Equities: Where to next? (31/03/2014)
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
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Rob
:
Interesting but hardly fitted the title “How to identify an A1 Business”.
The term A1 wasn’t mentioned once and the opening spiel was “Today I want to talk about the dynamics of the equity market”.
Roger Montgomery
:
Thanks for picking the error up Rob. Wrong title loaded. Will be fixed ASAP.
Andrew Legget
:
I have been struggling to find any real reality/fundamental based viewpoint to justify CBA at its current price level. Including one analysis which showed it was not that far away from the 2 standard deviation rule used to determine a bubble in a previous post.
I wonder whether the slowdown of the index may be due to people getting a bit more cautious or apprehensive about buying at the inflated prices of these companies? Especially considering various banks economists have started talking about future interest rate rises.
As for the core topic of A1 quality businesses, it just makes sense to look for these type of companies. Tim did a really good job of defining them and another example of what a great information source this blog is.
I have 3 main traditional ratios that i look for which do a pretty good job of sorting the wheat from the chaff. I can then do a further analysis on them to get a clearer picture (peer analysis for example) but if they don’t have a tick against those 3 then i really don’t think it is worth bothering unless it is some type of specualtive play.
I am always trying to improve my system in quantifying the qualitative aspects of a business. I will never get a precise answer as there is considerable noise but the search for quality and the benefits of finding such companies means that for me it is a land worth exploring. Sometimes it leads me to some exotic places like wondering whether baseballs sabermetrics field might have some insights that can be adapted for stocks.
I encourage investors here to spend a bit of time thinking about what is quality and how to find it. There are some great companies out there and at various times they will all be out of favour for no real rational reason and provide a great opportunity.