Investing Education

When pundits talk of blood in the streets, is this what they mean?

The chart above is a Market Heat Map for the All Ordinaries. The brightest green is a move up of more than 6% on the day. Not many fit that bill today.  The brightest red is a move down of more than 6%. The size of each box is related to market capitalisation.  You can see the four big boxes in the lower middle of the heat map – thats the big four banks.

And if you are wondering what the little bright green stock is at the lower right of the Heat Map, that’s Industrea (ASX: IDL, Skaffold Quality Score A3).  A year ago IDL was trading at $1.57 but its intrinsic value in Skaffold was just $1.13.  Based on expected 2012 results Skaffold’s intrinsic value was just 83 cents and on May 9 this the share price fell to 80 cents.  So it a took a year to get there but the price traded at a 4% discount to intrinsic value – admittedly not a very wide discount.  And today IDL is bright green in a sea of red ink because it received a takeover offer from GE at $1.27.

Turning back to the Heat Map and the red appearing everywhere (it could all be very bright green tomorrow – we are not in the business of predicting prices) the fact is that it’s not common for us to look at prices with this much interest unless things are indeed getting interesting. We know the companies we’d like to own and the prices we’d like to pay – all that’s left to do is to turn the market on and see if anyone is prepared to do something silly today.

Today might just have been one of those days. Only time will tell and of course never bet the farm on one throw of the dice.  So are we looking at a market on the precipice (the same precipice many of you have indicated you believe house prices are sitting on)?  Or if you are reading this after the close, have you missed the boat?  WHat are your advisers telling you?

There are some incredibly learned and articulate readers that regularly visit and I’d be delighted to hear your thoughts.

Posted by Roger Montgomery, Value.ableauthor, SkaffoldChairman and Fund Manager, 16 May 2012.

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Roger Montgomery is not surprised by the slump in Mining Services share prices – here he discusses with Ticky Fullerton on ABC’s The Business how the growth in supply and the limits to Chinese demand have allowed value investors to anticipate the current share price levels. Watch the video.

This interview was broadcast on ABC1’s The Business on 15 May 2012.

by Roger Montgomery Posted in Companies, Energy / Resources, Investing Education, TV Appearances.

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Roger Montgomery discusses in The Australian why his Value.able approach to investing requires investors to look past accounting depreciation to understand the true cash profitability of companies. Read here.

by Roger Montgomery Posted in In the Press, Intrinsic Value, Investing Education.

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Do Indochine Mining (IDC), Silverlake Resources (SLR), Iluka Resources (ILU), Horizon Oil (HZN), Boart Longyear (BLY), Newcrest Mining (NCM), BHP Billiton (BHP), Rio Tinto (RIO), Think Smart (TSM), New Hope Coal (NHC), Ludowici (LDW), Alumina (AMC), Flight Centre (FLT), Hawkley Oil & Gas (HAG), M2 Communications (MTU), Northern Star (NST), Codan (CDA) or Onesteel (OST) make Roger’s coveted A1 grade? Watch this edition of Sky Business’ Your Money Your Call broadcast 9 May 2012 to find out.  Watch here.

by Roger Montgomery Posted in Companies, Investing Education, Skaffold, TV Appearances, Value.able.

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In this BRW article Tony Featherstone discusses the nature of sustainable competitive advantage and how Roger Montgomery swears by it in his Value.able investing strategy. Read here.

This article was published on 3 May 2012.

by Roger Montgomery Posted in Companies, In the Press, Investing Education.

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In this 2 May 2012 ASX Investor Hour presentation, Roger explains that while many investors focus solely on price, he (like Warren Buffett) selects his stocks, to buy or to sell, by comparing their current price to the value he ascribes to them. Roger discusses about his value principles and the technology he uses to filter stocks (www.skaffold.com).  Watch video here and view slides here.

by Roger Montgomery Posted in Insightful Insights, Investing Education, Skaffold, TV Appearances.

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Learn Roger Montgomery’s Value.able insights into the latest 50 basis point cut in the the base rate and how it may impact housing prices in this interview with ABC The Business’ Ticky Fullerton broadcast 2 May 2012. Watch here.

by Roger Montgomery Posted in Energy / Resources, Financial Services, Investing Education, TV Appearances.

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Roger Montgomery discuss how Sustainable Competitive Advantage is the platform for exceptional company performance in this Money Magazine article published in May 2012.  Read here.

by Roger Montgomery Posted in Insightful Insights, Investing Education, On the Internet, Value.able.

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In the May 2012 edition of the ASX Investor Update Email Newsletter, Roger Montgomery outlines his Value.able framework for successfully investing in the share market. Read here.

by Roger Montgomery Posted in Intrinsic Value, Investing Education, On the Internet, Value.able.

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For new readers to the blog, welcome. Here at Roger’s blog we are conducting an ongoing study comparing the performance of investment portfolios recommended by major broking houses verses a loose selection of A1 and A2 stocks bought as a big a discount to IV as possible.

(Its Roger here:  Its important to understand this is a hypothetical investment portfolio based on one of the Twin’s consistent approaches to stock selection.  In that regard it is not a collection of small high risk bets whose returns could be easily ramped.  I will be very surprised if you see high double digit returns from such an approach for that reason.  At Montgomery, managing +$200 million simply precludes us from investing in the small companies that would produce higher returns on relatively insignificant $5000 sums – irrespective of whether or not the returns can be boosted by disingenuous marketing by social media marketing experts or worse, even ramping.  Its easy to make 50% per annum on $100,000.  Much harder on $1billion.  Even personally our individual speculative selections may have a couple of hundred thousand dollars allocated to them and so we are also precluded from employing capital where liquidity may be boosted only by the participation of a small group of invisible Facebook friends.  Worse, our experience tells us that such anonymous groups can be a manic depressive bunch and when they’re told that a holding has been sold, the illiquid volumes of the companies they are toying with will produce the very opposite result of that which they aspired to achieved.)

We have been following twin brothers and their investment decisions and performances since December 2010.

The twins each inherited $100,000 and sought differing advice how to invest it, the quarterly reports of their investments can be found here:

http://rogermontgomery.com/will-david-beat-goliath/
http://rogermontgomery.com/how-are-the-a1-twins-performing/
http://rogermontgomery.com/which-a1-twin-is-outperforming/

By the end of 2011 our first twin, the regional Queensland accountant was still head down, trying to help hundreds of clients recover from all the natural disasters of the previous 12 months, government help was available but so was the paperwork. As these tasks drew to a close, Queensland entered a bitter and hard fought state election, so comprehensive was the coverage, it was hard to watch anything else. There had been a lot on, and checking on the performance of his portfolio had really been at the bottom of the list.

Our NSW based public servant had pretty much had the same six months, but for very different reasons. Being in the Foreign Affairs office of the federal public service, he was now getting used to the third minister in 2 years, much changed, often needlessly and nobody had any time for anything other than redeploying resources and priorities.

As March ended and the weather cooled, both brothers had a chance for a bit of R&R and to catch up on personal business. Neither were particularly thrilled with the performance of their portfolio; Our public servant , who had always invested through Goldman Sachs had performed exactly in line with the broader market, his portfolio was down 8.6% over the 15 months, and had lost nearly $9 000. He felt he could do better, and had been thinking about getting other advice for quiet a while now, and decided to act. He now only had $91 000 left and decided to switch brokers and became a client of the giant international broking firm UBS, who provided him with their Australian Equity Core Portfolio. Here is an image of the advice from UBS and how his $91 000 was divided amongst the 10 stocks listed.

Source:  March 2012 ASX Investor Hour.  www.asx.com.au

Our Queensland accountant had faired significantly better, by investing in A1 and A2 stocks he had outperformed the market by 13.2% over the 15 months. However, he acknowledged that a couple of his investment decisions had performed poorly and wanted to rebalance his portfolio, he too decided to act. With over $104 000 available to invest he decided to round down his investable sum back to $100 000 and spend the surplus on a short Gold Coast holiday with his family and the balance on a membership to Skaffold. Skaffold is the research tool that would help him scour the every listed company to find quality stocks that may be selling at a price that offered a discount to estimated intrinsic value. Skaffold would also save him the time of sorting through ten years of annual reports for every listed company. Armed with ability to narrow down the choice of stocks, he would able to focus on the few that met his criteria and do further research on them before investing.

Here are the twin’s portfolios side-by-side:

The varying quality ratings of the 2 portfolios makes for interesting reading. On the basis of quality, the UBS portfolio doesn’t look very disciplined yet the portfolio chosen with the help of Skaffold looks pretty consistent. Except for 1 stock that is an A4. Our Skaffold user feels this cash flow positive producer may be about to be rerated by the market and A4 is as speculative as he could bring himself to be.

We will revisit our investing twins just after June 30 to see which portfolio is performing better, many thanks to Roger for putting the stocks to the test and actively encouraging this ongoing project.

All the Best
Scott T

Keep in mind this is a hypothetical and educational exercise only and not a recommendation of any kind.

Authored by Scott and posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 19 April 2012.

by Roger Montgomery Posted in Investing Education, Skaffold.

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