Peace and joy to all at Christmas
Thank you for your support in 2012 and for all of your wonderful contributions to the knowledge bank.
I am delighted to finish the year again on a positive note.
I am pleased to report The Montgomery Fund’s initial investors (the fund was launched 17 August this year) have received a return of 15.2% after all fees in the four months to December 17, 2012. Over the same period, the ASX 300 Accumulation Index increased 6.8%. While the Fund has delivered 8.4% of out-performance, it is over a short time frame and our focus remains firmly on the long-term performance prospects for our businesses.
We would of course be delighted to welcome you as an investor in The Montgomery Fund and while you may download all the documents you require at www.montinvest.com/tmf Christmas is best left spent with your family and friends. But do keep us in mind when you return from your break.
The Montgomery [Private] Fund (MPF), for investors such as self managed superfund investors with $1.0 million or more, celebrates its two-year anniversary on the night before Christmas eve. Again, I am very pleased with the early performance. To 13 December 2012, the MPF recorded a total return of 20.2% after all fees and assuming initial investors had reinvested their 30 June 2012 distribution. Over the same period, the ASX 200 Industrials Accumulation Index declined by 2.2%. I am delighted that, in 2012, so many investors have continued to find Value.able and Skaffold so useful. I am also particularly excited about how easy navigating US stocks is with Skaffold Global. While I am sure Australian investors want to invest overseas and know many of the company names – navigating the fundamentals of US companies has not been that easy. I am very proud that Skaffold Global has made that job so much simpler.
If you have not already secured your copy of Value.able or become a member of Skaffold and want to kick 2013 off the Skaffold way, go ‘Global’ at www.Skaffold.com.
To our investors, Value.able Graduates and Skaffold members (Skaffolders), thank you for taking the time to share with me just how much you have been positively impacted by the work our very dedicated and growing team, of quite brilliant people, have put in for you. I am delighted to hear your amazing stories of investing success and I am pleased we can look forward to 2013 with enthusiasm.
I will return in late January. Our team will continue to publish comments here at the blog, post a few new videos of their own, reply to your emails and take your calls.
We leave 2012 with some optimism for the retail, healthcare and digital/data sectors and a little apprehension about the capital inflows required to support our profligacy.
In the meantime may your Christmas be filled with the love of family and friends. I look forward to corresponding with you again beginning February 2013. I will always be enthralled by Caravaggio’s 1609 work The Adoration. He is one of my favourite Baroque artists and his treatment and representation of light was as extraordinary for its time as it is spellbinding today.
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.
xiao fang xu
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merry christmas and happy new year to all.
Andrew Legget
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As this is the quiet period for a lot of us, i thought i would post some thoughts up here and hopefully some of my fellow visitors here can tell me if i am on the right track.
One really important lesson i believe investors should learn is being able to spot and avoid bad companies. Roger did a good job getting into the nuts and bolts of ABC in his book etc.
I thought i would go to the highest profie of them, Enron. In particular the 2000 annual report. Of course it is easier in hindsight to spot these things as you know what happened but i think it does show some really good lessons and one of them is that even relatively good news can be a red flag. The below is to help me learn but perhaps others will find it interesting as well.
These things stood out for me as something strange happening. (all figures in millions)
In the year 2000 revenues for Enron went up from $40,112 to $100,789 or 151.27%. In 1999 however, the company only had revenue growth of 28.32%. Even if times were suddenly good in their market, 150+% increase in revenues seems a bit out of the ordinary and shows that an aggressive growth policy at least is being undertaken. The net profit margin has also shrunk from 2.25% to 0.97%.
Add to the above that net profit however, that in the same year as revenue increased by more than 150%, net profit only increased by 9% which was lower growth than the previous year as well. Now if i am investing in a company thats revenues grow at 150%+ but net profit only increases by 9% i am going to be asking considerable questions about the efficiency and costs associated with that company.
Now looking at it from a return on equity perspecitve, total shareholders equity increased by almost 20% to $11,470 from $9,570.
So using these figures we can work out that the extra $86 in profit came in part due to equity increasing by $1,900 resulting in a return on incremental equity of 4.53% and return on equity as a whole of 9.31%, hardly the sign of a quality company and i am sure i would see this to be especially so if i go back previous years.
The reports also show that in the space of the year, Total shareholders equity and liabilities almost doubled meaning that effectively the resources used to fund the business have almost doubled and still only resulted in a less than stellar return. So where did all this extra equity and liabilities appear to come from. The biggest changes were an item in both the assets and liabilities related to price risk management activities. The assset side increased by 309.15% and the liabilities side increased by 312.72%.
Now i may not be a finane professional with decades of experience but it just doesn’t sound right, reading the notes about the “price risk management accounting methods” shows that this was in reference to the mark to market accounting methods used by management.
After looking at all this it seemend some of the growth figures are astronomical but they always seemed to not flow through to the bottom line, as a shareholder i would like to think i would have asked why are shareholders not appearing to get much benefit from the massive growth and in fact in some metrics actually seem to be getting worse.
I know it is obvious now as we all know what was happenign but am i right to have interpreted the above as red flags that something was not right at Enron?
Andrew Legget
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And a merry christmas to you and your team as well Roger as well to all the visitors to this blog as well. Hope everyone has a great new year.