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Investing Education

  • How to buy the best stocks

    Roger Montgomery
    August 1, 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.

    by Roger Montgomery Posted in Investing Education, Market commentary.
  • Which A1’s look expensive at the moment?

    Roger Montgomery
    July 31, 2010

    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

    by Roger Montgomery Posted in Companies, Investing Education.
  • Is Value Investing really that popular?

    Roger Montgomery
    July 30, 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

    by Roger Montgomery Posted in Insightful Insights, Investing Education.
  • Have you checked your letter box today?

    Roger Montgomery
    July 30, 2010

    Luke, Phil and Michael were pleasantly surprised this morning… read more at my Facebook page.

    by Roger Montgomery Posted in Investing Education.
  • A C5? But it’s a blue chip!

    Roger Montgomery
    July 23, 2010

    Last week on the Sky Business Channel Peter Switzer asked me for one ‘blue chip’ stock that I rate as ‘A1’.

    So I asked… what is a blue chip? Peter described such businesses as having a very good reputation and great brand name, pay a good dividend and have stood the test of time. Such businesses, Peter said, also tend to go up with the market.

    Whilst I couldn’t name an A1 blue chip, I can name plenty that fall in my C4 and C5 categories.

    Last night I revealed 18 ASX-listed businesses that some investors consider ‘blue chips’, yet don’t make my A1 grade. Westfield, Transurban, Asciano, Lend Lease, Ten Network and Virgin Blue are just a few.

    Switzer TV with Peter Switzer was broadcast on 22 July 2010 on the Sky Business Channel. Visit www.rogermontgomery.com to secure your First Edition hard back of Value.able, my step-by-step guide to valuing the best companies and buying them for less than they are worth.

    This video is provided by Switzer.com.au, an online portal for retail investors and small business owners. Switzer also provides Financial Planning and Business Coaching services.

    Posted by Roger Montgomery, 23 July 2010.

    by Roger Montgomery Posted in Companies, Investing Education.
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  • Where are my valuations Roger?

    Roger Montgomery
    July 22, 2010

    Bipolar markets appear to be the anticipated outcome for the next few years. Investors seem to be in the middle of a tug-o-war between inflation and deflation, recovery or double dip recession.

    Pimco’s Bill Gross says we have entered the era of the “new normal’ – expect low aggregate returns. Jeremy Grantham at GMO says that attributing the chance of recovery at 25% is “generous” and the US will be lucky to achieve 2% economic growth over the next seven years. And David Rosenberg at Gluskin Sheff says deflation is more likely than inflation, describing the stock market as meat grinder – “No return for a decade and yet plenty of sleepless nights on this roller-coaster ride.” Keep in mind David is a perennial bear. I remember during my days as trader being told; listen to the bears but don’t sell until they turn bullish!

    Over at the bullish camp PuruSaxena says “the ongoing range trading should conclude with a bullish resolution” and cites Intel’s best quarter ever and JP Morgan’s analyst estimates-beating performance as justification.

    At Montgomery Inc. ‘we’ don’t claim to know how the world’s debt issues will be resolved. What we do know is that you cannot solve them with more borrowing.

    In Australia many ‘analysts’ are pointing to the fact that the recent rally has not been accompanied by much volume. Indeed, one of my friends who is a broker said they can “hear pins drop” in their office. But before you rush out and sell in anticipation of some imminent correction (I am not forecasting anything), have a look at the volume that accompanied the beginning of the bounce from the March 2009 lows. They were relatively light too. Perhaps that means the whole thing will indeed end in a massive correction that will see even lower lows! (I am not forecasting anything).

    Stock market investing however need not be so mysterious and confusing. Instead of focusing on stocks, focus on businesses. Instead of focusing on prices, focus on values. When bargains are available it is obvious. When the banks were at their lows, there was no justification and large discounts to intrinsic value were evident for three of the big four. Their prices were following the pattern of their global peers that were each losing billions and being bailed out or nationalised. While their prices were on their knees, their values were being driven by the fact they were reporting multibillion-dollar profits. Focus on the business – don’t take your cues from share prices.

    More importantly, when bargains are available you are writing to me with requests to value high quality companies. “What is the value of CBA Roger?” “What do you think of CSL and Cochlear at these prices?” “They’re pricing QBE like it is going out of business, that’s just crazy.”

    Today, value is not so obvious and once again that is reflected in the general quality of the companies that you are asking me to value for you. While you have requested a few decent businesses, there have been a few raised eyebrows at Montgomery Global.

    With those thoughts in mind, I offer another Value.able update from Montgomery Inc, along with the relevant MQRs – “Montgomery Quality Ratings”. At some point I will publish, somehow, the entire universe with the A1, A2, A3, to C3 C4 and C5 MQRs.

    Don’t forget that the valuations you are seeing here are based on inputs that include analyst estimates. As some of you have indicated, analysts are notoriously bullish and particularly at the beginning of a reporting period tend to have estimates for earnings that need subsequent downward revision. I will discuss this and my observations and insights in a future post.

    For now, know that the studies conducted by McKinsey, for example, into the persistent excess bullishness among analysts, aggregate and average the data which can produce a result that does not reflect any particular year. Stick your head in an oven and your feet in the freezer and your ‘average’ temperature will be about right, but of course you won’t be feeling so good!

    The point I should make however is that my valuations for CBA, WBC, NAB, ANZ, QTM, CAB, HZL, FLT, SOL, MMS, CPU, AXA, BLD, CFU, DYE, DMX, ISF, VLA, QHL and CLQ (especially the 2011 estimates) will be revised over time. They will change. And having just been calculated they may also have changed from any previously published valuation and supersede them.

    WARNING: Not recommendations or advice. Didactic exercise only. Seek personal professional advice before doing anything!

    * Quality Score shown for last full year results. May change dramatically. May have been one good year – a flash in the pan. There is more to know. If for example, a company makes a debt-funded acquisition, its quality score could change.

    ++ 2009 Valuation. No forecast information available
    +++ No forecast information available
    ^ US Company listed in the US

    Your copy of Value.able will be delivered soon. I’m looking forward to comparing you’re valuations here on my blog.

    Posted by Roger Montgomery, 22 July 2010.

    by Roger Montgomery Posted in Companies, Financial Services, Insightful Insights, Investing Education.
  • What A1 companies are the best value right now?

    Roger Montgomery
    July 17, 2010

    Peter Switzer invited me to join him on the Sky Business Channel last Thursday evening. We discussed the market and my way of thinking about businesses. Then he asked me to reveal which A1 companies are the best value right now. Here is the interview.

    If you received my email update yesterday about Value.able‘s delivery date, this is the video I referred to as ‘Montgomery’s best value stocks‘.



    Switzer TV with Peter Switzer was broadcast on 15 July 2010 on the Sky Business Channel. Visit www.rogermontgomery.com to secure your first edition hard back of my step-by-step guide to valuing the best companies and buying them for less than they are worth.


    The video is provided by Switzer.com an online portal for retail investors and small business owners. Switzer also provides Financial Planning and Business Coaching services.


    Posted by Roger Montgomery, 17 June 2010

    by Roger Montgomery Posted in Companies, Investing Education.
  • Where is Value.able?

    Roger Montgomery
    July 16, 2010

    Did you receive my email update earlier this month about the complexity of the gold coin on Value.able’s dust jacket?

    Take a look to the left. See the One Dollar coin on the cover? I never imagined a little gold coin could cause so many headaches.

    Some of you have told me to ‘forget the gold – its what is inside that counts’. I agree with you. However I went to a lot of trouble to get permission from the Royal Australian Mint to use the coin, so I don’t want to give it away.

    I have also agreed to a production process with the printer that, at this late stage, I cannot change.

    Whilst we are adept at digging gold out of the ground, refining it, looking at it and sticking it back underground again, replicating Australia’s One Dollar coin on the cover of my book has proved to be a far more difficult challenge.

    Here is what my printer emailed to me last week…

    “The foil on the green case won’t have the black printing over the foil. The coins have been made black and the image will be suitable for foiling. This method is the quickest way of producing the books. [however] Given the complex nature of the gold coin on the jackets and case cover with several runs through the press, we have to allow drying time to achieve the desired result.

    If you have a hard back book in your collection take a look and you will see what I am alluding to.”

    So I did. I looked at every hard back in my collection and wasn’t able to find one with a picture printed on it. When I briefed the designers I asked for something unconventional. I didn’t realise what they created for me had never been done before!

    Your book will arrive in the week commencing 2 August.

    Thank you for your patience and understanding. I am confident Value.able will become a valuable addition to your investment education and am looking forward to hearing what you think of it after you have read it.

    Posted by Roger Montgomery, 13 July 2010.

    by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education.
  • Is Oroton an amazing A1 business?

    Roger Montgomery
    July 12, 2010

    Peter Switzer invites me every Thursday fortnight to join him on the Sky Business Channel. 4 June was like any other show. Except once Peter and I had finished discussing investing and stocks and the market, he invited me to stay on for his interview with OrotonGroup CEO Sally Macdonald.

    For readers of my blog, you will know that Oroton is one of my A1 businesses. And I have often said that Sally Macdonald is a first-class manager.

    Below are the highlights from that interview.

    Each time a new video is uploaded to my YouTube channel I post a note at my Facebook page. On Facebook will also find my upcoming talks, editorial features, TV interviews, radio spots and the latest news about Value.able.

    If you are yet to pick up the latest issue of Money magazine find it at the newsstand now, there are a bunch of terrific columns. Click here to read my monthly column. This month I write about ‘Great Retail Stocks’.

    by Roger Montgomery Posted in Companies, Consumer discretionary, Insightful Insights, Investing Education.
  • What do I think these A1 companies are really worth?

    Roger Montgomery
    July 6, 2010

    If you recently ordered my book Value.able, thank you and welcome! You have joined a small band of people for whom the inexplicable gyrations of the market will soon be navigated with confidence and far more understanding. If you have ever had an itch or the thought; “there must be a better way”, Value.able is your calamine lotion.

    Its hard to imagine that my declaration to Greg Hoy on the 7.30 Report that Myer was expensive as it listed at $4.10, or elsewhere that JB Hi-Fi was cheap and Telstra expensive has anything to do with the 17th century probability work of Pascal & Fermet.

    The geneology of both modern finance and separately, the rejection of it, runs that far back. From Fermet to Fourier’s equations for heat distribution, to Bachelier’s adoption of that equation to the probability of bond prices, to Fama, Markowitz and Sharpe and separately, Graham, Walter, Miller & Modigliani, Munger and Buffett – the geneology of value investing is fascinating but largely invisible to investors today.

    It seems the intrinsic values of individual stocks are also invisible to many investors. And yet they are so important.

    My 24 June Post ‘Which 15 companies receive my A1 status?’ spurred several investors to ask what the intrinsic values for those 15 companies were. You also asked if I could put them up here on my blog so you can compare them to the valuations you come up with after reading Value.able. Apologies for the delay, but with the market down 15 per cent since its recent high, I thought now is an opportune time to share with you a bunch of estimated valuations.

    I have selected a handful from the 15 ‘A1’ companies named in my 20 June post and listed them in the table below. The list includes CSL Limited (CSL), Worley Parsons (WOR), Cochler (COH), Energy Resources (ERA), JB Hi-Fi (JBH), REA Group (REA) and Carsales.com.au (CRZ).

    If you are surprised by any of them I am interested to know, so be sure to Leave a Comment. And when you receive your copy of my book (I spoke with the printer yesterday who informed me the book is on schedule and will be delivered to you very soon), you can use it to do the calculations yourself. I am looking forward to seeing your results.

    The caveats are of course 1) that the list is for educational purposes only and does not represent a recommendation (seek and take personal professional advice before conducting any transactions); 2) the valuations could change adversely in the coming days or weeks (and I am not under any obligation to update them); 3) these valuations are based on analysts consensus estimates of future earnings, which of course may be optimistic (or pessimistic, and will also change).  They may also be different to my own estimates of earnings for these companies; 4) the share prices could double, halve or fall 90 per cent and I simply have no way of being able to predict that nor the news a company could announce that may cause it and 5) some country could default causing the stock market to fall substantially and I have no way of being able to predict that either.

    With those warnings in mind and the insistence that you must seek advice regarding the appropriateness of any investment, here’s the list of estimated valuations for a selection of companies from the 15 A1 companies I listed back on 20 June.

    Posted by Roger Montgomery, 6 July 2010

    by Roger Montgomery Posted in Companies, Investing Education.