Students of Roger Montgomery's (Buffett's) intrinsic valuation method

[notting]

He was never an author. The book is just an infomercial, which he got you to pay for!!!

 

[McLovin]

He was never an author. The book is just an infomercial, which he got you to pay for!!!

I believe the book and blog exist solely to a) source investors b) create a pool of potential customers for his "valuation" service.

The comments on his blog have really gotten to the stage now where he could say the sky is green and everyone would agree.

 

[investorpaul]

I have never read Roger's book butI just checked his blog out and in the first post he made a mistake:

Nine companies trading at a discount to intrinsic value that may be worthy of your attention.

Here they are: Seymour Whyte (ASX:SWL), Nick Scali (NCK), Codan (CDA), M2 Telecommunications (MTU), Credit Corp (CCP), Global Construction Services (GCS), Breville Group (BBG), GR Engineering (GNG) and Flight Centre (FLT).

BBG is not the code for Breville Group

I hope no one jumped on Billabong by accident. LOL

 

[Tysonboss1]

He was never an author. The book is just an infomercial, which he got you to pay for!!!

Have you read it.

 

[craft]

Have you read it.

I wouldn't bother.

 

[vkdirector]

He was a fund manager long before he was an auther,

True as I dont think he made most of his wealth from just selling his book

I have never read Roger's book butI just checked his blog out and in the first post he made a mistake:



BBG is not the code for Breville Group

I hope no one jumped on Billabong by accident. LOL

I had seen this typo also, but if you look just below that he has a chart there with the companies names and there codes. If anybody was silly enough to just jump in and try to buy Breville and used the BBG code without looking into it any further then bad luck for them

 

[notting]

I believe the book and blog exist solely to a) source investors b) create a pool of potential customers for his "valuation" service.

Totally agree!

And in general make the heard think/walk along his lines as much as possible.

Follow me in faithful. I need the lift after I have bought.
I'll also buy before I pour all your funds, managed by me, into the stock that'll give me plenty of support along with my banter on sky business about it which may even crack a few trend lines to get the tech support from the general market too!!!

Have you read it.

It's been in my bookshelf for some time, so far I have read the title!!!
Maybe I'll read it if Lynas hits $8 in the next 18 months.

 

[Tysonboss1]

I wouldn't bother.

Well then you really can't judge it,

I for one think it provides a good introduction to the idea of value investing, an I don't think it is a sales pitch at all.

It is not supposed to be the be all and end all of the topic, but it does give z basic outline of the topic and for a beginner trying to understand how the stock market works I think it is well worth the $40 something he sells it for.

 

[craft]

Well then you really can't judge it,

I have read it and I think its probable the biggest waste of $50 bucks that I ever spent. Mind you I was probably suckered into thinking it was going to be something more than it was.

The value investing framework is there which if you haven’t been exposed to it elsewhere then that is potentially useful but if you have much experience then the book is very disappointing with nothing new and I would not recommend it to beginners because of the following.

What makes you or breaks you as an investor based on fundamental valuation is your ability to understand the quality of a business and to calculate the underlying value better then the market.

The value investing frame work requires you to have ‘faith’ in your understanding and go against the market. This faith will either make you or break you depending on how good you actually are. In the critical areas of quality assessment and valuation RM and his book are simplified and black box to boot.

The problem with a framework that requires faith occurs when somebody who purports themselves to be god exploits the faith required and positions themselves to provide you the answers to the tricky questions at the crux of the framework. (For a fee of course) or to manage the whole lot for you so long as you have the faith to not question.

It is my assessment that RM is a god of clay feet. I have serious doubts about his abilities, skills and integrity. I wouldn’t let him within a mile of 1 dime of my money let alone the 1 Million minimum you need for his exclusive only on application boutique fund.

And as for his A1 service – exclusive to graduates, it will only help you with the quality/valuation crux questions if his judgement is any good and you won’t be able to assess that because he won’t give you the information you need to make an assessment of his methods. If he is no good you will be stuffed. CCP, MCE etc etc over and over until you leave, with him richer and you poorer.

I would encourage anybody interested in Value Investing to peruse it vigorously by reading widely and thinking critically – you don’t need to become a Roger Montgomery ‘Graduate’ (How demeaning is that term anyway). It could prove to be very detrimental to your wealth.

 

[craft]

I assume, maybe incorrectly, that Roger reads, or has access to, this thread. I also imagine he is in a position to reply to the comments made.

Are these inaccurate assumptions? [Noting that I am not suggesting that he would want to, or should, comment].

This was a part of one of the responses on his blog that prevoked me to ask admin to remove my posts from this thread.

We don’t engage in personal judgement – we leave that to those that lurk behind ‘presumed’ anonymity in the dark crevasses of “forums” and engage in defamation, or encourage and solicit others to do the same. They know not what they reap.

You can make up your own mind if he lurks. But I doubt he would come and debate where he doesn't have editorial and censorship control. Hopefully he will suprise me but he certainly wasn't up for a frank discussion on his blog.

I've sought legal advice on defamation law and had a teaspoon of cement. I won't be asking for anymore posts to be removed and I'm happy to reap what I may. I think it is RandR that has the signature “Sooner or later, we sit down to a banquet of consequences"- - Robert Louis Stevenson (1885). I would rather speak my mind then cower to any big lawer employed to protect a manufactured image.

 

[craft]

This is a repost of a post I made on 17 August

It’s interesting that he can manufacture the illusion of making money through investments This is his verifiable public record.



3/2/04 he started his funds management business. (CAM)

24/7/05 he sold 75% of that funds management business to Loftus Capital who latter changed their name to Clime Investment Management. (CIW)

14/8/06 he sold the remaining 25% of the funds management business and the stock valuation business (Stock Val) also to Loftus. He was employed by Loftus to stay on as the investment manager and chairman of CAM.

16/2/09 Resigned as Investment manager. A Ceasing to be a substantial holder notification was lodged for CIW as he cashed in CIW shares received from selling the CAM business back in 06.

Does this process of establishing a funds management business and software valuation business sound familiar? I hope it works out better this time than last time for the fund investors (no doubt RM will make a buck by selling the investors out again).

And here’s the cynicism — Isn’t the statement that ‘its different this time’ one that he mocks.

And here is a part of a comment he made on his blog shortly aftwards.

By the way the performance (in the public domain) of the previous firm to 31 May 2009 was: (Fund/S&P300 Accum) 1yr (-1.3%/-28%), 2yr (-29.4%/-41.7%), 3yr (+0.9%/-21.6%) 4yr(+24.4%/-10%). The outperformance was +26.7%, +12.3%, +22.5%, +14.4% respectively. Using the LIC share price chart to measure the old performance is nonsense 1) because the manager cannot control the price at which investors buy and sell shares and 2) because it doesn’t take into account bonus shares and dividends. More importantly the process and method is very different now.

My chart did take into account the bonus issue. It didn't take into account dividends but then the Index was NOT the accumulation index either. Using the LIC Market price makes perfect sense to me, why shouldn't the price impact of the markets judgement on the manager’s performance be included? It is the reality of what the share can be sold for.

I assume he is using NTA but his figures don’t seem to reconcile even on that favourable basis. He resigned as investment manager on 16 Feb 09 so I am not sure why he is using 31 May 09.

This is the Morningstar total Return Chart for CAM. It does include dividends for both the company and the index and is adjusted for the bonus issue.



You make up your own mind - But I think he should be selling something Teflon coated on infomercial TV - not managing people’s money.

 

[Ves]

Craft, factual evidence such as that posted above, if it is indeed his verifiable public record, cannot ever equate to defamation or a similar charge. I don't think you have anything to worry about.

 

[Tysonboss1]

I understand what you are saying about valuable book. I aggree, if you are already familiar with value investing it is alot of suck eggs, but as I said if you are not then it is a good introduction.

As far as the rm grad stuff goes I have no opinion

 

[Billyb]

craft, are you saying Roger underperforms the Australian market?

 

[New Stratos]

Nothing new there, his website has had that info on it since I first ran across him - let's not change your name from So_Cynical to So_Paranoid ....

 

[Roberto]

Dear all - just found the thread - thanks for this, it is a great read and really good to breathe the fresh air of freedom from commercialism.
I am however extremely grateful for Roger's book and blog.
It helps/ed me enormously in learning about fundamental analysis.
My main concern with Roger's formula has been touched on once in the last 32 pages - that it requires a forecast of ROE for many years into the future. This is similar to the problem with using discounted cash flow analysis, that no one can predict future earnings for next year let alone for 10 years.
Also, I have played with DCF trying to replicate the period which Roger's formula assumes this notional ROE number to extend onwards for. I got ~11 years. Of course I may be completely wrong about this. But if it is close, then forecasting earnings for that long is really stretching credulity.
Roger deals with this problem via CONSERVATIVELY adjusting the POR, RR, forecast ROE and most importantly, carefully analysing if the business has the characteristics of a wonderful business. Then adds a margin of safety. This is a complete coverage but can be further investigated by reading the authors below.
I suggest people also read James Montier's 'Value Investing' and particularly Bruce Greenwald's 'Value Investing' books to be further convinced of the dangers and pitfalls associated with forecasting earnings and earnings growth and some excellent solutions. Greenwald suggests you use a method to value assets, a method to value the franchise value and a method to value the growth potential within the franchise. Each method in itself and compared to the other tells a story that clarifies to you the type of business you are looking at. The growth potential is the hardest to work out and the least reliable (so be conservative with the payout ratio of Roger's formula). Again this is no different to Roger's book or his careful cautions, it just clarifies and reinforces the finer points of what he says.
So I am thinking Roger's conservatism should be higher given the reliability problem of consensus forecast earnings. Montier and Greenwald provide the data ande arguments.
As regards the CAM performance charts shown earlier - sure it doesnt look good, but do we need longer to fairly assess this performance.
Lastly I add macro and market TA to my investment plan and see a reliance on equity fundamental analysis alone as an artifact of people turning this stuff into religion. I may be wrong of course.

 

[skc]

I assume he is using NTA but his figures don’t seem to reconcile even on that favourable basis. He resigned as investment manager on 16 Feb 09 so I am not sure why he is using 31 May 09.

This is the Morningstar total Return Chart for CAM. It does include dividends for both the company and the index and is adjusted for the bonus issue.

View attachment 44537

Comparative performance analysis can tell very different stories by choosing different start and end dates. I think a more appropriate graphics would be a chart of rolling 3 year (say) +/- performance. Although with CAM having distinct events like RM starting and leaving, they appear to be the appropriate start and end dates.

Roger deals with this problem via CONSERVATIVELY adjusting the POR, RR, forecast ROE and most importantly, carefully analysing if the business has the characteristics of a wonderful business. Then adds a margin of safety. This is a complete coverage but can be further investigated by reading the authors below.

I have come across quite a few posters here (and on RM's blog) who think using a 10% RR is right (and more conservative than using a larger number). Any ideas why such a fundamental mistake seems so prominent?

 

[New Stratos]

SKC, I haven't noticed people claiming 10% is more conservative than, say, 15%, but what I have seen is them claiming that they are being conservative by using 10% in comparison to other people using, say, 9% for the same company, or to themselves using lower numbers for other companies.

 

[Roberto]

I have come across quite a few posters here (and on RM's blog) who think using a 10% RR is right (and more conservative than using a larger number). Any ideas why such a fundamental mistake seems so prominent?[/QUOTE]

Roger himself uses higher RRs for more risky companies. The 10% figure is what is commonly ascribed to Warren Buffett's writings. I think he keeps it low because he is so confident (clearly with good reason) of both his judgement about risk assessing coys and his investment discipline that he will only invest where the risks are low (ie: the franchise is real, the management reliable etc etc).

 

[McLovin]

Also, I have played with DCF trying to replicate the period which Roger's formula assumes this notional ROE number to extend onwards for. I got ~11 years. Of course I may be completely wrong about this. But if it is close, then forecasting earnings for that long is really stretching credulity.

I don't understand this. The formula assumes the RoE continues forever not 11 years.