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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Last night on Peter’s Switzer TV I shared five stocks moving up the Montgomery Quality Ratings (MQR) – B3 to A3, C4 to B3, A4 to A3, C5 to A2 and A4 to A2.
There are about thirty-seven ratios that contribute to the Montgomery Quality Rating. Like the Value.able method for valuing businesses, the MQR is my own unique system of assessing the quality and performance of businesses. Its objective is to weed out those with a high risk of catastrophe and highlight those with a very low risk.
I also spoke about Zicom, a very thinly traded micro-cap that we began buying for the Fund at $0.32, up to $0.42. Yesterday Zicom closed at $0.52 – my estimate of its Value.able intrinsic value.
If you read my ValueLine column for Alan’s Eureka Report on Wednesday evening you will recognise the following warning:
A WARNING FROM ROGER MONTGOMERY: The subject of today’s column is a thinly traded microcap in which I have bought shares because it meets my criteria. It may not meet yours. It is therefore information that is general in nature and NOT a recommendation or a solicitation to deal in any security. The information is provided for educational purposes only and your personal financial circumstances have not been taken into account. That is why you must also seek and take personal professional advice before dealing in any securities. Buying shares in this company without conducting your own research is irresponsible. Buying shares in this company will drive the price up, which will benefit me more than you. The higher the price you pay the lower your return. If the share price rises well beyond my estimate of intrinsic value, I could sell my shares. A share price that rises beyond my estimate of intrinsic value is one of my triggers for selling. I have no ability to predict share prices and despite a margin of safety being estimated, the share price could halve tomorrow or worse. There are serious and significant risks in investing. Be sure to familiarise yourself with these risks before buying or selling any security. Further, my intrinsic value could change tomorrow, if new information comes to light or I simply change my view about the prospects of a company. This could be another trigger for me to sell. Value investing requires patience. You must seek and take personal professional advice and perform your own research.
I reiterated these same concerns last night with Peter (and early last year I wrote a blog post specifically about the problem).
With those warnings in mind, here are the highlights from Peter’s show.
What stocks are on your ‘Improving MQRs’ watchlist? Thank you in advance for sharing your ideas with our Value.able community.
Posted by Roger Montgomery, author and fund manager, 8 April 2010.
Whilst Roger Montgomery can’t predict how high the oil price will go nor tell you what kind of trajectory it will take, he does believe, with a considerable degree of certainty, that Australian’s will be paying higher prices for fuel over the next decade. Zicom, a supplier of equipment to service vessels, is just one company set to benefit from our growing need for oil. Read Roger’s article at www.eurekareport.com.au. WARNING: Zicom is a thinly traded microcap in which Roger Montgomery has purchased shares because it meets his investment criteria. It may not meet yours. It is therefore information that is general in nature and NOT a recommendation or a solicitation to deal in any security.
I am deviating from my regular style of post, handing over the stage to Value.able Graduate Scott T. Scott T has taken up a fight with conventional investing by tracking the performance of a typical and published ‘institutional-style’ portfolio against a portfolio of companies that receive my highest Montgomery Quality Ratings. I reckon in the long run the A1/A2 portfolio will win, but let’s not get ahead of ourselves.
Over to you Scott T…
In December 2010, a large international institution released their “Top 10 stockpicks for 2011”. Click here to read the original story.
I thought it would be interesting to compare the performance of these suggestions against an A1 and A2 Montgomery portfolio.
So I imagined this scenario…
Twin brothers in there 30’s each inherited $100,000 from their parent’s estate. One was a conservative middle manager in the public service; he had little interest in the stock market or super funds and the like, so he decided to go to an internationally renowned, well-credentialed and highly respected firm to gain specific advice. Goldman Sachs advised him of their top ten stocks for 2011, so he decided to achieve diversification by investing $10,000 in each of the ten stocks he had been told about.
His twin had a small accounting practice in a regional Queensland and was a keen stock market investor. Specifically he was a student of the Value Investing method, and liked to think of himself as a Value.able Graduate. He too thought diversification would be a suitable strategy so decided to invest $10,000 in each of 10 stocks that were A1 or A2 MQR businesses and that were selling for as big a discount to his estimate of Value.able intrinsic value as he could find.
For this 12-month exercise, running for a calendar year, we shall assume that neither brother is able to trade their position. One brother has no inclination to, and his regional twin is fully invested, and more inclined to hold long anyway.
For the companies who have declared dividends in this quarter, most are now trading ex-dividend, but only 2 or 3 have actually paid. Dividends will be picked up in Q2 and Q4 of this study.
Now after just 3 months let’s look at the how the two portfolios have performed…
Institutional Bank Top 10 Picks for 2011
Montgomery Quality Rated (MQR) A1 and A2 Companies
We will visit the brothers again in 3 months on 30/6/2011 to see how they are fairing.
All the best
Scott T
How has your Value.able portfolio performed compared to the ASX 200 All Ords?
Posted by Roger Montgomery, author and fund manager, 6 April 2011.
In this extended interview with Ross Greenwood, Roger Montgomery shares his concerns about the Singapore Stock Exchange bid for ASX. Roger questions whether the acquisition is in Australia’s best interest. Roger also answers listener questions about Bluescope Steel (ASX:BSL), One Steel (ASX:OST), Atlas Iron (ASX:AGO) and Telstra (ASX:TLS). Listen to Podcast.
Unlike a conventional “Blue Chip” portfolio founded on the principles of diversification in large well-known companies, Roger Montgomery’s Money Value.able portfolio is driven by the pursuit of extraordinary businesses at prices less than they’re worth. In the April 2011 column, Roger diverges slightly from his ‘picks and shovels’ theme to focus on a company that is reaping the benefits of Australia’s exploding internet usage. Read Roger’s article.
ABC Finance Journalist and Eureka Report founder Alan Kohler looks for an upside to world disaster in his latest column for Money magazine. Alan writes “Before I look in detail at the parts of these two icebergs that are under the water, I want to repeat something I heard my friend Roger Montgomery say at a conference the other day. “Vlatility represents opportunity, not risk”. Wise man, Roger”. Read Alan’s article.
The head of Qantas says high fuel costs and a series of natural disasters means the company is facing its most serious challenge since the global financial crisis. Today the airline’s chief executive Alan Joyce announced the company will retire aircraft, reduce flights to Japan and New Zealand, and cut staff. Roger Montgomery said “If they keep going the way they’ve been going – with the amount of planes that they’ve got, the amount of staff that they’ve got, the routes that they’ve got and the prices that they’ve got – then yes they’ll have to keep increasing the amount of money that’s contributed to the business”. Read transcript.
Qantas shares closed 4 cents higher at $2.19 after the company announced it will reduce international and domestic capacity, retire aircraft, reduce management positions and maintain fuel surcharges in an effort to offset soaring fuel prices. Roger Montgomery of Montgomery Investment Management told ABC report Michael Janda the company’s share price is lower than a decade ago for good reason. Read article.
I have prepared a list of companies that achieve extremely high Montgomery Quality Ratings of A1, A2 or B1, with a market capitalisation of greater than $1 billion, returns on equity of more than 10% and historical and forecast intrinsic value increases of more than 10% per annum. I hope you find the list educational and are able to put it to good use. Read Roger’s article at www.eurekareport.com.au.
It’s an amazing story… Man creates computer. Man overcomplicates computer. Man strips back computer and creates a brand that has revolutionised the way we are entertained.
Did you know Apple has sold over 300 million iPods and iPhones over the past decade? That’s 300,000,000 products. According to the World Bank, in 2009 the world’s population stood at 6,775,235,741. The World Bank also notes that 80 per cent of the world’s population lives on less than $10 per day. Of the remainder, every 4th man, woman and child has purchased an Apple products in the last decade. Not a bad competitive advantage, (postscript: but perhaps not a sustainable one?)
Apple is also infiltrating the way we work. The Montgomery office is all Mac (and for your information, we have never had to call an IT professional to fix anything). Our iPhones are synced with our iMacs and our MacBooks synced with our iPhones.
You have heard the stories of Apple fans setting up camp on the footpath outside Apple’s flagship store on Sydney’s George Street. Australians don’t do that for coal or iron ore.
And don’t forget the accessories market. There’s no special concessions for development partners. Privately held companies that manufacture the sleeves, cases and connectivity devices that enhance our Apple experience don’t get hold of new devices until we do – on launch day.
Apple has the X-factor. Its product is unique. Its experience is unique and there is an almost religious fervour toward the brand. Competitors don’t stand a chance. The result? High, durable rates of return on equity and a rising Value.able intrinsic valuation – an A1 business.
Return on Equity is just one of dozens of metrics I uses to produce the Montgomery Quality Rating (MQR). Re-read Chapter Eleven, Step C on page 188 of Value.able for the Value.able ROE calculation.
Who is the Aussie equivalent? The Australian market may be much smaller than the US, but there are a handful of extraordinary businesses, A1 businesses. And its worth finding tem. They may not be listed yet. They may not even have launched yet…
Posted by Roger Montgomery, author and fund manager, 29 March 2011.
Postscript: The data used to calculate intrinsic value is available here: https://www.apple.com/investor/
