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Roger Montgomery - Value.Able thoughts?

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GCrenegade

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Curious to see if anyone has picked up this book and their thoughts on it? I got my copy last week and so far it is drilling into me how important fundamental analysis is. I am still relativley new to investing but feel that his approach is the one that I am most comfortable with!
 
I thought he was a Benjamin Graham like valuer

Does he actually talk formulas ? and figures in his book or is it all hight level stuff?
 
Got my copy earlier this week. Fairly well written though it grates that Roger quotes so often from Buffett and Munger, given that I've just finished The Snowball, which seems to be the source of his quotes.

I'm only into Part II, so I'm not far into it. Part I seemed to be very heavy-handed about the message Roger is trying to impart to his readers. Fair enough, but it did become a little monotonous and I was hanging out to start actually learning his methods.
 
noie said:
I thought he was a Benjamin Graham like valuer

Does he actually talk formulas ? and figures in his book or is it all hight level stuff?
Click to expand...

Yep, Ben Graham gets a lot of mentions, too.

I'm only about a third of the way through it, and he's basically talked about the importance of return on equity. To back that up, he's used some fairly basic arithmetic and some tables setting out simple balance sheets.
 
Thanks for the info , keep us informed, its a pain in the a$$ to get a copy sent here from Aus, so will only pick it up if it posts gains in the final 1/3
 
Considering this is very relevant I figured you guys would be interested to read Roger's interview with s2t.

An interesting part was:

What educational books would you recommend for beginner and intermediate investors?

Everything about value investing. Read the works of Graham, Munger and Buffett. And read all the work on Valuation theory available in the Journal of Finance. The only possible short cut is to learn from those who have a demonstrated track record of success.
Click to expand...

(full interview: http://student2trader.com/trader-interviews/fundamental-analysis )


The Journal of Finance was something I hadn't heard of before. Has anyone ever looked into it? I'd be interesting to hear more about it.
 
Finished Value.Able last week. I thought that the book picked up interest as we went along, particularly as we delved into what criteria Roger applied to parse his possible investment destinations and how he calculated the company's intrinsic value. Written quite well and there is a distinct lack of formulae used in the book - basically, the determination of the company's intrinsic value is based on a simple arithmetic approach, but Roger does keep to himself the "secret herbs and spices" of his valuation tables that he uses to assist in calculating the company's intrinsic value.

He's been challenged or asked for further background information on the valuation tables he uses in the book and his response is on his blog, together with a collection of resources which Value.Able readers have asked be collated in the one spot to assist in applying his methods.
 
DeCal said:
Considering this is very relevant I figured you guys would be interested to read Roger's interview with s2t.

An interesting part was:



(full interview: http://student2trader.com/trader-interviews/fundamental-analysis )


The Journal of Finance was something I hadn't heard of before. Has anyone ever looked into it? I'd be interesting to hear more about it.
Click to expand...

Hi DeCal

Got heaps of really interesting stuff, though it is fairly heavy reading; I got a heap of useful papers from there re Montgomery's formulas https://www.afajof.org/

Enjoy
 
one of roger's principles is that you should always buy a good quality stock when it's undervalued.

i bought BHP and CBA before i had heard of this simple idea - i.e. did not take into account buying at a discounted price to intrinsic value.

i've never sold before.

is it worthwhile selling when these stocks return to the price i purchased them for - 41.5 and 55.1? then i could invest more shrewdly in 2011, targeting good A1 businesses at prices below their premium. how much tax do you pay when selling stock?
 
pjsh said:
one of roger's principles is that you should always buy a good quality stock when it's undervalued.

i bought BHP and CBA before i had heard of this simple idea - i.e. did not take into account buying at a discounted price to intrinsic value.

i've never sold before.

is it worthwhile selling when these stocks return to the price i purchased them for - 41.5 and 55.1? then i could invest more shrewdly in 2011, targeting good A1 businesses at prices below their premium. how much tax do you pay when selling stock?
Click to expand...

You only pay tax on capital gains.

You will have to make up your own mind on selling but I would start by looking at projected rises in intrinsic value for these stocks. Also remember market sentiment can change quickly. I bought CBA in Feb for about $52.00 it went to $60 then back to about $48.50.
"Be greedy when others are fearful and fearful when others are greedy"
 
GCrenegade said:
Curious to see if anyone has picked up this book and their thoughts on it? I got my copy last week and so far it is drilling into me how important fundamental analysis is. I am still relativley new to investing but feel that his approach is the one that I am most comfortable with!
Click to expand...

I've got time for Roger. He certainly knows 'his' stuff. You should bear in mind that he is focused on balance sheet based valuations which don't apply to spec stocks which might have high debt to equity ratios, no return on equity but have forecast earnings growth in future years. for example, I heard him on 'Your money your call' saying that CuDeco was worth zero! Far too rigid a view in my opinion.

When it comes too fundamental analysis, its 'horses for courses', and never forget that it is an art but portrayed as a science:2twocents
 
roger writes in his latest blog entry:

BHP: 'the fall in the business’s profitability has likewise seen my 2010 valuation fall from $34-$38 to around $26-$30 per share, or a total value of $145b to $167b (5.57 billion shares on issue)'.

he's skeptical that BHP will make A$22b profit in 2011, but if so would value the company at $45-50.

I think I will sell once it gets past my purchasing price of $41 and reinvest - possibly Finbar (FRI).
 
UBIQUITOUS said:
I've got time for Roger. He certainly knows 'his' stuff. You should bear in mind that he is focused on balance sheet based valuations which don't apply to spec stocks which might have high debt to equity ratios, no return on equity but have forecast earnings growth in future years. for example, I heard him on 'Your money your call' saying that CuDeco was worth zero! Far too rigid a view in my opinion.

When it comes too fundamental analysis, its 'horses for courses', and never forget that it is an art but portrayed as a science:2twocents
Click to expand...

Everyone needs to find their own investment style/system. For me keeping away from spec stocks is not a problem. I would rather follow Valuable's formula of finding great businesses with a rising intrinsic value and buying them with a significant margin of safety. The main problem I have had is learning patience.

Not sure if it is a art but I would agree it is not a exact science.

To mangle Charlie Munger/Benjamin Grahame quotes as long as my guess is better than Mr Market's I should be a succesful investor.

A lot of people may be very succesful with spec stocks, trends, technical analysis... but for my money I will stick with the concepts outlined in Valuable.
 
I've been practicing using Roger's method by plugging in numbers from annual reports. So far so good. However these are retrospective valuations. I want to start calculating my own forecasts for a given stock price.

Roger says in his book that he just typed in 'analyst research for XYZ company' into Google and up popped all the info he needed- forward estimates for equity, ROE, EPS and dividends.

I've spent hours on the web trying to find this information for free but all I can find are websites charging an arm and a leg. Fair enough, that's their business but where did Roger find his figures?

Can anyone suggest a free online resource for forward estimates of the figures mentioned above? Does such a resource exsist?

Thanks in advance!
 
So I spent a few more hours trying to track down the necessary raw data to forecast an intrinsic value for a share price based on Roger's methods. Not bloody easy but I think I have something.

I took a crack at valuing DTL- Data#3 Limited. For 2011 ending equity I used an average of the increase in equity they've had each year for the last 5 years (1.5 mill) to get a figure for 2011 (28.5 MILL).

This is what I got

DTL- Data#3 Limited

10% RR
EOFY 2010- 12.70
EOFY 2011- 13.95

12% RR
EOFY 2010- 9.86
EOFY 2011- 10.74

14% RR
EOFY 2010- 8.73
EOFY 2011- 9.53

Now I'm trying to wrap my head around the logic as I look at those numbers.

If my required return (RR) is only 10% then the intrinsic value of the stock by the end of this FY will be 13.95

If my required return (RR) is 14%then the intrinsic value of the stock by the end of this FY will be 9.53

The difference in RR is only 4% but the difference in intrinsic value is 44%

Huh?!? :banghead:

Can anyone help enlighten me on the logic?

Cheers!
 
ubtheboss

RR return is an opinion of the person doing the analysis. The more stable the company in respect of return, organic growth, stability of earnings, management etc. the lower the RR can be. If the company's earnings are all over the place, they raise capital consistently or have a small trading history etc. you should increase the RR, effectively it is your margin of error for intrinsic value. An easy example of a 10% RR is WBC, an example of a 14% RR is midcap mining company whose profit can be highly dependent on commodity prices, this is my opinion.
 
Certainly enjoying this book allthough it is heavy reading for an L Plater. Main thing I'm getting out of it is the need and discipline to remove all emotion out of trading and actually put in the research. No different to any other quest in life.
 
Skip1jz said:
ubtheboss

RR return is an opinion of the person doing the analysis. The more stable the company in respect of return, organic growth, stability of earnings, management etc. the lower the RR can be. If the company's earnings are all over the place, they raise capital consistently or have a small trading history etc. you should increase the RR, effectively it is your margin of error for intrinsic value. An easy example of a 10% RR is WBC, an example of a 14% RR is midcap mining company whose profit can be highly dependent on commodity prices, this is my opinion.
Click to expand...

Thanks very much Skip! I appreciate you taking the time. I was under the impression that the margin of safety was on top of the RR. Thanks again.
 
ubtheboss said:
I've been practicing using Roger's method by plugging in numbers from annual reports. So far so good. However these are retrospective valuations. I want to start calculating my own forecasts for a given stock price.

Roger says in his book that he just typed in 'analyst research for XYZ company' into Google and up popped all the info he needed- forward estimates for equity, ROE, EPS and dividends.

I've spent hours on the web trying to find this information for free but all I can find are websites charging an arm and a leg. Fair enough, that's their business but where did Roger find his figures?

Can anyone suggest a free online resource for forward estimates of the figures mentioned above? Does such a resource exsist?

Thanks in advance!
Click to expand...

most of that information exist in annual reports but I say most people using this sort of method will eventually failed

Predicting more than 2 years earning is more of an art and you better know the business pretty well to even do that..

it's not a science this valuation stuff, it's more of an art

it been around for decades, crunching number is very easy

understand the business and know what it takes to buy when others chanted with sell is another story.

successful in this field required research, conviction, independent thinking and plenty of patient :D

Success in this field I wouldn't call it easy but I wouldn't called it hard either

it required certain temperament, a bit of work cut out and Did I say plenty of patient, sometimes the best move involve sitting on your ass :D

my 2 cents and I think most people can do well following good principles and disciplines...
 
Thanks ROE.

Roger's work is a great starting place but I understand that is not the final stop in a decision to buy or sell a share. Debt position, management record, cash flows, etc. are also some of the things to consider.

All you can do is your best research. In the end it's a judgment call.

I highly recommend his book with two caveats:

- he doesn't reveal the exact method he uses to value stocks. He gives you a "leg up" but doesn't give away his whole method. Use what he gives you and then research some of the things I mentioned above.
- finding all the raw data you need to use Roger's calculations is not easy. Most of it you can find if you dig around enough. I find the hardest numbers to find are a broker's forecast of future NPAT and future total equity.

If you know where to find those two numbers let me know :)
 

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