Why we continue to steer clear of cyclical businesses
It’s painful watching the share prices of companies we don’t own rising, and doubly insulting watching the prices of those we do own declining. For over half a year we, along with our investors, have had to endure this ‘new order’, in which cyclical businesses have been on a tear, while many quality businesses have been punished. But looking at our performance over the longer term makes me confident we have the right strategy.
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.
mark thompson
:
Thanks where do I find this post on Isentia
Can you provide a link
thankyou
peter s
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I agree with all the reasoning in this article. How could I not. It is analytical with all the evidence provided in a concise manner. This is why so many, including myself, are big fans of Monty. Nonetheless, when farmers experience a drought it is hardly their fault, but do they still get paid? Fund managers not only still get paid when suffering their version of a drought, but get paid more handsomely than almost anyone else in society. This will always spark ire, and so it should.
Roger Montgomery
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Consistency is the hallmark of all great investing houses and it requires a stable team. Team stability only comes from appropriate remuneration. Have a look at the long term average returns of the big ultra low cost funds where staff turnover is frequent. Their best people leave, taking their skills with them.
Joel Williams
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“For over half a year we, along with our investors, have had to endure this ‘new order’, in which cyclical businesses have been on a tear, while many quality businesses have been punished. But looking at our performance over the longer term makes me confident we have the right strategy.”
Hi Roger, the day after you posted this article, Isentia declined another 35%. You and your team have been touting Isentia as a very strong business for years, yet the company’s share price continues to tumble. Andrew Macken described it as the highest quality company in Australia and you called it’s 30%+ share price drop a couple of months ago an “overreaction”. Are you still confident you have the right strategy?
Scott Shuttleworth
:
Hi Joel, thanks for your question.
There’s an old adage that you cannot judge long term performance by short term results, I believe that would apply here.
We believe that given the events that have transpired, the firms value should be lower however relative to the current share price, we believe that it is undervalued.
All the best,
Scott
john
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As Isentia shares are continuously getting hammered do I cut my losses and sell them or should I hold on to them in the hope of things may get better.
Scott Shuttleworth
:
HiJohn
While we are licensed to provide advice, we are not set up to provide recommendations to which stocks you should buy or not. Please seek and take personal professional advice.
That being said, we will have a blog post up later today to explain our thoughts on yesterdays announcement.
All the best,
Scott
Max Zan
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Hi Roger
I can understand your disappointment at underperforming the ASX 300 Accum Index but when I look at the monthly reports TMF was only down 2.73% for the 12 months to 31/12/16 and down 1.27% for the 12 months ended 31/1/17 – that’s commendable considering the Fund did not invest in Resource stocks that rallied hard. TMF losses were partly contained as the fund held about 25% in cash so only 75% of the portfolio suffered the rotation out of growth stocks – that partly explains things. However, I still have trouble reconciling the small losses incurred if it’s your view that the rotation hammered growth stocks many of which the TMF held and still holds. If those growth stock prices got hammered during the rotation why then wasn;t the 75% of TMF invested in those also hammered??? That appears not to have happened – something doesn’t stack up.
Roger Montgomery
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Hi max, they were hammered from July 2016. From January 2016 many were unchanged.
Bill
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Hey Roger,
I agree with your philosophy, the underlying business economics of REA is fantastic.
What do think about the Domain spin off?
BTW I did take advantage of 50% OFF sale at Isentia today, trading well below intrinsic value ;)