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Is it time to head for the exits?

Is it time to head for the exits?

Altair Asset Management made headlines this week with its decision to liquidate its portfolios, reasoning that it intends to avoid a market crash. Altair’s bold move came in the midst of a growing media focus on the extent of overvaluation – and potential risk – in asset markets, including equities, property and collectibles. The question is: how overpriced are equities, and what is the best strategy to adopt right now?

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Tim joined Montgomery as Head of Research and Portfolio Manager of The Montgomery Fund in July 2012. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Before joining Gresham Partners, Tim worked for McKinsey & Company for four years, where he was involved in strategic consulting in both Australia and Denmark.

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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice 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 advice from a financial advisor if necessary.

9 Comments

  1. Lindsay Byrnes
    :

    Hi Tim
    An insightful analysis. A question I would like to ask you are we headed for long term lower returns on the all Prdinaries as my crude analysis would suggest Eg Start with the index in Sep 84 when it was 734 and measure the CAGR thereafter in 10 year interval plus the last few years :
    Sep-84 734 CAGR
    Sep-94 2028 276% 10.7%
    Sep-04 3674 181% 6.1%
    Sep-14 5296 144% 3.7%
    Today 5824 110% 3.4%

    • Difficult to say, Lindsay, but it is certainly harder to see strong returns being earned from where we are today. A high multiple of current earnings means more of the return needs to come from future growth, and its not clear that we are headed into a period of strong growth.

  2. I agree that high PEs are relevant to cheap money or from the investor’s viewpoint cash (and bank term deposits) are returning very little and whilst interest rates remain low and are forecast to stay low, investors will pay up for risk assets.

  3. Kyle McGeechan
    :

    Thanks Tim for the article. With the first chart though what does it look like with all the resources companies included? In an over valued market a correction of some sort would ultimately affect good quality businesses, especially these days when it seems people will hit the sell button for wrong wording in an outlook statement. Hyperactivity is rampant. Just a thought I could be dead wrong, however it would be interesting to see that chart. Thanks again.

  4. andrew ronan
    :

    I just wonder if the reason for this long term Pe growth is a result of long term credit cycling from higher interest rates in the eightys to very low ones now and the ease of getting into debt resulting in current consumer and governmental debt saturation of which appears to have nowhere to go from here with regards to its growth, assuming interest rates will remain positive .Will this situation cause a mean revision to below the 20 mark as has been the case before.

  5. The guys at Royal bank of Scotland about a year ago also warned to sell all global equities.
    What a great call that was ( not).
    The media love to highlight the extreme bears, and there is someone every year saying sell sell sell.
    Sooner or later one of them gets it right by sheer luck not skill.

  6. Hi Tim
    do you guys read The Australian Newspaper?

    Funky fundie

    Many in money-managing circles in Australia assumed stunned looks as they read Philip Parker’s rationale for winding down his Sydney-based Altair Asset Management.

    The “Australian east coast property market bubble and the impending correction” along with “China property and debt issues” and “overvalued Australian equity markets” were three key reasons given by Parker this week.

    Subsequent media reports have suggested a fourth reason may have been a case that pits Parker against his elderly mother Faye in the NSW Supreme Court.

    And here’s one more interesting fact to throw on the Altair bonfire.

    We gather that Parker approached other fundies in the past six months in an attempt to sell them his business.

    Needless to say, his property bubble, China debt and overvalued equities thesis wasn’t a big feature of his sales pitch back then.

    How about that?

    So it’s not just Parker’s stunned investors who are shaking their heads. Many of his peers are just as unimpressed

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