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by Roger Montgomery Posted in On the Internet.

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Investors who have enjoyed the market’s sharp rebound might be thinking about taking profits. Here are four points to consider.

by Roger Montgomery Posted in On the Internet.

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by Roger Montgomery Posted in In the Press.

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by Roger Montgomery Posted in In the Press.

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The US stimulus may have been great for global markets, including our own, but have the benefits to the ‘real’ economy been just as dramatic?

The impact of stimulus packages on the real world appears to be wearing off. By the end of September next year, 70 per cent of the 2009 American Recovery and Reinvestment Act’s $787 billion will have been spent.

According to economics forecaster Moody’s, US stimulus packages contributed ¼% in the first quarter of calendar 2009, 3% in the second quarter, 3.5% in the third quarter (now), and is forecast to contribute ¾% in the next quarter, 1½% in the first quarter of calendar 2010 and ¾% in the second quarter of 2010.

Translation? The Obama stimulus package is having its maximum impact on the ‘real’ economy right now. Data showing the recovery taking root is simply a function of this stimulus. According to Moody’s, this quarter is as good as it will get. The bad news is that from here-on-in, the stimulus will start to wear off.

Now, I am no economist. But there are several prominent experts, like Jim Rogers, who are warning another slowdown is about to occur that will make the recession the US just experienced look like a picnic.

I am equally poor at forecasting stock markets – you will discover over time that it just hasn’t been an essential ingredient in my own investing. But a friend of mine who picked the last market high and low to within a couple of days (please don’t ask me who he is or how he does it), tells me that markets have just seen their medium term highs and have begun another sell-off. This may or may not transpire of course, but he has always impressed me with his uncanny ability to get it right.

So we have some economic forecasters saying be careful, we have a market forecaster saying watch out and now here is my contribution…

I can tell you what a business is worth. I can also tell you that in the short run the stock market is a popularity contest, but in the long run share prices follow values. That’s why it is essential you know the value of the companies you are buying shares in.

When I aggregate all the company values I have estimated, I arrive at an estimated valuation for the All Ordinaries Index of just under 4000 points. This compares to a market that is 600 points, or 15 per cent, higher. That alone however doesn’t mean the market is going down. Valuing a company is not the same as predicting its price, and the reality is that Australia has over 3000 funds chasing less than 2000 stocks. This has the effect of creating a ‘normal’ state that sees the market above its valuation.

But above its valuation it is. So while I am very optimistic about Australia’s future and will never let short-term concerns about the economy or the market stop me from buying shares of great businesses when they are offered at attractive prices, right now I can’t find many great companies that are cheap enough to buy. And some people I have great respect for suggest I should be even more cautious in my optimism. Perhaps you should too.

By Roger Montgomery, 6 October 2009

by rogermontgomeryinsights Posted in Insightful Insights, Market Valuation.

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by Roger Montgomery Posted in In the Press.

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Your performance in the stockmarket is more a function of the boat you get into than who is rowing. Fund manager, Roger Montgomery reveals his thoughts on Fairfax. Read the article.

by Roger Montgomery Posted in Media Room, On the Internet.

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by Roger Montgomery Posted in In the Press.

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This blog is for viewers of Nina May’s Your Money Your Call program on Sky Business Channel last week who requested a valuation for Lemarne Corporation Limited (LMC).

LMC’s history is a lumpy one. It is no JB Hi-Fi or The Reject Shop in terms of its economic performance. This makes the process of valuing the company more subjective.

ROE over the last 10 years has averaged 14%, varying between -1.2% to 25.8%. Since a capital return that reduced equity, and the sale of C10 Communications, ROE has been higher.

Cash flow is good (exceeds reported profits) and the balance sheet is debt free. Debt free, an attractive ROE and good cash flow are desirable characteristics, particularly when they appear in concert. Management have also shown they are owner-oriented, buying back shares last year at depressed prices equivalent to 10 per cent of today’s market cap, and plan to also provide a capital return through an unfranked dividend of 50c.

But this a small company, and I have done no work identifying whether any competitive advantages (the ability to regularly raise prices without a loss of sales volume) exist. They often don’t in small businesses. If they do, they tend not to be small for long. The focus is now on one business – Lemtronics. On first impressions, it is not the most memorable of brands.

My estimate of value is $4.00 – $4.50, but there are plenty of other companies whose businesses I know better.

By Roger Montgomery, 1 October 2009

by rogermontgomeryinsights Posted in Companies.

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by Roger Montgomery Posted in On the Internet.

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