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What did Ash and the team talk about?

Companies, Insightful Insights, Value.able | Comments (81)

What did Ash and the team talk about?

Yesterday we had the pleasure of meeting Ash in person. If you scroll through any of the threads on our blog, you will no doubt find some extraordinary insights from one of Value.able’s founding Graduates.

Indeed, Ash’s generosity and willingness to share his experience and insights with new investors has fostered a spirit of camaraderie that has become integral to the Value.able community.

What did we talk about? It’s been a hot question at the Facebook page!

…Matrix, the recovering Lockyer Valley, cotton, gas explorers, an exciting new float, Lloyd, rugby and the 2GB podcast about a small cap gold stock that resulted in 170 comments and the thought to shut this blog down!

Thanks again Ash. We look forward to catching up with you again when you are next in Sydney.

Now to the photo… can you spot some familiar faces?

The first four of six framed artworks are now featured at the entrance of our office.

It was a proud moment indeed. We will publish some more photographs of the artworks in coming days.

Posted by Roger Montgomery and his A1 team, fund managers and creators of the next-generation A1 service for stock market investors, 7 July 2011.

INVEST WITH MONTGOMERY

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.

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81 Comments

  1. gjk
    :

    Hi all,

    I am reading an annual report of AAC 2010 (Australian Agriculture Company) and got pretty confused on how they calculate their revenue.

    In their footnotes (point 6(a)) they put down “cattle revenue (including revaluation)*” and the * refers to “Included in cattle revenue is a net increment in market value of livestock of $28,394,000 (2009:net decrement $21,337,000)”.

    i am quite confused on the above. why would they need to reevaluate the value when they have sold the cattle? (i.e. they sold for $1 so in the accounting it should register as $1).

    Please let me know if i have misunderstood this.

    Thanks
    Greig

    • Roger Montgomery
      :

      It’s the gain on the mark-to-market value of the unsold herd.
      Australian Accounting Standard AAS 35: Self-Generating and Regenerating Assets
      Recognition of Revenues and Expenses
      “5.4 Any increments or decrements in the net market values of SGARAs must be recognised as revenues or expenses in the profit and loss or other operating statement for the reporting period in which the increments or decrements occur.”

      See: http://www.aasb.com.au/admin/file/content102/c3/AAS35_8-98.pdf

  2. Allan
    :

    I think this stock may well have been mentioned in the past but I have Ramelius Resources (RMS) at a healthy discount to IV based on a 14% RR and using a more conservative ROE than I actually calculate.

    I’m just quite weak in this area as still working through how to factor in mine life, projected ounces and ongoing cost of production.

    But they have $100M of cash ($400M market cap) and no debt. There is always a risk in this space but just wanted to know if anyone had some current thoughts? Can’t find any projected NPAT forecasts or broker research.

    Seems much more attractive then Newcrest or Oceana which is held by fund managers left, righ and centre.

    Cheers
    Al.

    • Tyler
      :

      Main mine only to last till 2013 & the other mine will have a lower grade of ore (so higher production costs) very hard to judge value on this one

  3. Matthew R
    :

    I listened to an interesting podcast today about what the future of retail may look like.

    The podcast was the ABC local radio “nightlife” program titled “Shopping in the future with Morris Miselowski”. Much of what was said has been expressed/suggested here in this forum but still an interesting perspective

  4. Jason A
    :

    Hey All,
    I was wondering if anyone could detail why they think DrillTorque would be a good company to invest in?
    I have read the prospectus back to front and noted the following:
    1) Pro forma P&L Summary
    Why does the company feel the need to hide the profit or loss from the years 2008-2010. In those three years the company averaged $3.23m in EBITDA and given they expect to make $3.38m in 2011 and still not make a profit it’s safe to assume they didn’t make a profit it any of these years.
    I would have much more appreciated something along the lines of, “We lost money due to the GFC etc. etc.”

    2) The company states that they expect rig utilisation to return to pre GFC norms in FY2012, however, Chart 4.1 shows mineral expenditure at Dec 2010 is at approximately the same level as around Dec 07 which would have to be close to the peak “pre-GFC levels” so what has happened to the company’s market position during the recovery that occurred in 09/10. Why are their utilisation rates increasing now?

    3) The company makes quite a few references to CSG drilling as a growth area yet they only expect to make 6% of FY2012 revenue from CSG and CSG drilling has been a buzz in QLD for at least 3 or more years now (from my recollection) so why didn’t the company move into this area before if it is so profitable?

    4) The company expects to pay a dividend of 2.1cps in FY2012, this is $2.63m, which would leave them with about $2.5m in cash. If we assume they need $1m for working capital etc. this leaves them enough money to buy 2 more CSG Drilling rigs. If this is such a growth area wouldn’t the company be better off keeping the money and buying another 4 drilling rigs?

    Just my thoughts, I could be missing something in the fine print but I don’t think it’s worth the time to find it.

    • Roger Montgomery
      :

      Nice Jason,

      To your point 1) Jason…this is something that has perpetually frustrated me. It is removed because the funding arrangements at that time are often not reflective of the soon-to-be-listed co., for example, when owned by private equity. But equally often the funding arrangements are no different and yet the convention (of not disclosing the earlier years npat) is maintained. To your point 2) good question to put to the broker. We haven’t bothered as we are giving it a wide berth. To your point 3) low barriers to entry. To your point 4) read Value.able everyone!

    • Owen M
      :

      Possibly a formatting error? Highlight the area with the mouse and you can copy and paste the figures. I’ve pasted them below, but best recheck as I may have missed something in the formatting.
      2008A 2009A 2010A
      Depreciation & Amortisation (1,930) (2,855) (2,730)
      EBIT 2,902 (1,710) 983
      Net Interest expense (860) (1,055) (2,561)
      Net Profit Before Tax 2,042 (2,764) (1,578)
      Income Tax (559) 837 (132)
      Net Profit After Tax 1,483 (1,927) (1,710)

      Roger, I assume it’s ok to post these numbers?

      • Jason A
        :

        What a great find Owen!

        Roger, he’s talking about DrillTorque. If you open the PDF and scroll to the P&L table on Page 55. Use the Select Tool in adobe (right click on the page..click select tool). With the select tool you can highlight the whole table and it picks up the numbers which are “hidden” under the blue square. You can then copy them to word etc and read it. Therefore, the NPAT values are (Loss):
        2007 – 1.48m
        2008 – (1.93m)
        2009 – (1.71m)
        2010 – (0.31m)
        2011 – 5.27m

        Also giving this one a wide berth.

  5. Matthew D
    :

    I have done some more valuations for practice.

    2011 2012
    AMP $4.24 $4.62
    ANN $10.64 $10.90

    How did I go?

  6. Brad
    :

    Re Drill Torque

    Just read the prospectus, application of funds >$3Mn to ATO to pay debt incurred in the gfc

    I can’t remember seeing that use of funds before…..

    Not sure about competetive advantage however company does manufacture some consumables.

  7. Matthew D
    :

    What do we think of JBH? Seems to be at quite a discount.

    Got a funny feeling it might be my 1st pick.

    • Roger Montgomery
      :

      Hi Matthew,

      Have been reading the latest batch of research from almost every broker. A few are coming across to your line of thinking. Will be interesting to see which group gets it right.

    • Andrew
      :

      I think it is still a quality company although not as quality as it was before. I think there will be signifiicant changes in their industry in the future so will want to see how they respond to that. Below is just my opinion.

      A lot of their stores seem to be dominated in space by games, dvd’s and CD’s which i believe will be made redundant by the increase in these products for online retailing (i think about 90% of sales in these products will go online), thats a lot of expensive floorspace effected.

      Their new store on Level 5 in Sydneys Westfield on Pitt Street might be a bit of a peek at what the JB Hi-Fi of the future may look like. Focusing on the more premium electronic items (phones, computers, tv’s etc) and detailed product knowledge and customer service. No CD’s or DVD will be found.

      There advantage of being the cost leader in the bricks and mortar entertainment retailing space will come in handy as they can use the low prices for these products as well as better and knowledgable service to compete with the online market in these spaces as a lot of people have no idea what the specs on computers etc actually mean.

      I would like the price to drop further before i would dive in personally, i have a target MOS of around 35% for JBH. Currently i am at 17% for 2011 and 27% for 2012.

      It does however offer the most value at present of all my companys on my watchlist and i believe it has been dealt with rather harshly. There are some headwinds but i think they can combat it with some innovative strategies.

      • Matthew D
        :

        I agree with the wider view but not so much the specifics. I can’t see online dominating that much.

        I’d probably be looking at more like 20 – 25% MOS.

      • Ash Little
        :

        Nice post Andrew,

        Despite or maybe because of the current sentiment I really like JBH

      • Nick Mason
        :

        I doubt there is another company listed on the ASX with as impressive financial figures as JBH over the last few years and yet the idea of investing in it leaves me feeling very flat.

        I can’t remember the last time I bought a cd/dvd/game from JBH and the last time I bought anything there was an iPod 3 years ago. Young consumers today greatly favor internet retailing and the trend in that direction is increasing exponentially, do not underestimate it.

        Contrarian investing is all well and good although as Phil Fisher noted, you wouldn’t want to be investing in the horse and buggy industries just as people were switching to cars after they were first invented.

      • Nic Arena
        :

        See I have a different point from Nick. Was chatting to my 21 year old cousin who says all his friends still shop at JBH. They can get whatever they want straight away and don’t have to wait the 3-4 days for the cd/dvd to arrive. Obviously will change when downloads become more widespread (maybe when NBN is up an running).

      • Rob
        :

        I agree, Nic. roaming the aisles and flicking through disks is hard to replicate online.
        Another slant is offered by Microsoft who have just announced the opening of 75 new stores across the US. I see this as more a knee jerk reaction by Microsoftto the Apple stores rather than a commentary on B&M versus online.
        Cheers
        Rob

      • Allan
        :

        As another Gen Y I have been doing significant research on JBH including broker reports which have factore din the interent risks into their figures. They have been under pressure in the CD/DVD for quite a few years and may well see a continued slow decline in this area. I can’t see it being sharp or a major concern.

        Their strength lies in being the lowest cost supplier of electronics in this country and peope want the latest and greatest. I have spoken to 3 people in the last week who have mentioned they are about to buy a TV there as they want to upgrade to an interactive LED. They haven;t even bothered to shop around as they know JBH will be the cheapest and have been impressed with the service in the past. That’s a competitive advantage.

        Also check out their functional website and free fregiht whilist comparing these prices to elsewhere.

        I own them, I want more of them. Just trying to work out if I purchase at 25% discount to IV or try and hold out for a 40% discount which may well happen the way the market is tracking in that space.

        Cheers
        Al

      • Stuart
        :

        Hi Nick. A lot of similar sentiment has been placed on the blog in the last few months. As someone who did own JBH for a while I am also watching their performance with interest.

        My own two children (18 & 19 years old) save their money and make special trips from country Victoria to Melbourne to buy cd’s, dvds, LP’s and games from JBH. Seems like they are still doing a lot right.

      • Andrew
        :

        And if i could some how short everyday consumer items, i would be very short on CD and DVD players. My thoughts are in the future it will all just be downloaded onto a hard drive.

      • Matthew R
        :

        Maybe not even to a hard drive….

        With increasing broadband speeds I don’t think we’ll need large hard drives for storage in our devices. Everything will be in the cloud & we will view the content on tv and iPad like devices. This is happening very rapidly and in many cases we are already there (YouTube for example)

        Vocus has a bright future in this space

      • Ray H
        :

        Hi Matthew R and other bloggers. I’ve been trying to get my head around the Vocus business model. It seems very attractive, but I am wondering where the pricing power lies? As I understand it, Vocus don’t actually own the fibre, they just have a wholesale agreement with Southern Cross for a serious truck load of capacity and they sell this into the wholesale market at a good margin. What are the barriers to entry? Why couldn’t I sign an agreement with Southern Cross tomorrow and compete on-selling at slightly better prices (but still a great margin)?

        Even worse, what is to stop Southern Cross from cutting my lunch?

      • Nick Mason
        :

        Very good Roger.

        I doubt there’d be more than a dozen people in the whole of Australia who could do what Vocus are doing to their high standards.

        An investment in Vocus is really an investment in their top line management.

      • Matthew R
        :

        Evaluating vocus is a matter of evaluating management

        Like lots of industries, there are multiple zones of speciality. For example, qantas are good at flying people around but not so good at the travel agent business. Or the medical implant companies are great at making the implants, but it doesn’t mean they can put them in to the patients. Or B&O make their TVs with panels made by samsung, but sell them for a lot more. And I could go on….

        There are heaps of examples like this

  8. Rob Randell
    :

    Hi Roger and Value.able graduates,
    This is my first post.I love the infomation you make available Roger and follow you on switzer and Your money your call.My copy of Value.able is in the mail,i look forward to reading it. The infomation is so good because im an Electrical fitter cant spell but can lift heavy things.As a great man once said if you dont have the ability to value a company it is most important you find someone who can.
    I had a situation last week that i related to something else Warren Buffett said”Think about a burning theater.The only way to leave your seat in a burning market is to find someone to take your seat,which isnt easy.”
    I have a parcel of Mayne Pharmacutical (myx)shares i have had for about 3 years.The recent share plunge is due largely to the confirmation the FDA has rejected the new formulation dose of their main product(at present)doryx.It got hot but i held on
    I feel this is a very good growing company with great direction and management.They have had some disappointing results over the time(4 years)but what has been achieved seems to out weigh the bad???
    I would love to hear anyones comments and iv on myx

    • Rob Randell
      :

      Hi Roger and Value.able graduates,
      I have liked Mayne Pharmacuticals(myx)for some time now.I have owned them for almost 3 years.The recent share plunge is due largely to the confirmation the FDA has rejected the new formulation dose of their main product(at present)doryx.
      I feel this is a very good growing company with great direction and management.They have had some disappointing results over the time(4 years)but with what they have achieved these not so great results seem to be only speed bumps??
      I would love to hear anyones thoughts and comments on myx

      • Michael S
        :

        Hi Rob and Roger,

        I am involved in the pharmacy industry. I have spent a few minutes looking at MYX. They are involved in the formulation of oral dosage forms as well as other things – check their website. Think enteric coatings that reduce side effects (in the stomach) and improve absorption etc. There is a need for this but the big money is in bringing a new drug to market (and big risk in it not being successful too). The “pipeline” of new drugs in late stage clinical trials looks pretty ordinary despite the large R&D budgets of pharma companies.

        The pharma industry in Australia is facing a great deal of change driven by Government expenditure changes. Have a look at the performance of Sigma, API etc. Deflation is the occurring and it is hard to see which businesses will emerge as the winners in this scenario. I have limited knowledge of the situation in the US (the biggest market for drugs in the world) as far as funding for drugs by Government/Health insurance companies. This is important to proplerly analyse MYX.

        If Roger and Ash are correct in their view on future food prices it might be better to invest in “farmers” not “pharmas”…

        Just my view

        Regards,
        Michael S

      • Rob Randell
        :

        Michael S,
        Thankyou for your insite about myx i will take all this on board.You made a great point i had not given any thought that was US funding.If there SUBACAP is launched next year in europe then as you mentioned the big stage is clearly the US which is where the company wants to be.With Roger Corbett as chairman and now having some expierience in the US i would like to think everything will fall into place.Maybe there are to many ifs

        Regards Rob R

      • Ash Little
        :

        Nice one Michael

        You really know your stuff in this area……Hope to catch up soon

    • Roger Montgomery
      :

      Hi Rob,

      There are quite a number of ‘pharma’ experts with direct experience here at the blog. I hope they may offer you some help. Welcome to the blog and congrats on your first post.

      • Scott T
        :

        Hi Rob,

        Welcome to the blog, it is great to have you. I know you are looking forward to getting your book. Read it thoroughly and then read it again.

        I don’t really like MYX, I have an IV of .18c. However, that is my opinion only, and you need to be able to form your own view.

        Don’t let your career define you. Some of us spent our entire education with our head down, trying to stay on our feet in a ruck or maul. Suddenly rugby is over, we didn’t make the squad and need to earn a living.

        All the best

        Scott T

      • Rob Randell
        :

        Scott T,
        Thankyou for your insite on myx.I have now recieved the book which i am looking forward to getting into.I do hope the iv is rising going forward.Thats why ive got the book.Cheers Scott

        regards Rob R

  9. Ron F
    :

    Hi Ashley

    The first graduate to have their photo taken at headquarters. A well deserved tribute.

    Regards
    Ron

  10. Pat
    :

    Forgot to mention this before as a site that gives a quick look at stocks. It gives quotes, 10 yr graph, announcements going back 10 yrs and daily trades. I have used it for the last 8 years since Telstra got rid of their site after the tech crash. Telstra site I thought was brilliant so I rang them and they recommended I look at REMOVED BY MODERATOR.Its free but watch list limited to 50 stocks. The announcements going back 10 years gives you a quick view of what happened in the past few years

  11. Tyler
    :

    I dont have much time for research, ive exams coming up but heres stocks i picked up on internet but have not done any research into & have no idea about each business
    SHV
    SLM
    CWP
    TRG

    Select Harvests Ltd (SHV, formerly Defender Limited, DAL) is an
    integrated agri-food business with diversified income streams. The
    company’s activities include managing orchards for investors,
    marketing almonds in the domestic and export markets, and
    processing and marketing an extensive range of nut and fruit based
    products to retailers, distributors and food manufacturers.
    STRATEGY ANALYSIS
    SHV’s strategy is to leverage its orchard management, processing
    and marketing capabilities to grow the managed services business.
    SHV also aim to grow the number of company orchards to diversify
    their earnings stream, increase control over future earnings and
    broaden access to the whole almond value chain. The fallout of the
    MIS sector has meant that established orchards are becoming
    available for acquisition or long lease. The company has
    strengthened the balance sheet with the capacity to fund growth.

  12. fred
    :

    Ash, I would like to see you next on ( your money your call )

    Roger, could you please explain in the near future your reasons for being bearish on iron ore.

    ( Roger, I would like to see you ring the bell @ wall street )

  13. Nedan
    :

    Dynamic Agri Tech, Roger and Ash ?

    I think everyone is talking about them there prospects look quite bright, however I would like to see more on their balance sheet and track record before i purchased them.

    What are your thoughts, I know Ash you have mentioned you have been looking for something is space in a previous post ?

    Cheers,
    Nedan

  14. Simon
    :

    Hi Roger and fellow bloggers,

    “An exciting new float” this will be a great experience to put to use what we have learnt so far I’m currently researching Drill Torque Limited does anybody else have any suggestions.

      • Scott
        :

        I have had a look at this as well, and with a majority of 2012 revenue basically locked in, it looks very very reasonably priced at 0.20….unfortunately unable to get an allocation as do not have a connection with the brokers…here’s hoping for a soft opening but somehow i don’t think I will be that lucky!!!

      • Ash Little
        :

        The float was well over subscribed so it is likely to list at a premium,

        very capitial intensive and very competitive.

        I am in the midst of this drilling stuff and it is going off ATM

        That said It is starting to look like the trucking Industry. One drill operators are coming into the market and competition is heating up. These single operators are low cost providers and don’t consider the Qantas effect(that is the rig that replaces the one they have will be much more expensive)

        It is cheap but it has a deal of debt and competition in a capital intensive enviroment is not for me.

      • Lloyd
        :

        There are no economies of scale in this drilling game and expansion is a relentless capital intensive grind with increasingly less experienced crews lowering overall operational efficiency. Barriers to entry at this level are essentially non-existent. Anyone with modestly deep pockets and a low return/cost of capital requirement can get into the business…. and they will… with inevitable consequences for industry wide margins. Like the airline industry, but worse!

  15. Ian Bowditch
    :

    So the banks wont need their prime sites all round the country. Think of all the rent they will receive or the capital return if they sell these sites. they only need a big office filled with lots of computers and not many people. I think I’ll hang on for awhile yet.
    Regards Ian Bowditch.

  16. nevada
    :

    if i knew you were going to hang them in your office i would of taken better quality photo of me and winston
    best reg nevada c

  17. Travis Adams
    :

    LOL Ash,
    You even get your own post.
    Now wished i had made the trip like we planned
    Great to see, a strong demonstration of the network effect.
    Trav

    • Ash Little
      :

      Thanks Trav

      Yes mate would love it if you were here. I am having a ball thanks to your networking skills

  18. Mark Ab
    :

    Hi Roger and fellow bloggers,
    I’d like to open debate/interest on the banking sector for a number of reasons. I’ve just read an article this morning from a News Ltd site which I’ve attached the first part:

    “The days of face-to-face transactions at your local branch appear to be numbered, despite a concerted push by banks to show a human side, experts predict.

    In their place will be a world of virtual banks and tellers as branches disappear forever some time within the next decade.

    This was the vision of banking’s future outlined by a panel of international IT and industry experts speaking at a conference in Sydney this week.

    British IT analyst David Furlonger, the vice president of international technology research firm Gartner, told the Banktech audience given the way technology was transforming consumer behaviour and with industry pressure to reduce costs the move was inevitable.

    “You will see more and more devices to shift people from the physical to the virtual world,” Mr Furlonger said.”

    Given the weighting of bank stocks to portfolios and fund managers in Australia as a strong need to consider their future relevance, I feel their days of dominance are coming to an end and a new era in banking is emerging. The past 10 year performance of NAB in relation to it’s performance for ’91-2000 highlights the competitive pressure banks have been under (in particular the last 5 years). Of their strengths, the combined share of the mortgage market has never been stronger (approx. 84% Cannex). Of their weaknesses, fees are under pressure, margins are under pressure and transactions are rapidly moving to online businesses like PayPal etc. and with the likelihood of less face-to-face distribution points, their ability to connect with new customers and retain their existing ones will diminish.

    The question I have for fellow bloggers is:
    How much growth in IV do the big 4 have left in them over the next 5 years?

    Regards
    MarkAb

    • Roger Montgomery
      :

      …and it also appears that the days of behind-your-back phone hacking are numbered too. Regarding the banks, I hear you and acknowledge the concerns.. I do wonder whether the rumors of my death are greatly exaggerated.

    • John W
      :

      My view is that, over the next 5 years, our banks in general might not have large growth potential.
      They have advantages you mentioned, including large fees for transactions now untouched by human hand. Their mortgage competition that crashed will gradually be replaced to some extent but that will take time.

      Like many, 5 years ago a couple of the banks were very overly represented in my portfolio; fortunately that did not include NAB which provided prime examples of “diworseification” with their overseas moves. ANZ recent and proposed expansion show indications of being more productive which is probably one of the reasons it is pick of the banks for some.

      Our bank reliance on overseas finance is seen as a potential negative if the housing market experiences extreme problems.

      Banks now represent a more modest proportion of my portfolio.

      Best wishes, John W

    • Sergey Golovin
      :

      Hi Mark,

      I would like to mention couple of points about banks if I may please:

      1. Sophisticated countries usually have sophisticated banking system. Countries with underdeveloped (read hated/unloved/forgotten/misunderstood) banking system suffer tremendously economically. And even if they managed to make some money within the boundaries of those countries, that money need to be looked after (read invested and protected), so they all end up in our (sophisticated) banks, and they have nothing left in their own banks. Then they go to IMF and ask for more loans. And it goes around and around.

      2. Yes currently all populace and banks are on detox, de-leveraging (meaning paying off debt, mortgage’s and credit cards, etc), which is good, less fat and more lean meat is always better for the body to handle, better for kidneys, heart and liver. But that will change. Once we get bit healthier we forget to exercise and get on with drinking and get overweight again, meaning that people start to accumulate mortgages and credit cards again, and that’s where banks make the most.

      It is similar to when computers became common people were saying that that would be the end of the printed news paper, and I was one of those people who was saying that. But surprise-surprise media here to stay and they are evolving, and they still publish papers and more of it (print as well electronic version).

      So the banks here to stay but then when do we buy banks? Well Warren Buffet already snapped up big chunk of Merrill Lynch in thick of GFC and not in harry to sell it. But us common people on street? I guess it is when people start to accumulate more credit cards in their wallets, and get that “another property/mortgage” under their belt, it is when one get that strong urge (or strong voice in their head projected by the advertising, commissioning by the banks) “shell I get another credit card… or what?..oh what the heck… might as well….”

      Do you remember that interview about three years ago (probably before the GFC), with one of the Australian fund managers, sorry cannot remember his name, seating with his legs up on table with cowboy boots on, throwing darts into the target on back of office door, and on question “banks behaving badly” “What do we do about it…” saying “Do not get angry…get even…buy the suckers…”

      Regards,

      • Mark Ab
        :

        Hi Sergey,
        that is a nice perspective. I know Buffett has been a big fan of Wells Fargo and has held them for a long time (their performance has been strong and consistent relative to their peers). I think banks will always perform in line with the strength of the local economy and if we look at the market corrections over the last 20 years, they always seem to recover as good as any other industrial. The approach I’m taking is to wait until significant MOS and below and use a high RR, as I can’t see much point in buying with a smaller MOS due to their subdued outlook and consequent average returns.

        Regards
        MarkAb

    • Peter
      :

      Try to organise the following over the internet (or even by phone)

      1. a letter of credit
      2. a bank guarantee
      3. a construction loan
      4. a line of credit
      5. business overdraft facility
      6. multicurrency accounts
      7. bridging facility
      8. debt factoring

      If you are about to ship 3 containers of manufactured goods worth AUD$1 million, would you accept a letter of credit from NAB or would you prefer Peter’s Virtual Bank of Vanuatu?

      • Scott T
        :

        That is an excellent point Peter. Banking is far FAR more than basic no frills mortgages and transaction accounts.

        Further, the more sophisticated products are where the fee revenue really is, not necessarily a savings account $5 monthly fee.

        All the best

        Scott T

      • Kenneth
        :

        Hi FVAG (See if you can work that out!),
        The banks seem to me to be the ideal business. To me they are as entrenched in our economy as our organs are in our body. The obvious analogy being money the life blood. I think it was Roger who described them as a ticket punching business. Skimming on every transaction. I don’t underestimate their ability to evolve and find a way to keep up that skimming. They seem to have adapted fairly well so far. I am very keen on ANZ’s strategy. Love their new logo and look as well, I think it fits beautifully with their Asian expansion plans. They were all through Vietnam when we holidayed there in April. KJ

      • Ash Little
        :

        Hi Kenneth,

        I have made quite a few comments about our banks in the past on this Blog.

        As Roger has said our Banks are very leveraged to our local economy.

        All sounds good but the flaw is that our economy is very leveraged to World growth.

        Australia will have a recession one day………..It is a certain fact. (I wish I knew when this would happen but my crystal ball no better than anyone else’s)

        When this happens our Banks will cut the dividend or stop dividends entirely. The share price will fall to book value or lower.

        If you need a precedent for this then just look at history.

        The really good part about this is that is the time when you want to pin your ears back and buy these very good businesses.

        I have done this twice in my life and fingers crossed I hope for a third. I got a bit worried about WBC in the early 1990’s and ANZ was not that flash either if you look back at history, but or banks are much sounder now. A pity the world is not so sound

        Now is not the time to buy or even own Australian Banks in my humble opinion.

        Just my view and I don’t have a Financial Services Licence so do your own research

      • Ash Little
        :

        Oh BTW This is why I would never use 10% rr for Banks. I know that is pretty much what the market gets in the normal times but the market is forgetting the abnormal times

    • Michael
      :

      So no discussion on Buffett, Munger, the ending of QE2, Greece and Portugal or the next-generation A1 service? You might have to book in for a second visit!

      • Roger Montgomery
        :

        It would be arrogant to think we could solve the problems like some who suggest, “an organization such as the European Financial Stability Facility should buy Greek bonds on the open market, swap them with the Greek government for new long-term Greek debt with lower interest rates, and sell the new bonds back to the public. Advantage: no coercion, so no default. The only question, a big one, is whether the market would buy the new Greek debt.
        Greece’s debts are so large that some of them almost certainly will never be repaid. If Greece must eventually default on portions of its debt, as investors expect it will, Europe’s goal should be to make the process as orderly as possible to avoid chaos and contagion.”. Instead we stuck to topics that reflected our lack of qualifications to solve the world’s financial problems.

      • Ash Little
        :

        Plus Michael.

        I am a simple country boy who knows cotton and gas drilling and rugby and floods, so we had to stick to my circle of competency else we would not have had anything to talk about.

        Take Care

      • Craig Marsh
        :

        Hi Roger and Ash,

        great photo and I completly understand the pride showing on both your faces.

  20. Phil Harmonic
    :

    It’s so fabulous to see the picture of the value.able graduates on the wall in your office Roger. I’m yet to post mine but will surely do so soon!

    Actually, we should have a value.able graduates meetup if there is enough interest. Something to think about I guess…

    • jack Hansen
      :

      it would be a great day out a get together of the Graduates .Ihe AIA are having their national conference early Sept and Roger is speaking there I thinki;an opportunity

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