The recent 10 per cent pullback
The Australian All Ordinaries Index made a post-GFC high on 21 August 2014 at 5,672 points; 1200 points short of its all-time high (6,873) recorded in late-2007. In the most recent seven-and-a-half weeks, the market has retreated around 550 points (or 10 per cent) to 5,122 points at the time of writing.
This pullback has not been a great surprise to us here at Montgomery Investment Management. Both our funds have been carrying relatively large cash holdings, and we have been warning since 4 July 2014 (when the market was above 5,500 points) that “We are struggling to find high quality companies trading at prices that we consider to be attractive”.
You might recall our blog written by Tim Kelley: “We found the current market to be on the expensive side of fair value. The model indicated an over value to the order of 10 per cent, relative to the 10 year average.”
Greater volatility in the domestic market seems to have coincided with increased recent uncertainty related to the likes of the Financial System Inquiry, the 40 per cent decline in the iron-ore price this year, ‘tapering’ from the US Federal Reserve and the severe decline in German exports in the month of August.
While valuation models are notoriously imprecise, it may be a worthwhile exercise for investors to again search for those high quality businesses with good prospects, whose share price is no longer trading on the expensive side of fair value. And of course for those who have neither the time nor the inclination to conduct this research themselves, the job may always be done by our team at Montgomery Investment Management.
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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
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.
