Hold ‘em or fold ‘em? The 2 choices facing investors today
Right now, investors are facing two options: invest in the market’s momentum, while acknowledging that low returns are likely; or step aside, given the risk of low returns and higher volatility. Of late, we’ve chosen the latter option, as we are convinced it is the rational approach. But many investors seem to disagree.
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.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Henry Mitchell
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Hi Roger
Some years ago I attended a presentation you gave in Perth, and followed that up by buying and reading your publication Value.able. I watched for a while and then over time have purchased units in The Montgomery Fund and Montgomery Global Fund. What I like most about the Montgomery approach is sticking to a principle and philosophy. I have no problem with the performance of the two Funds I have a stake in, relative to the benchmark adopted for each. Sure, the gap between these Montgomery Funds and the benchmarks has been wider in the past than it is now, but that’s irrelevant to me. What matters more is the soundness of the position and philosophy, and the likelihood that over time it will work out well. I think it was Graham who said that an “investment is somethings that promises security of capital and a reasonable return, everything else is speculation”. So please keep doing what you do, “investing”, even if that means having a stash of cash for as long as is warranted by a lack of value available for purchase.
Roger Montgomery
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Thanks Henry for those very encouraging words!
june ho
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Dear Roger, can I ask what do you do with the cash? Do you buy bonds, bank term deposits etc. I’m pretty ignorant but quite interested to find out. Thank you.
Roger Montgomery
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Hi June Ho,
We invest in cash, ASX:AAA and Term Deposits
Steven
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Hi Roger
I heard you talk on ABC radio and it was refreshing to hear someone say they or indeed no one knows where the market will go short term and yes I agree the market is showing signs of over exuberance, has been for a while (talking US tech stocks here)…but that’s the heard mentality for you. I hear a lot of people going back to cash which is of course defensive and a short term solution only. I would like to put forward another method that not many people seem to know or want to learn but it really is a great way to stay defensive and gain a consistent edge over the markets regardless of market direction and keep most of your cash safe. Most people turn off this metrology because they believe it’s difficult or risky but truth is its far far safer the buy hold and pray methods or trying to pick any stock or market direction. I would love to present or chat with you about this as we can all learn from each other and I beieve there are massive opputunities not far away as markets correct. People should be leaning short delta in tech stocks in particular now and there are some great strategies to use to achieve this. I have 30 years successful trading experience and would love to present some new methods to you that you may not of considered before? Don’t worry I’m not selling anything I’m just interested in you and maybe helping each other out as most of the trading industry is ridiculously guessing or gambling and presenting that have some sort of fortune telling insight when the truth is stay mechanical and have a consistent methology. Hope to hear from you soon. Kind Regards Steven
chris Warren
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Hi Roger
Might be a bit off topic, I share your concerns on the market and have moved 50% to cash. I also now hold around 1-2% in Crypto(Bitcoin and others). I’d be interest to know if you have anyone watching this space and their views? I have been watching Andreas Antonopoulos who has some interesting views.
His respones to Jamie Dimon:
https://www.youtube.com/watch?v=1dEcdGc0tIo
Chris
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Roger,
What about the painting by Da Vinci last week, which sold and set a record ? That is in keeping with your commentary on ‘things that don’t pay any dividends’.
There was an article in The Australian last weekend, which implied that there would be a wave of selling next January in the US, based on the fact that they will have a lower tax rate and by doing so at that time, will enjoy a much longer time before the tax is due to be paid on their capital gains, at which point, the market is expected to drift down approximately 20 percent over the next year.
Roger Montgomery
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Nearly half a billion dollars for a painting. CCC-rated bonds are already selling off which suggests funding is going to get more expensive amid a market that’s turning ‘risk-off’.
Paul
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Hi Roger,
Over the past 18 months… “investors are punishing managers, like us, who are acting rationally.”
Do you think in hindsight your team was too conservative?
What do you estimate the percentage chance that cash will outperform (selected stocks + dividends) over the next 18 months?
Roger Montgomery
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No. If a hypothetical correction in the next few days wiped out all of the gains of the last 18 months, would you say we were too conservative? Will Rogers once said; “The fellow who can only see a week ahead is always the popular fellow, for he is looking with the crowd. But the one who can see years ahead, he has a telescope but he can’t make anybody believe he has it.”
Max Zan
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Hi Roger
I have never heard of any Investor going broke realising profits and parking the funds in cash. Also, I have never heard of anyone who can consistently pick the top or bottom of the market – The best Investors can do is to cash out when valuations are in their opinion stretched and holding on has a high potential of capital losses. It can appear to be painful holding large amounts in Cash but it’s more painful if Sharemarkets suffer heavy falls – eg a fall of say 25% requires the market to rise 33% to get back to square one and that may not occur for a long time and that’s a lost opportunity taking into account the time value of money. Sequencing risk is an important consideration when investing at this point of the cycle and that’s a risk a lot of inexperienced investors don’t understand.
Roger Montgomery
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I agree with everything you have said Max. The only caveat is that you CAN go broke taking a profit, even many profits, if the profits are smaller than the losses.
brian lovelock
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Hi Roger
I am a bit puzzled about your comments on CSL. It’s trading on a PE of 36. However at the AGM I thought the outlook was very positive ,the launch of 2 new drugs ,more investment in plasma collection centres and a competitor having some issues in theirs, a turnaround in the flu business and a possible blue-sky investment in China. It doesn’t seem impossible that CSL could grow earnings by 15% for 4 years. This would bring its PE to low to mid 20s. I left the AGM thinking I would buy more CSL in the mid $120s.
Roger Montgomery
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Hi Brian,
Different ideas about ‘value’ is precisely what makes a market. We don’t tend to think about P/E’s. There are several videos here on the blog explaining why P/E’s are of limited use.