Who picked the top stocks? Stock Pickers’ Showdown
Twelve months ago TheBull.com.au asked four stock pickers to select a portfolio of 10 stocks to hold for one year. So how did they fare? Independent investment analyst Roger Montgomery blitzed the field with a whopping 51.90% gain, beating off his competitors by as much as 24% as well as the All Ordinaries index by a hefty 13% margin. Read article.
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.
Chris
:
Hi Roger,
Really enjoy your blogs and appreciate the time that you donate to all of us avid readers. 2 things i noticed that Telstra didn’t appear on your top 10 yielders, i thought that TLS was one of the biggest yielders around, although i know that you are absolutely not a fan of the stock, does this mean that the top 10 yielders were then put through your own subjective filter as well, or is TLS not in the ASX 50. Also you did say that you would have a look at SRX recently but I haven’t found it anywhere. Can’t wait for the book.
Cheers
admin
:
Hi Chris,
If TLS wasn’t in the Dogs-of-the-Dow list its simply because the others had higher yields at the time. I am looking into Sirtex. Its currently an A1 however that status hasn’t been consistent in the past. Its ROE is excellent and it hasn’t had any real debt since 2007 and the company’s equity has grown via retained earnings since 2004 rather than new capital. I notice a fellow fundie Don Williams at Platypus ( a guy I have a deal of respect for having chatted together on several occasions) went substantial in early March. If they can maintain their return on equity as equity grows, and continue their present dividend policy (ie. not increase the payout ratio and thus retain profits profitably) they are worth possibly $7.70. But don’t take my word for it I am first digging around for some industry views.
Peter Yeoman
:
Roger,
I read with interest your 52% growth over 1 year and it lead me to think – given you comment you would not make any changes to your listed companies ,if this was a real life situation, would you take some profit off the table?
if so , how much and from where would you take that profit?
if not , when and how would you consider a move?
admin
:
Hi Peter,
The article did not properly reflect my advice to the author. You would actually run the strategy again and hold for another year. The stocks may change, but what doesn’t change is the strategy of picking the ten highest yielding stocks.
Mike
:
Hi Roger,
Great performance. I note that you were the only one to beat the index (without dividends). All the others would’ve been better off investing in an index fund. I can testify that this strategy does work. In March 2003, I picked the top 10 yielding stocks (excluding property trusts), and managed to beat the index significantly. I remember reading about your strategy in the Daily Telegraph all those years ago.
Cheers
Mike
admin
:
Hi Mike,
A blast from the past. Thank you for reminding me about those columns. I will have to go and dig them up. Yes the ‘Dogs’ has worked in Australia for a long time, I can remember setting portfolios up based on the strategy in the late 1990’s and even through the tech bust in 2000 it returned more than 50%.
JohnC
:
Roger, I’m reading this article http://thebull.com.au/articles_detail.php?id=10580
in which this was written “Montgomery expects the 10 highest yielding stocks from the S&P/ASX 50 to always perform well, especially given that buying supports these share prices when markets are expensive”
Wesfarmers was among your 10 stocks. But I thought that your view of Wesfarmers’ share price not being justified by its intrinsic value implies that Wesfarmers should not be held on to? Not to mention your noted disavowal of predicting share price behaviour.
admin
:
John,
The article is about a strategy called the dogs of the dow. There’s no analysis in it at all. It takes five minutes a year to run, is a univariate stock selection model and has worked pretty well. It has outperformed over many years but it is always fully invested in the market so can do a lot worse in the interim when things start heading south.
Ben
:
Hi Roger,
I look forward greatly to your book release.
I notice that most of the discussion and analysis on your blog centres around a company’s ability to produce high returns on equity, yet here you have gone completely in the other direction and focussed on yield. I know that some of those companies in the ‘Dogs of the Dow’ list you selected there are generally sub-par businesses with below average ROE history. Basically, you wouldn’t be in your Value Line portfolio.
Is this another separate strategy on its own that will be revealed in your book or something that you have discussed before and I have simply missed?
Looking forward to your comments, thanks.
admin
:
Hi Ben,
Its the antithesis of the considered approach I advocate. There’s nothing to it as it takes 5 minutes a year to run. If you were looking for index exposure then this index while being more volatile than the S&P ASX 50 or 100 or 200 has outperformed them, sometimes significantly. Consider it a very long term alternative to investing in the index.
Bruce Rigby
:
Interesting to compare different approaches, especially given the GFC timing for this particular exercise. As a comparison, I looked through my share buying records and found 10 stocks I bought last Feb-early March, to check their return in the last 12 months. My return in that time for these ten stocks was approx. 58%, though not all stocks were bought on the same day, and some were bought only to attempt to “recover” previous positions due to extremely low prices. Top returners were MQG, OZL, DJS, and QAN, all over 60%. I’ve since disposed of QAN, and hopefully have learnt a lot in the last year ; ) Thanks.
admin
:
Great stuff Bruce. Thanks for sharing.
Graham
:
Did you win the popularity contest or did you weigh in as a super heavyweight? ;-) Good work, it’s certainly a good advertisement for your approach.
admin
:
Hi Graham,
Thanks for the supportive comments. As I said previously, I spent five minutes picking the top ten dividend yielding stocks. My experience tells me that the historic lows is a good time to go for stocks that others will pounce on for their yield once confidence returns. If you want to understand the approach better, look up Michael O’Higgins.