ValueLine: Four prospects
There are only four good quality companies on the ASX that are trading at levels worth acquiring right now. Read Roger’s article at www.eurekareport.com.au.
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.
Lloyd Taylor
:
Roger,
Some follow on questions I have on the subject of the margin of safety:
How much margin of safety relative to your calculated conservative Investment Value (IV) do you seek (at a minimum)?
I assume that the answer relates to the overall business risk that you assess and is thus linked (at least indirectly) to the size of the business and the assessed strength of its competitive advantage.
I notice that the COH is held in the Value Line portfolio with a purchase cost of $56.36 whereas the IV was/is $52.45 and forecast to rise for the next couple of years. Was the purchase price made at an appreciable discount to the then IV, which has fallen in the interim, or was this a case of purchasing a strong company at or near IV?
And a couple of questions on your approach to portfolio construction and maintenance. The Value Line portfolio holds seven stocks with the representation in the invested portion of the portfolio (at 25 May) being:
JBH 29%
COH 14%
CSL 9%
WOW 10%
REH 10%
PTM 7%
CBA 20%
This invested portfolio distribution is pretty much the same (+/- 3%) as that at the time of the investment decision (July 2009). What determined the relative appetite (weighting) for each stock in the portfolio and was this linked to the assessed margin of safety at the time?
Do you ever consider re-weighting of holdings when a share price significantly outperforms relative to IV, or when IV falls significantly relative to share price.
Regards
Lloyd
Lloyd Taylor
:
Roger,
Perhaps it was too subtly worded for me when you wrote:
“On balance, I genuinely believe that acquiring shares in these companies is preferable to the purchase of many, if not most, others.
Given the overwhelming lack of value everywhere else in the market, however, one does reach the conclusion that such a purchase should be made with caution or accumulated with great patience. The market remains otherwise expensive and the fact that I can only find four solid opportunities is a testament to that condition.”
I did read this as a statement of caution to the readers, rather than an expression of the intent to sit tight on the ValueLine portfolio. I now understand that “accumulated with great patience” means do nothing by way of accumulation at this stage.
You’re becoming as Delphic as the “best” of the financial commentators!
Regards
Lloyd
admin
:
…but I am no prophet Lloyd. If you do rational and sensible things for long enough, it all seems to go ok. You just can’t be in a rush.
Lloyd Taylor
:
Roger,
The ValueLine portfolio holds about 50% cash at present. Are you inclined to add share holdings in the three companies (ORL, MND & NCK) that are not currently represented in the portfolio? If not, could you share with us the reasons as to why not?
Regards
Lloyd
admin
:
Hi Lloyd,
Respectfully of course, I thought that was clear in the article although the emphasis may have been lost in editing. I will revisit because I obviously didn’t make the point forcefully enough.