When will the gap between the most expensive and cheapest companies contract?
If the last few months has reinforced anything, it is that the market can remain irrational for a very long time. Despite already being expensive, the disparity between the cheapest and most expensive has widened even further in recent months.
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.
Beau Gilbert
:
Hi all,
I just attempted to calculate intrinsic value for CSL as per Value.able and only got to around $70.
Is there somewhere I can go with more worked examples of the process to iron out what I’m doing wrong.
Cheers.
Roger Montgomery
:
Hi Beau, Why is a $70 valuation “wrong”? The objective is not to come up with some number that is close to the current price. The idea is to estimate the value, based on the inputs adopted, that is independent of the price. Many investors think that if they come up with a valuation that matches the price, they are ‘right’. There is no right or wrong just a number based on the adopted inputs. It is likely you are getting $70 because you are using a higher discount rate than the market is prepared to accept.
Jason Lim
:
Hi Roger,
What do you mean by “A correction usually delivers very low variance of returns”?
Also, given “when a correction happens they will likely take everything with them”, does that mean value stocks will lose in the same magnitude as growth stocks?
Thanks,
Jason
Roger Montgomery
:
‘low variance’ means little difference. SO the answers to your questions are yes, and probably yes.
Tony Caffery
:
Roger,
I’ve been reading articles on the site for years and an investor in your funds . I must say it has been a long time since I’ve seen ownership by one of the funds in a mining company’s – Rio Tinto. Are times changing?
Tony
Roger Montgomery
:
AT the right price BHP and RIO could be on the list. That time however is not now.
Dave B
:
Hi team, do RIO and BHP qualify as extraordinary businesses? Is that still a prerequisite or is it solely value?
Roger Montgomery
:
we would never say ‘never’ Dave. These are high quality players in their sector.
Tim Kelley
:
Hi Tony. The holding in Rio is is the Montgomery Alpha Plus Fund, which is a different beast to the main Montgomery Funds. Alpha is a market neutral fund, which holds both long and short positions across all sectors of the market. This means it can have long positions in relatively “good” resources businesses like Rio, with corresponding short positions in other resources businesses that it considers to be less good.
Peter Bear
:
“Oh, and by the way, of that $24 million profit A2M is responsible for $185 million of it.” looks like the $24m should be $240m
Roger Montgomery
:
Good pick up. Thanks Peter.