Why the Stock Market Doesn’t Work (White Paper)
What is ailing the stock market and why have investors deserted it in droves?
Founder of Montgomery Investment Management and author of value-investing bestseller Value.able reveals the steps he is taking to ensure investor returns and investors return.
This white paper is exclusively for Roger Montgomery.com subscribers.
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.
Darius Hantu
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i agree with David. technical analysis has its benefits and could help good fundamental analysis and risk management.
some managed funds have more freedom to switch larger amounts to cash if they wish. unfortunately they haven’t fared any better, in some cases in the past they did a lot worse. the main problem for managed funds is their size and inertia that comes with it. so Roger maybe you should keep you fund small and nimble.
history does repeat itself. using a period of 4-5 years to evaluate and make decisions is inadequate. the cycles are probably more like 40 years.
Lloyd Evans
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Hi Roger,
Excellent white paper.
From my perspective it was also very timely, as I sit here researching my latest assignment on Investment Management, whereby EMH, MPT, Markowitz et al are prevalent.
It does puzzle me that I spend close to $1,800 on material, which promotes these industry driven theories but at the back of my mind, my payment goes to a subsidiary of a Buffett entity, albeit not controlling.
One would think that Buffett has the means to change these industry driven theories to ones you have outlined in your white paper and what Buffett has outlined previously in his shareholder letters.
Steve Lee
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if its not income producing now or near future why own it? we have to consume out of our cashflow as well as invest/save for the future
Andrew Legget
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Hi Steve,
I think it depends on your particular situation. I am quite happy to invest in companies that are not producing income now through dividends and look unlikely to in the future as i value the potential capital gains more important, as i get older i will probably start looking more towards income but at the moment i don’t particularly need to worry about it.
I also, look at it from the position that i am buying a business and not an income stream so i want that business to do whats best in the case of its value increasing. If this is to retain earnings i am all for it.
Graeme Cox
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I am trying to log in but keep getting a message that my email address is NOT registered as a member (obviously bumpkin as I have been a member since around Nov. last year and have to 13 months for 12 option). HELP!!!
Aurelio FRAMMARTINO
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The last edition of Skaffold, announcing the “New Blog” says :-
“”Since January BRG’s shares have doubled in price. The company is rated A1 and, according to Skaffold, the future looks bright.””
I cannot remember “us” being advised in time to buy!!
This may be another reason why, investors (Who are not as expert as you are) are leaving; they may see it as hopeless. Ciao, Aurelio Frammartino
Roger Montgomery
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Hi AUrelio,
I believe it may have been a reference to the column Skaffold publishes in Money Magazine. You are right though, Skaffold does not ‘advise’.
Don O'Sullivan
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Very succinct and sound comments. Its not really rocket science is it.
I notice that AGEST super has a ‘multi strategy’ investment stream. However the flexibility allowed the fund managers appears to be a bit limited. But as a super fund it does give you a dozen choices, is very responsive and provides useful information to the normal punter.
Insisting fund managers wear handcuffs and leg irons probably is’nt such a good idea in reality. However most super-annuants don’t take sufficient interest so they get the dodgy practitioners they deserve (possibly a bit harsh but there you are).
Ronald Parsons
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Roger, I read you White Paper today (Friday) and I wholeheartedly agree that investors should put their faith in the Stock Market.One should read your book and invest with confidence. Ron.
David Evans
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Hi Roger,
I love your enthusiasm for your quantitative approach to valuing a company. Your thesis makes sense, but it seems that there is a missing factor – the power of the market’s “voting”. I would humbly suggest that superior returns are available if your corporate ratings are combined with a basic approach to technical analysis. This means:
1. Buying the highest rating companies when it is clear that the big money is also buying.
2. Sell when it is clear that the buying is drying up
3. Be prepared to get out of the market altogether when the signals (sentiment, price/volume interactions) combine to produce sensible need for sitting on the sidelines.
4. Understanding risk management.
5. Knowing when you were wrong and being prepared to move on to the next investment!
All the best
David
Brett Kennedy
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That is a very poignant piece Roger, and one that a great many people should head. As for the industry, the reforms will undoubtedly continue at ‘glacial’ pace for the reasons you detail. There is and has been for probably a long time too much vested interest in the return for the fund manager rather than the client of the fund manager.
I have no idea what the answer is. There are many people much more knowledgeable than I debating and looking for answers. But you state what to me seem like blindingly obvious points – quite rightly I don’t care how close a fund manager can stay to a falling index, rather they should focus on protecting or growing my investment that has been entrusted to them. And why do they get to charge me a fee if they lose me money, perhaps things would change if they had to pay me instead where my investment goes backward?
Darrel Watson
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Totally agree
I also have a problem with short selling ordinary shares. It is totally contrary to the original concept of a market to raise capital and reward performance and has only served to make the market spectulative. Companies should have the option of prohibiting this practice.
Angela Bailey
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