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.
find out about investing with montgomery
High dividend yields, low P/E’s and high PEG ratios are popular but why do the returns merely rise and fall with the market? Should you use charts or fundamentals? Time in the market or timing? What really works on the Australian stock market? Roger Montgomery explores the methods many use when attempting to beat the market and then reveals those that do. Listen to Podcast.
What works on Wall Street? was recorded at the Australian Investors’ Association National Conference, Surfers Paradise Australia, 27 July 2010.
Listen to Roger’s workshop presentation The Formula That Works: Company Valuation Made Easy.
Turn on the TV, your computer or Mail on your iPhone and you are inevitably bombarded with news and data. And if you are following the financial markets, there is no shortage of headlines to grab your attention.
Take QBE’s recent profit downgrade and how the media bided for your attention; “QBE savaged after downgrade” and “QBE’s worst storm”. I bet amid all this news you missed IAG’s conveniently-timed announcement, the very next day; “IAG tips profit to be halved”.
There is a good reason for such bleak headlines… bad news sells.
Money is a very personal asset. We spend our lives working hard to earn it, make sacrifices to save it and when we invest it, some watch it like a hawk. These headlines rely on your strong ties to it. The by-product of course is that driven by emotions, the headlines create activity, which means transactions and remuneration, in turn funding advertising and marketing, fuelling more headlines.
Those waiting for good news from QBE might feel a little like Guns N’ Roses frontman Axl Rose when he penned the band’s 1988 hit ‘[need a little] Patience’. But it is patience that is the hallmark of the world’s best investors. So let’s focus on the long-term.
QBE’s recent profit downgrade was driven by falling investment income on its ‘float’, not a broken business model as the media headlines might suggest. Sure new equity issuance, the rising Australian dollar and sharp declines in global interest rates have conspired to depress QBE’s earnings and profitability, but the investment community’s current focus on movements in QBE’s investment income is likely to be short-term. Invariably the incessant focus on cause and effect relationships will switch to something else. It may even turn 180 degrees.
Over 90% of QBE’s investment portfolio (US$20b) is held cash and cash-like investments (highly liquid). These are currently depressed by low interest rates and lower foreign currency gains. This will be mitigated in the future as QBE moves from $AUD to $US reporting. And keep in mind that some very successful investors believe bonds are in a bubble. If thy’re right and the bubble bursts, yields will rise. (don’t ask me what I think, I don’t forecasts markets or the economy).
The remaining 10% of the insurer’s investment portfolio is in equity markets and although the collapse in the Elders share price (in which QBE has a strategic holding) may be a more permanent situation, other holdings should recover or emerge to offset the losses in time.
Looking through the headlines, QBE’s core insurance business continues to perform well. With industry-leading Combined Ratios and Insurance Margins, QBE has cemented itself in a position that is well ahead of its Australian competitors. This is what investors should be focusing on.
The remaining issue is the intrinsic value. The current value has fallen by a couple of dollars and the lower profits means the equity in the business will now grow more slowly. This has the effect of reducing future intrinsic values as well. QBE however was only trading at a small discount previously, not the very large discounts that I seek. The current valuation declines indicate that only small discounts to intrinsic value exist now so be sure to discuss that with your advisor.
QBE’s investments will inevitably rise and fall with the markets in which it invests, but making a profit on its underwriting business means the float represents very cheap funds. Throw in industry-leading management and the long term prospects remind me of what its like to take off in a plane during a storm.. .only to discover the sky is blue above the clouds.
Posted by Roger Montgomery, 5 August 2010.
Does your portfolio simply rise and fall with the market? On 4 August 2010 at the ASX Investor Hour in Melbourne Roger Montgomery revealed his technique for valuing the best stocks and buying them for less than they’re worth. Listen to Podcast.
Roger Montgomery explains to readers of Money magazine the difference between investing and speculating. Read article.
Companies with a history of carefully investing shareholder capital usually don’t give it away undeservedly. When it comes to Downer EDI, Shareholders would have been better off owning Forge, Decimal or Monadelphous. Read Roger’s article at www.eurekareport.com.au.
It has been four days now since the very first copies of Value.able were received.
I am very grateful for your feedback and I am impressed. I have received some requests to check valuation workings and many of the valuations I have seen so far are close enough to ‘spot on’. Congratulations everyone. It looks like the penny is dropping all over Australia as well as in Asia, Canada, the UK and the US.
Rather than continuing to check your workings individually, I thought I would post some calculations in the next few days for you to check your own workings against. A ready reckoner if you will.
There will be ten Value.able valuations for widely-held and well-known companies that you may use to cross-check against your own calculations. I will include the inputs used, so that we are comparing like with like. These valuation examples will be available by the end of the week. They are ASX Ltd, Computershare, Caltex, David Jones, Foster’s Group, Leighton, McMillan Shakespeare, Westpac, Woolworths and Wridgways.
Until then, I wanted to take this opportunity to express my sincere thanks for the overwhelmingly kind emails you have sent me and the positively entertaining comments you have written on my Facebook page.
Here are a few I would like to share and say a particular thank you for.
…Not that I’m complaining, I had planned to wash the car, and watch the rugby tomorrow night, but it looks like I will have more Value.able things to do!
Ben
I’m somewhat of a minimalist and love it when I get a book where it makes me feel like I can throw away all the other books I have on a subject – this is such a book.
Graham
Thanks for the book. It is sooooooo good to finally have a tool to find good companies.
Keith
… I am up to about Chapter 4 in your book. This is my first read and I will start over when I finish it. There is much to absorb in your book. I think its true that I have made every mistake so far detailed in the book. I have repeated some mistakes many times!!!!!
Russell
I am very impressed by your book. I only wish I had had it in my hands ten years ago!
John
Although I have not yet finished reading your book I have been telling myself to stop speculating and to start investing. I just wish it had been in print when i first began “investing” more than twenty years ago.
Kev
I am just writing to congratulate you on this great book, especially for a newbie investor (or should I say “speculator” having read the first two chapters of the book now!). Yesterday morning when I stepped out of the house (to take my family to the Moscow Circus at Rosehill!) I noticed a package sitting on my car’s windscreen. Little did I know that it was the much-awaited book! I have read the first two chapters so far and couldn’t resist my temptation to jump directly to Chapter 11 – Intrinsic Value! I must say this is one of the foremost reasons why I was so keen on getting this book and I am not disappointed. I am talking all these fundamental/technical terms now and able to make an attempt at calculating the real value of a company…all thanks to you!
Visha
You may already have saved me many times the investment I made in your book.
Geoff
Initial impression is that your book has a particularly pleasant ‘feel’ – font, layout, texture, etc – quite incidental to the subject matter I know, but important in something you spend hours with in close association. I am also enjoying your writing style. So congratulations on both.
Jim
Your book is making my neck really, really, really sore. I’ve just come back from the doctor. He says it is from too much nodding.
Tom
Book arrived today. Where is the address for that deserted island? I need to go somewhere to read it.
young Les
Received your book and just want to say I am enjoying it very much. In fact I am thinking of purchasing another couple of copies one for my son and one for my Dad. My Dad listens in every Thursday night to your Money Your Call and always hope you are going to be on the panel. As we live in different states we then chat to each other about the show via the phone his comment is always wasn’t it great to hear Roger! Again thanks so much for a wonderful informative book which is so well written. (PS My Dad is 83, which proves we can always learn something!)
Lynne
I received your book and read it every spare moment I had. Thank you for sharing your knowledge with me.
Andrew
I just finished the book and I’m very impressed. From 7pm until now (1.58am), I couldn’t put it down. I’m amazed by how simple your calculation of IV is. I like how logical it is and therefore free from fancy arithmetic. Munger once said this: By keeping it simple & logical you have achieved [this] in spades. The margin of error therefore of a person applying it should be minimised because at least hopefully they will understand what they are doing. Very well done & a testament to you.
Matthew
I received the book yesterday and i finished it yesterday! I thoroughly enjoyed it and will recommend it to my enlightened friends! Any plans on an advanced Value.able haha?
Alex
Valueable arrived yesterday. I read until midnight and checked some valuations in my portfolio this AM. Using IV metod most of portfolio is “overpriced”. Will need to think about this for awhile. The book is well written and the example valuations you take us through are excellent. I have been a Buffet fan for a while and read Snowball etc. but you have made his valuatiuon techniques very simple to understand. Congratulations on a terrific book.
Ed
I’m almost finished reading my copy of your book which will forever change my outlook and approach to investing in the stock market. I’m so impressed with your work, I’ve just ordered another copy for my son.
Peter
I am a chartist and I can see how your book will greatly assist me and complement my charting decisions; especially during these troubled times when seeking good value stocks that are also resilient!
Brendan
I bought a book for myself. Now I have bought one for my son. I am up to chapter 6 at the moment, and it is the most value-able book in my investing collection.
Geoff
Received your book. It’s excellent – clarified so many issues that I have struggled with. Many thanks
Keith
The book arrived and we very much appreciate the gesture of your personal message. As a retired plumber my economic skills extend only to requesting pocket money from Mrs Management. I am two chapters in and I think my frontal lobe has dropped off but as I plough on and try to absorb the message it becomes clearer that it is a book that is sorely needed by us amateurs outside the economics / equities industries, the plodders if you will.
Glenn & Mrs Management
Yesterday, I received your new book and even though I have not yet completed reading it in full, I wish to congratulate you (IMMENSELY) for your fabulous publication.
Kevin
Just finished Value.able and about to have a crack at a few valuations. The book was truly fantastic, I think in many ways it was the way I have always tried to approach buying shares but you have really managed to synthesize and lay down an excellent framework.
Ben
Great book. I have recommended it to friends and family. The examples, tables, figures etc were easy to understand. I enjoyed reading the examples using data from real businesses. I will never look at PE’s and dividends in the same way again. Thank you.
Patrick
Love the book. I have always thought that value investing made sense, but wasn’t business minded enough to know where to start. Your book fills a large gap in teaching investors how to become investors and speculators. I’ve also realised a few home truths about my own business….. I have bought another copy for my dad David Graham so he can teach his share club a thing or two about what they are doing that he’s finding frustrating!
Paul
I recieved your book last week and haven’t been able to put it down. I’ve been a big fan of yours on the business channel since starting out in the sharemarket a couple of years ago, and I very much connect to your investment methods AWESOME :) I have to admit i’ve been driving my wife crazy excitedly repeating everything i’m learning in your book, Haha. Thanks for all your insight and wisdom, it’s great to have a method by which i can value companies myself for our wealth creation.
Adam
I just ordered 2 more copies for my daughters… It is the best! Good luck to you and thank you for disseminating such good information in a really nice style. Well done.
Mike
I have received Value.able and have been reading it non-stop and have to say its one of the best books on investing I have read!
Ben
I’m into my second read of your book. It is sooooo gooooodddd.
Russell
Just finished Valuable – aptly named since its intrinsic value is much greaer than the price. Well done!
Kevin
Just started reading your book –clear ,precise, common sense knowledge. Wish I had read it years ago. Have just ordered a copy for my daughter.
John
Your book is great, even I can understand most of it. I will now be an investor and not a speculator.
Rod
That little book… its supreme. Thanks, you’ve changed my world.
Tom
Your book is so simple in its explanation and your analogies are fantastic. They really drive home how easy it is to judge a company based on the value of their business not what the share price is doing.
Andrew
I wish I had read your book ten years ago – I realise with some shame that I have been just a gambler all this time – but that is in the past and I genuinely look forward to practising as a value investor.
Bradley
Reading through your book I keep finding myself nodding my head in agreement with what you have written, I think it is called positive reinforcement! It is a good read and I think will be a good reference.
Garry
I have read about 70 pages of your book so far and already have difficulty in putting the book down….very interesting and it caters for simple minded investors very well! …by combining my technical analysis system with yours, I achieve the synergy for greater confidence.
Brendan
Congratulations on publishing your book, I very much enjoyed reading it from cover to cover. I was very impressed that you delivered everything that you have promised, it is very easy to read and more importantly you have explained step by step how to actually apply all your methods in the real world. Now I will have a go at actually calculating some company valuations. Thankyou very much for sharing your knowledge, I have been searching for a practical valuation model for a long time.
John
I’ve been reading your book, and have really enjoyed it. I think it does a great job of breaking down Buffet’s methods and making them accessible and understandable for Australian investors. I’ve actually already suggested a number of people get a copy, and I’m going to make sure that all of our brokers read it as well.
Peter
My son was excited to see a package with so many stamps he can put into his collection! I was extremely pleased to see that it was signed twice and the message. My sincere gratitude for taking the time to respond to my emails and taking the time to sign my book. It will be chrished for many years to come, particularly for the boys when they are suitably old enough to understand. I am up to chapter 11, was up to 3am this morning and have been reading it in between screaming kids etc. I am hoping for quiet 3hrs from about 10pm when everyone is in bed and the red wine absorbed in the system to take in the rest of the book.
Seb
Value.able received in good time and I have now finished my first “read through” to get a feel for it. Very much impressed by the ease of reading and now look forward to reading it on a serious basis, starting later this week.
Bill
Congratulations on the book. I am finding it very valuable in my daily work and can get the valuations down in a few minutes. When you are dealing with other people’s money you want to now what you are paying for and while our analysts do a very good job, having a “valuable” overlay just gives me that peace of mind or otherwise.
Frank
I would just like to thank you for your book. I received it in the mail late last week and have been reading it eagerly. I appreciate the depth with which you have gone into your investing approach and hope it will serve me well in my investing career (as I am sure it will many others)… Thank you gain for your amazing book.
Julian
Your blog was most helpful and I am madly using your method to value companies that I am interested in. Unless I am wrong I am finding less companies worth buying? In the past I would have bought them and therefore speculated. So thanks again for your great book and look forward to hearing more from you.
Gina
Thank you very much for your book. It is one of the most helpful books I have ever read. You have also managed to simplify it enough for us laymen to understand (a pity I did not have it prior to investing all of the family’s super into ABC).
Steven
Only have one word to say to you and that is brilliant. Thanx for the effort. Thanx for the knowledge. Thanx for the honesty.
Hayden
Your book was a very good read and well presented. Whilst I have looked at ROE to help myself “value” a company in the past, I have been painfully guilty of using dividend yield, p/e ratios, PEG ratios etc to determine if I should buy shares in a company. I’ll never look at prices again when trying to determine value (only when obtaining my valuations first and then checking the market to see if I should buy or not buy). The insights I have gained from chapter 11 in your book are extremely valuable to me and can only thank you so very much.
Edward
I have just finished reading `Value.able`. It is an understatement to say I am thrilled. You have taken Buffet’s concepts and written in an easy to understand, up-dated and Australian version. Having previously read `the intelligent investor` by Ben Braham I just found your book so much clearer and precise. I do need to go back and `re-visit` some parts for a better understanding but I wish to say thank you for all your efforts in writing this book. I know that my portfolio only stands to benefit and we all need reminding that those `zig zags` on the ticker are actually businesses not stocks, thanks again.
Peter
Thank You Roger. Finished the book. It is one of the best common sense books on investing that I have read.
Peter
Received your book last week and couldn’t put it down. I now look at share investing from a very different perspective
Nancy
Finally I finished your book, this is the only book I read from begin to end in my life.
Henry
I’ve finished reading your book and just about to begin a second read. Fantastic and thoroughly enjoyable. Congratulations, an absolute credit to you. I’m certainly looking forward to Value.Able 2 if it ever eventuates.
Michael
Great book, wish I had it 5 years ago, would have saved a lot of money.
David
I just want to say thank you for the book. I’m really enjoying it – you should be proud of the contribution you have made to the investment process.
Wayne
I ordered your book prior to the launch and, after reading it through once and now going into it in much more detail, I am very certain of one fact. That is – That I have been on the wrong track for a long, long time when choosing my share investments. I always knew that something was ” MISSING” AND YOU HAVE SHOWN ME WHAT IT WAS. Thanks for showing me the light at the end of the tunnel. Great book, it has really got me fired up again!!
Kev
Thankyou ever so much for writing an easy to understand investing book.
Monica
I really enjoyed your book. Must be the best investment book I have read.
Andrew
A comprehensive well written piece on investing, written in plain English with valid and humorous analogies. A book valuable (excuse the pun) for both the neophyte & expert or professional on (what is termed) Value Investing, both in general & how it relates in Australia. I have never seen DRP (Dividend Re-investment Plans) covered anywhere else & the relevant references to tax implications/advantages for Australian’s can only be found in an Australian book. The fact that it only took 8 months to write, and is in such detail, truly demonstrates Roger’s thorough understanding of investing. Well done, only wish I had it sooner.
Quenton
And a few from my Facebook page
I got my book this morning, totally made my day!!!! Can’t wait to get stuck in to it this weekend, read a bit just very quickly at work and had trouble putting it down. There goes my sleep plans for the weekend.
The book arrived, whoopee some solid reading for the weekend. I hope it rains.
Woo Hoo! I got it. I was woken up by my wife singing happy birthday (it’s not my birthday) and giving me a parcel.
Yeah! I got it today. So happy right now, I’m like a kid in a candy store!
My Book arrived, and you can’t wipe the smile off my face! A new road map to my investing success.
Just chiming in great content from what I have read so far… Great book. Recommended to all my friends and family. =)
I got the book, thanks Roger…. I will have to send the wife and kids away for the weekend so I can read it!
Got mine just then! On my way to uni, but I think this will take preference over financial statistics….
Thank you Roger for my edition of Value.able. It arrived in perfect time today to greet me at the door for my birthday. It looks a lot easier and much more fun to read than other books. I’m confident I’ll fully be able to understand and apply the principles.
Hi Roger, your book has safely arrived and the cover looks very stylish. I am sure the guts are even better. Looking forward to start reading it
Got the book today. Great cover and even looks good without the cover. Am busy reading it now. Looks great so far. Can’t wait to finish it to be honest.
I received my book today – my assignments can wait. I’m doing some Value.able bedtime reading.
Just got your book yesterday and have been reading it when ever I get a spare few minutes. So far the only thing that comes to mind is this. If Ben Graham’s Security Analysis is dubbed the “investment Bible” then Roger Montgomery’s Value.able is the “New Testiment” of that Bible. A great job!
And some already on the blog
Got it yesterday. Couldn’t put it down last night even with the footy on the tv. Clarity through knowledge and understanding – that’s what this book is offering me.Thanks so much.
Mani
Value.able was delivered last Friday. Took it (and my wife) away for a weekend up the coast. Roger, your book is a brilliant effort and importantly, for the value of the concept you deliver, it is entertaining and easy to read. If Value.Able – Chapter 6 – ROE, had been available before I bought shares in two companies on a tip sheet recommendation, I’d also be a few $$ better off.
Ivan
Congratulations on the book, have given it a quick skim and will be giving it a more thorough going over in the weeks ahead, but have already recommended it to a few friends based on the quick read. Looks like a pretty thorough and commonsense treatment for investors and an excellent addition to the bookshelf! PS: Saw you running like a maniac down George St at lunch time today – I immediately decided to start carrying your book with me to get that elusive autographed copy!
Jake
I got your book today. The bad thing is I now have to work for eight hours before I get to read it!!!!! Thank you so much.
Terry
I have had the book for a couple of days now, and my impression is that it is the best book I have so far read on investing. It’s a fantastic distillation and a voice of perfect reason. Your valuation method is very easy to follow.
Robert
Click here to read more comments and see the first photographic evidence of Value.able in action.
Thank you for your kind feedback and encouraging words. If you would like to keep adding your thoughts, inights and stories, please Leave a comment here at the blog, or join me on Facebook.
Posted by Roger Montgomery, 3 August 2010
In an urgent world that drives you to act constantly value investing seems boring or even slothful, but it is precisely this single minded focus on the best businesses that will almost always improve your investment returns. Read article.
While share prices move every day, valuations move much more slowly. But move they do. Especially in the next few weeks as companies report their annual results. Many analysts however and a great deal of the commentary will focus on earnings growth, revenue growth and dividend growth but all that matters is whether return on equity is being maintained and the company is increasing in intrinsic value. Once you have established that and found a company that ticks every box, then all that matters is buying at a big discount to intrinsic value.
I have been saying for some time that the vast majority of A1 and A2 companies appear to be expensive.
In response to several requests to be more specific on the subject, I thought I would list a few companies that I believe are currently above their intrinsic values.
The following companies are those that come immediately to mind and that I believe are both very high in quality AND very high in price: Servecorp, ERA, Seek, Navitas, ASG Group, Domino’s Pizza, Fleetwood, Carsales, David Jones, Cochlear and Reckon.
Obviously, I will be interested in the full year results for these companies and indeed every company, which may change the intrinsic values dramatically. Moreover, I am NOT predicting that the shares of these companies will fall in price. As much as I would like to be able to share that information with you, I just do not have it. I am not able forecast share prices and as I have repeatedly noted, estimating the value of a company is not the same as predicting their share price.
For now however, those listed above look sufficiently expensive for me to conduct research on other companies. Be sure to seek and take personal professional advice BEFORE undertaking any activity in shares or derivatives or any securities.
Posted by Roger Montgomery
31 July 2010
A little light relief from the serious business of investing…
I know value investing is popular. But I never expected my way of investing would be so popular people would stop me in the main street of Sydney for a photograph and my secret recipe!
Here are a couple of guys that stopped me in the street and asked to have their photo taken with me! Can you help me identify the culprits? I am gathering evidence at my Facebook page.
Posted by Roger Montgomery, 30 July 2010 at 9.16am
UPDATE: 10.11am
Value Investing goes viral! I was minding my own business, waiting in line to to board my flight to Melbourne when MasterChef’s Matt Preston calls out to me, his newspaper open, and began asking me about which stocks listed in the paper were worthy of further study. Purely coincidence that the front page of the paper had The Good Oil plastered across it. He must like the value investing recipe too…Thanks Matt!
Posted by Roger Montgomery, 30 July 2010 at 10.11am
Luke, Phil and Michael were pleasantly surprised this morning… read more at my Facebook page.
