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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Roger Montgomery is one of Australia’s most successful value investors because he thinks like an investor. Roger focuses on the value of businesses not the prices of stocks. Roger says “If you wouldn’t be prepared to own the whole business for ten years, don’t be prepared to own a little piece of it for 10 minutes.” Watch this interview to discover how Roger Montgomery avoids bad businesses. Watch the interview.
You’ve read Value.able, Roger Montgomery’s step-by-step guide to valuing the best stocks and buying them for less than they’re worth, now watch Roger Montgomery value a business live! Using an extraordinary business, Woolworths, Roger Montgomery reveals, step-by-step, how he values listed businesses and invests in the Australian stock market. Following Roger’s simple steps doesn’t require a great deal of maths, just a little arithmetic and some thinking about what an extraordinary business is. Follow Roger’s Value.able method of valuing businesses and soon you too will be valuing the best stocks and buying them for less than they’re worth. Watch the interview.
It has been a month or so since I last shared with you photographs from Value.able Graduates. These pics are from Gary, who has been travelling through Europe. He wrote “Read the book while traveling through Europe. Have attached some shots you may be able to use in your where in the world has Value.able been? One at the Louvre and the other at a little coffee with the Eiffel tower behind. Enjoyed the book, hoping to pay for the trip with the knowledge, Gary“.
I was in Perth last month to speak for the ASX and Australian Investors’ Association. This picture is from Dan (with his Mum).
Dear Roger,
I just wanted to give a big Thank You for your presentation at the Wembley Tennis Club in Perth recently! I wasn’t able to attend because I live 450km North of Perth and have been busy with work, but I told my parents to attend and they said they had a fantastic night! Also, a huge thank you for signing my copy of your book and for taking the time to have a photo with Mum! We all love the book and have benefited greatly from your wisdom. I’m relatively new to the stock market (I’m 26 years old) but I feel as though I have learnt a great deal during the last year. I started getting interested in the stock market approximately 5 years ago, and back then I had the desire to own things that were (are still) considered to be “Blue Chip”, e.g. Incitec Pivot, Westfield, Santos, Babcock and Brown, Virgin Blue, etc. Now I have a far greater sense of how to approach investing in a more rational way, and how to identify companies that are actually of high quality. Now I spend my spare time on focusing only on quality businesses and have done really well using your solid and sensible approach. Thank you for the Value.able education! Maybe one day I’ll have the courage to post a comment on your blog (which is fantastic). I hope to see you when you’re next in Perth for a presentation so that I can thank you in person. All the best, Dan
And whilst Mark didn’t include photos of his Value.able journey, he has certainly impressed me with his enthusiasm.
“Hi Roger, Loved your book. You may be distressed or impressed but I have underlined highlighted and read separate chapters often. Dog eared sections etc. etc. I feel like I’m back in school and I’m 53. Seriously tremendous. Well done. Congrats, Mark”
A little ‘off topic’ was this email from Ken. Thanks Ken…
Roger,
Half the battle, getting started with any sort of analysis is being confident that one is not wasting one’s time going about things the wrong way. You have indeed given me a ‘leg-up’ with a range of aspects of my investing and thank you. My early career (and still a component of my work) involved collecting field data to calibrate and validate a pasture model (I’m still collecting validation data each year – 25 years since starting and training people, although engaged in quite different work now). I have spent years working with this model and with the scientist who built the model. There was never, in the early days, a definitive manual – just a mutual sharing of insights, late hours, passion and pain.
The modelling is now second nature and I’m more concerned with the flaws with the model than anything. But there was a huge barrier to entry – no manual could ever replace that research and effort that I put in to become confident and eventually proficient with what I was doing. It helped though, to have a more experienced person there for guidance – often just pointing out a reference to read etc. In turn I try to help people with their efforts where I can but it is up to the individual to get their own hands dirty, begin their own journey but, in our case, now as part of a ‘college’ of users. You are right in your approach – offering us a generous ‘leg up’ with your book and a means to share insights (your blog). By putting things into practice for ourselves, the keen will learn both the art and the science and, hopefully, slowly, become better investors and more value.able to both you and fellow bloggers. In many respects, this is how our team at work has operated for so long. As a team, we have become well respected both nationally and internationally – the college itself knows no institutional boundary.
In the preface to your book, Simon Hoyle notes:
“By helping to equip investors with the right set of skills, Roger is, either consciously or unconciously, waging a war against those who would seek to profit from the naivety or misplaced trust of others”.
Along the same lines, Alan Kohler, in “Why I started EUREKAreport” states:
“But it’s important to understand that investing is work. It is not gambling, or wishing and hoping, or trying to get the inside dope: it is work; a second job. Nevertheless with the right kind of support, you can do it and you can beat the pros. Eureka Report is the beginning of an attempt to provide that support and to redress the balance – to give ordinary people the tools and the knowledge to become independent and reclaim the control – and the money! – that is rightfully theirs.”
Roger, you are indeed forming an ‘investment college’ and it is good to be a part of it. I look forward to your latest blog and happy for you to reference anything.
Cheers
Ken
Thank you to everyone who has gone to so much trouble to demonstrate just how profound an effect my book has been having on your travel plans – if not your investing plans. I am genuinely encouraged and humbled at the same time by your support. Thank you again.
Posted by Roger Montgomery, 1 December 2010
You would think that a country so reliant on infrastructure would offer good investment opportunities for value investors. Unfortunately there are depressingly few opportunities. Read Roger’s article at www.eurekareport.com.au.
If you are new to the stock market, I believe it is possible that you have been lulled into a false sense of security. I say this because I regularly hear well-meaning advice that goes something like this; “just buy a portfolio of blue chips and hold for the long term”
But what is a blue chip? Here are some of the definitions I have found around the place:
“a common stock of a nationally-known company whose value and dividends are reliable; typically have high price and low yield; blue chips are usually safe investments”
“A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities. Blue chip stocks pay regular dividends, even when business is faring worse than usual. …”
“A large company. Blue chip shares are generally lower risk. FTSE 100 constituents are generally considered blue chips”
“Shares of companies that are considered to be particularly solid and with a high capitalisation level. Their purchase is presumably associated with minor risk when the Stock Exchange falls”
And my new favourite definition;
“Blue Chip is the third album by Acoustic Alchemy, released under the MCA Master Series label in 1989, and again under GRP in 1996.”
Clearly there is only rough consensus around what a ‘blue chip’ actually is, but I get the distinct impression that a lack of understanding about what truly constitutes ‘high quality’ has meant the resultant definitions are clumsy at best. And if advisors can’t define quality/blue chip with some consensus, then its quite possible new investors are plunging into a blind-leading-the-blind situation.
Here at my Insights blog, I don’t talk about blue chips. Why? Because they don’t exist. There is no such thing.
I define quality through my A1-C5 Montgomery Quality Ratings (the MQRs) using a raft of measures and scenarios, combined with measures of the financial relationship a company has articulated over the years with its shareholders and its competitive position.
Warren Buffett once observed that time is the friend of the wonderful business but the enemy of a poor one. You don’t want to put the shares of a bad business, even if it’s a big one, in the bottom drawer and forget about them. Long term buy-and-hold investing then should only apply to the truly high quality companies – A1 companies.
To that end I would like to share with you an early Christmas gift (until Value.able arrives under your Christmas tree).
One of the definitions noted above and a commonly held one is that blue chips have to be large companies. Companies that inhabit the S&P/ASX 50, for example, may be considered Blue Chips. Putting aside for a moment the fact that there are plenty of large companies that have gone to the wall, it is possible to re-rank the so called Blue Chips – the large capitalisation companies – and find out if any are more blue than the rest.
So in the pursuit of ‘blueness’, below you will find all companies with a current market capitalisation of more than $10 billion sorted by my MQR (followed by Safety Margin for good measure). I have also included my current expected (annual) rate of change in Value.able Intrinsic Value over the next three years and thrown in dividend yields because I know how adored they are.
Of course, all of this is purely didactic and not intended as advice. YOU MUST SEEK AND TAKE PERSONAL PROFESSIONAL ADVICE. Also remember that I do not know what share prices are going to do, they could all halve or double and my MQRs andValue.able Intrinsic Values could all change tomorrow, possibly by a lot. They could go up or down and I am under no obligation to keep you updated. So please DO NOT RELY ON THE INFORMATION PROVIDED.
Having made that clear, and I am not joking about such serious matters, here is the list:
So its seems not all blue chips are entirely blue. As one of my friends – who likes to occasionally catch the amber light – says, “there’s still a bit of green left!”
Lumping all large companies into the ‘Blue Chip’ camp may not lead you to secure returns. Indeed, it could more likely see you merely lurch from one crisis to the next. If that is an experience you would like to change or avoid, then understanding the factors that indicate good quality is vital.
Value.able Graduates would have read the chapters about identifying extraordinary businesses in my book. If you haven’t yet secured your copy of Value.able you can do so at my website, www.rogermontgomery.com.
Posted by Roger Montgomery, 26 November 2010.
Vodafone and Optus have upped the ante heading into Christmas, further threatening Telstra’s market hold. Roger Montgomery says the value of Telstra today is $2.30 and that’s significantly lower than its value 10 years ago. Read the transcript.
Barbara Drury goes shopping for gifts that will keep on giving and discovers Roger Montgomery’s Value.able fits the bill. Read article.
Australia’s biggest rail freight company, QR National, made its debut on the share market this lunchtime. Roger Montgomery said the intrinsic value of this business is closer to about $1.50 than it is to $2.50. Read transcript.
A company’s profit figure can bear little resemblance to the cash profits or cash flow. Thanks to tax-driven asset purchases, disposals and attempts to “estimate” the wear and tear on equipment, among many other things, the accounting profit is often not an accurate reflection of the economic performance of a business. Perhaps the best example of this in the listed company arena is Qantas. Read Roger’s article at www.eurekareport.com.au.
It is Australia’s biggest public float since Telstra – Queensland rail company QR National was listed on the stock exchange today. The sale is the centrepiece of a suite of contentious asset sales by the Queensland Government. Roger Montgomery said the long-term intrinsic value of the company is a lot lower and the government in Queensland did get a lower price than what they’d hoped. Watch the interview.
