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Have to agree , not only are they in a risky environment but they also have little or no track record.
I thought the number rating gave some indication as to future prospects. Or is it just a simple ratio analysis that generates the rating? Either way I'm not sure that a lumpy contracting business in the mining sector could ever be considered the least at risk of a "catastrophic" event, just by the nature of the business.
Again it comes back to the same issue, how can you rate a company as the least riskiest, but consider its earnings visibility to be the same as a 2c explorer? I'm not questioning the actual valuation, I'm questioning the wisdom in placing the top rating on a contracting business in a volatile industry. It's almost like he is giving a credit rating, which is marginally useful when taking equity risk, IMO.
The point is how much did Roger Montgomery personally purchase before spruiking to anybody, before investing in a stock with other peoples money via the Roger - 'Follow me in Fund.'With all the spruiking he then says that his fund only held 1 percent in MCE.
I thought the number rating gave some indication as to future prospects. Or is it just a simple ratio analysis that generates the rating?
Roger’s A1s aren’t necessarily ‘blue chips’. Wesfarmers and Qantas may be big businesses, but they don’t make his A1 grade. Businesses that achieve Roger’s A1 or A2 MQR have the lowest probability of a ‘liquidity event’. His A1s are less likely to raise capital, borrow more money, default on debt repayments of breach debt covenants – Roger would be very surprised if any of his A1s went bust!
In aggregate however, we expect a portfolio of A1 businesses to outperform, over a long period of time, a portfolio of companies with lesser scores.
Either way I'm not sure that a lumpy contracting business in the mining sector could ever be considered the least at risk of a "catastrophic" event, just by the nature of the business.
It's almost like he is giving a credit rating, which is marginally useful when taking equity risk, IMO.
I've never understood it to be an indication of future prospects, purely just a risk assessment in investing in the company. I understand that it is ratio analysis that generates the ratings, and RM has been pretty circumspect about what goes into generating the ratings.
My buy and hold experience was painful. I could not reason why I held for years as the share price went down and I sat on a significant loss. I won't give the mongrel (stock market) stuff all nowadays. It will take your shoes and socks if you let it.27 pages of Roger worship and now 2 pages of hate and fear...the guy was selling a book and somehow everyone confused that with him being an infallible investment genius.
My buy and hold experience was painful..
The flaw I see with value investing is buying and holding while all the while trusting the fundamentals are still strong and the falling price is all sector weakness, exchange rate issues, low oil price etc.
Unless you really have your finger on the pulse, the report comes out and you find they didn't do much business.. you don't have a 'wonderful business' anymore, the price is then too low to offload it and still be in front.
Fair enough, I thought the purpose of the letter and number was to differentiate two factors. Still, even if it is just basic ratio analysis there must surely be some differentiation based on industry/business. The working capital requirements of a retailer will be very different to MCE by way of example.
You can't blame him.
He's out to make money like anyone else and if he has to spruik a few stocks to sell a few books he will
I dont think he did anything wrong, it's the people who chose to listen to him and not doing proper home work.
Like I said many times before he's good at selling old ideas and make it fashionable.
If there is such a formula to make money well would he be spruiking his book?
his best formular ever was to sell the books ...that a 100% guarantee return on investment
If you want to know a bit about his personality, read up on CCP debacle ...he spruik it on the way to glory
but on the way down he blame management for misleading him .... nothing sticks .... I take credit for stuff going up...I blame someone else for it when stocks fall ....
Hi ROE, do you have any links for the CCP debacle?
A key component of any investment strategy is when to sell.
I might agree with you but this is not the usual Buffet way which RM was spruiking. Has the leopard changing its spots? - as RM is now also talking about "when to sell" versus his old Buffet catch-cry "turn off the market noise".
There are too many inconsistencies and black holes to RM for my liking.
- ditto - when RM says with strong conviction that P/E is not appropriate to value a company when in fact his "ROE/RoR x Equity per share" is of course P/E restated - do the math. That he gets away with this beats me.
- ditto - re. his "formula" giving added valuation weight (to power of 1.8) where ROE is greater than RoR - by definition means that sustainable earnings growth for companies with high ROE must be higher than companies with lower ROE. This is a bold and bogus assumption (as of course is not always true) and takes the important analysis out of people's hands. A company like JB-Hi-Fi had an IV of $30 about now per RM about 18 months ago because it is not a capital intensive business and had high ROE. This has nothing to do with sustainability of earnings.
- ditto - his assumption of linking a company's sustainable earnings growth to its div. payout ratio.
Rather than bogus methods for estimating, let's get directly of what we are trying to measure. i.e. sustainable earnings and sustainable earnings growth. The derive this from ROE>RoR and div. payout is frankly bogus - and to derive this without enlightening the audience (who might be investing real money) of the limitations and risks in this very basic approach (in the interests of selling a book) is a charlatan.
- ditto - is RM's lack of depth in his book (because a difficult topic) of selecting an appropriate RoR for a company - and in not conveying to the audience the high risk in the RoR number itself and the consequences of getting this wrong (sensitivity of values derived) - which is easy to get wrong for all but the bluest of blue chips. For an "A1" to be an "A1" it should have strong prospect of remaining an "A1" for the next 10 years. Otherwise its not an A1. RoR can vary substantially from company to company based on its risk profile and only professionals and those with an in depth knowledge of the business can really assess this. The reason perhaps that Buffet's RoR's are reportedly constant at around 10% is perhaps because there is equally little risk in the companies in his selection portfolio. i.e. he has already picked companies he can understand (he admits to not understanding and not being interested in most) with a long proven record, large moats and excellent management.
I might add a caveat to my post, in case it comes across as someone who has followed RM advice and had sour grapes after losing money. Whilst I have been interested in RM's following, and I have read his book, I have personally never followed his advice or valuation methods for the reasons / reservations I have stated.
I might agree with you but this is not the usual Buffet way which RM was spruiking. Has the leopard changing its spots? - as RM is now also talking about "when to sell" versus his old Buffet catch-cry "turn off the market noise".
There are too many inconsistencies and black holes to RM for my liking.
1. - ditto - when RM says with strong conviction that P/E is not appropriate to value a company when in fact his "ROE/RoR x Equity per share" is of course P/E restated - do the math. That he gets away with this beats me.
2. - ditto - re. his "formula" giving added valuation weight (to power of 1.8) where ROE is greater than RoR - by definition means that sustainable earnings growth for companies with high ROE must be higher than companies with lower ROE. This is a bold and bogus assumption (as of course is not always true) and takes the important analysis out of people's hands. A company like JB-Hi-Fi had an IV of $30 about now per RM about 18 months ago because it is not a capital intensive business and had high ROE. This has nothing to do with sustainability of earnings.
3. - ditto - his assumption of linking a company's sustainable earnings growth to its div. payout ratio.
Rather than bogus methods for estimating, let's get directly of what we are trying to measure. i.e. sustainable earnings and sustainable earnings growth. The derive this from ROE>RoR and div. payout is frankly bogus - and to derive this without enlightening the audience (who might be investing real money) of the limitations and risks in this very basic approach (in the interests of selling a book) is a charlatan.
4.- ditto - is RM's lack of depth in his book (because a difficult topic) of selecting an appropriate RoR for a company - and in not conveying to the audience the high risk in the RoR number itself and the consequences of getting this wrong (sensitivity of values derived) - which is easy to get wrong for all but the bluest of blue chips. For an "A1" to be an "A1" it should have strong prospect of remaining an "A1" for the next 10 years. Otherwise its not an A1. RoR can vary substantially from company to company based on its risk profile and only professionals and those with an in depth knowledge of the business can really assess this. The reason perhaps that Buffet's RoR's are reportedly constant at around 10% is perhaps because there is equally little risk in the companies in his selection portfolio. i.e. he has already picked companies he can understand (he admits to not understanding and not being interested in most) with a long proven record, large moats and excellent management.
Yeah but they made money on 'follow Roger in rallies' as opposed to more fundamental market behaviour.I did get a bit sucked in earlier in the year when I saw his forecasts for companies like ORL and MCE working out, a lot of people made money from his recommendations.
1. No. Its completely different. P/E ratio changes depending on the 'voting machine' - his formula for IV does not.
The only difference in fact is that the market price (P/E derived) is based on a cap rate (1/RoR) which is different to yours.
When Montgomery was MD of Clime Capital, which also publishes a web based valuation tool called StockVal, some of his top value stock picks during the latter part of the Clime era were CCP and TRS.
With CCP Montgomery had overexposed Clime funds and his own portfolio to this stock. In spite of his research and meetings with senior executives, CCP surprised the market and announced two consecutive profit downgrades that decimated the share price. Roger and Clime sued for millions and I think this is still ongoing. From memory the tally was a $15 million plus loss to Clime and over $1 million for Montogomery himself (he stubbornly held onto CCP until the second downgrade).
This is a core problem for the value investor who likes to buy and hold for long periods - a valuation is only as good as the information that goes into calculating it and only lasts until the next company report or market announcement.
A key component of any investment strategy is when to sell. A good example is a stock like TRS. A Montgomery favourite for years, it's now in the doldrums down over 40% since December. Such a price collapse was not foreseen by previous forecasts and valuation modelling but when it was trading well above intrinsic value it should have been sold down.
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