomery [Private] Fund, and The Montgomery Fund.
The Montgomery [Private] Fund, a fund for wholesale investors with a minimum initial investment of $1,000,000, had its inception on 23 December 2010. In the 21-month period to 30 September 2012 it has pleasingly out-performed its benchmark, the ASX200 Industrials Accumulation Index, by 17.47%.
Last week on 2GB I didn’t speak to Ross Greenwood as I normally do. He was off in New York for Channel Nine. Instead I had a terrific chat with my friend and former fund manager Matthew Kidman.
As usual we didn’t have a great deal of time but I asked Matthew whether he was seeing much value and his reply was telling. Like me, it seems to Matthew that value was getting thin on the ground, particularly among the higher quality companies.
There is still a few pockets of value and we named a few stocks. Matthew mentioned that he also predicted that the market would now strengthen and stocks that are fairly valued may continue to rally well beyond fair value.
I am less able to predict stocks and their short term price direction. To reduce risk what we do is simply analyse those companies that come into value as their prices, values and quality scores change.
What is ailing the stock market and why have investors deserted it in droves?
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Yesterday Marius Kloppers was reported in the Oz as saying “the record prices we experienced over the past decade, driven by the ‘demand shock’, will not be there to support returns over the next 10 years”
Additionally he revealed that the mining industry collectively has not learned anything from past booms and busts when he explained that to meet the rising demand mining companies had yet again taken a “volume over cost” approach, adding “improving productivity played second fiddle to speed to market for many in the industry”.
While we can give ourselves a little ‘we-said-it-here-first’ pat on the back for spotting the coming slump in iron ore prices a year ago and protecting our investors from it, the bigger picture is more important; Where is the industry’s equivalent of the Thomas the Tank character – the Fat Controller? Why is there no ‘OPEC’ for iron ore and coal producers? Would it help if there was?
The lessons of each boom/bust cycle are lost with each generation’s death and the mistakes repeated again. Only those who study history can hope to beat this cycle because caught in its spotlight are prone to declare this time is different.
An argument we heard this time was “it can’t fall below $100/t because China’s cost of production is higher”. Yet anyone with more than a few minutes experience in commodity markets can tell you that just about every commodity has traded below its cost of production and sometimes for many years.
While we believe we are able to spot these cycles developing, we must ask the question, what will be put in place to ensure that next time billions are again not wasted? Or is this the ugly wart on capitalism’s nose that cannot be removed?
Do CSL (CSL, Silverlake (SLR), FKP (FKPDA), Breville Group (BRG), Codan (CDA), QBE Insurance (QBE), NAB (NAB), Wesptac (WBC), AMP (AMP), ALS (ALQ), Prima (PRR), Rio Tinto (RIO), Lynas (LYC), or Mesoblast (MSB) achieve the coveted A1 grade? Watch this edition of Sky Business’ Your Money Your Call 17 October 2012 program now to find out, and also learn Russell’s insights into the commodities sector. Watch here.
