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

[MichaelSy]

Greetings all,

I have enjoyed reading the discussions thus far, especially those that criticise RM.

I have never invested before, but I do like the sound of RM and the strategies he tries to employ to invest.

So after 39 pages of comments and discussions:

Is it worth buying the book for someone who has never invested before?
Is Roger Montgomery just a PR man, or has he made money from his strategies?

Michael

Edit: Just read pages 28 and 29 of this forum - seems to have answered my questions

P.S On a more personal note, I can't help but think that this is just another method of speculation.

 

[skc]

P.S On a more personal note, I can't help but think that this is just another method of speculation.

Sums it up perfectly. You've shown a level of understanding beyond many.

 

[tech/a]

Sums it up perfectly. You've shown a level of understanding beyond many.

And it only took 39 pages---err 40

 

[MichaelSy]

So maybe I should save my $50 and stick my money in high interest savings accounts or index funds for the next 60 years rather than trying to beat the market by calculating intrinsic values and trying to work out cashflows of companies? Especially if I want to spend less than 15-20 hours per week doing research on companies and industries?

Edit: ****, problem is I have already spent my $50 - book is somewhere in transit . I should have read this forum first.

 

[skc]

So maybe I should save my $50 and stick it in high interest savings accounts or index funds for the next 60 years rather than trying to beat the market by calculating intrinsic values?

The book is not useless. It provides a methodology to value companies if a set of input variables and assumptions turned out to be correct. It is a potentially useful starting point, and it will probably help you understand what drives what.

But it is not a bible, it merely offers, like you said, a method of speculation about the future... some people can use it intelligently and beat the market, while others might struggle and be better off putting that $50 in the pokies.

 

[MichaelSy]

The book is not useless. It is a potentially useful starting point, and it will probably help you understand what drives what.

In other words, the book is worth reading, there is something to gain and you'll be a slightly wiser man from reading it?

Good news. Makes me feel much much better already.

 

[waimate01]

G
Is it worth buying the book for someone who has never invested before?

Most definitely. Also books by Colin Nicholson, Alan Hull, Daryl Guppy, and (one that you won't hear recommended much but which I think ties it all together nicely), Arun Abey.

Read them all, roll 'em all around in your gut, and then choose your own path.

A very worthwhile investment.

 

[McCoy Pauley]

I found Value.Able a good way of challenging some preconceptions of what I consider to be a worthwhile investment. I use the valuation formula presented in the book (but substituting proper equations for the tables RM presents - which are available through a Google search or perhaps, even earlier in this thread) as a guide, but no more than that, on when to buy shares in companies I've identified as good prospects.

However, I do not rely wholly on Value.Able to set my investment philosophy. I think it's worthwhile, if you're not familiar with how a company's set of financial statements work, to spend some time and money learning how a company puts together its financial statements and what they mean. That investment for me was very beneficial and produced a significant return on investment.

 

[McLovin]

In other words, the book is worth reading, there is something to gain and you'll be a slightly wiser man from reading it?

Good news. Makes me feel much much better already.

If you toss out the bit about the valuing of a company then it's an easy intro to investing. RM gives a decent enough introduction to the basics but really it should be seen as a first small step not a user guide.

 

[McLovin]

However, I do not rely wholly on Value.Able to set my investment philosophy. I think it's worthwhile, if you're not familiar with how a company's set of financial statements work, to spend some time and money learning how a company puts together its financial statements and what they mean. That investment for me was very beneficial and produced a significant return on investment.

If you want a great book on financial statements try "Financial Statement Analysis: A Practitioners Guide". It frames financial analysis as being adversarial rather than inquisitive where the ultimate aim of the company is to ensure the lowest cost of capital not to ensure full and impartial disclosure. Well worth the read. I probably wouldn't suggest it for someone who doesn't have at least a basic/intermediate understanding of reading financial statements.

http://www.bookdepository.com/Financial-Statement-Analysis-Martin-Fridson/9780470635605

26% off at the moment on Book Depository.

 

[MichaelSy]

Well,

I ordered the books 2 weeks ago (10 business days). I live 10 minutes drive away from the city in Sydney (Point being it takes less than 24 hours from when you put it in the post box to when it arrives at my door).

It still has not arrived.

They have no contact number, and no email address.

So I emailed the general 'contact Roger' column asking for a refund.

Cool.

Michael

 

[MichaelSy]

Well,

I ordered the books 2 weeks ago (10 business days).
It still has not arrived.
So I emailed the general 'contact Roger' column asking for a refund.

Well. I whinged and moaned last night and guess what showed up in the mailbox this morning.

Michael

 

[notting]

JBH is another of Rogers darlings. I think he values it at about 17.00. Woops down to $12.80 at present. Down about 13% from yesterdays $15.00 whilst the market is up!
I guess he will be buying bucket loads today??

 

[Noddy]

JBH is another of Rogers darlings. I think he values it at about 17.00. Woops down to $12.80 at present. Down about 13% from yesterdays $15.00 whilst the market is up!
I guess he will be buying bucket loads today??

JBH announced a sales drop and profit downgrade yesterday, so would expect the price to fall.

Here's a simple rule of thumb to stock valuation which is not often far from the mark -

Book Value x Return on Equity

For JBH June 2010 $2.71 x 40 = $10.80
June 2011 $1.55 x 88 = $13.60

 

[waimate01]

Here's a simple rule of thumb to stock valuation which is not often far from the mark -
Book Value x Return on Equity

Err, BV * ROE is just EPS


(ROE = EPS / BV, thus BV * ROE is BV * EPS / BV, or just EPS)

You've moved the decimal point one place, so you're saying VALUE = 10 * EPS, which indeed may not end up far from the mark in some cases, but has nothing to do with BV or ROE.

 

[craft]

Re: Students of Roger Montgomery's Crap iintrinsic valuation method

JBH announced a sales drop and profit downgrade yesterday, so would expect the price to fall.

Here's a simple rule of thumb to stock valuation which is not often far from the mark -

Book Value x Return on Equity

For JBH June 2010 $2.71 x 40 = $10.80
June 2011 $1.55 x 88 = $13.60

You realise you rule of thumb is just P/E = 10! Probably accurate as often as RM's is.

 

[New Stratos]

JBH is another of Rogers darlings. I think he values it at about 17.00. Woops down to $12.80 at present. Down about 13% from yesterdays $15.00 whilst the market is up!
I guess he will be buying bucket loads today??

Not just Roger values JBH higher than the market does at present:

JBH - JB HI-FI LIMITED
Citi rates JBH as Downgrade to Neutral from Buy (3) - Price Target $15.70 (was $17.50). The broker notes the company has guided for a 5% drop in 1H12 earnings, which is below market expectations. Citi blames softer than expected sales and margins due to competition and price deflation.

FY12-13 EPS forecasts are lowered by 15% and 13%, with the price target also falling. The broker also cuts its recommendation to Neutral from Buy, expecting FY12 will be a bumpy year for JB Hi-Fi and predicting range-bound trading for the stock over the next 12 months.

Target price is $15.70 Current Price is $15.00 Difference: $0.7 If JBH meets the Citi target it will return approximately 5% (excluding dividends, fees and charges).

The company's fiscal year ends in June. Citi forecasts a full year FY12 dividend of 77.00 cents and EPS of 119.60 cents . At the last closing share price the estimated dividend yield is 5.13%.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 12.54.

Market Sentiment: 0.4

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 130.5, implying annual growth of 5.3%.Current consensus DPS estimate is 82.7, implying a prospective dividend yield of 5.5%.Current consensus price target is $ 16.93, suggesting upside of 12.5%(ex-dividends).Current consensus EPS estimate suggests the PER is 11.5.

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

 

[notting]

Not just Roger values JBH higher than the market does at present:

Birds of a feather fly down togerther?!
To beat a falling market consensus is a good way to pick shorts!!

Target price is $15.70 Current Price is $15.00 Difference: $0.7 If JBH meets the Citi target it will return approximately 5% (excluding dividends, fees and charges).

Hmmmm currnt price $12.80 or there abouts.
More selling to come. May be a good short if some Citi and Roger fans do some weekend reading and see the amazingly cheap price.
Let them in, then add to the shorts is what I'm thinking.

The thing that really spooked me a while ago when JBH was around 18 was that management were gearing up to revolutionise the way people listen to music. My God!! They must be going to do a retrospective bid on Apple.
Yep they've invented a time machine and are clearly waiting on the patent.

 

[McLovin]

The thing that really spooked me a while ago when JBH was around 18 was that management were gearing up to revolutionise the way people listen to music. My God!! They must be going to do a retrospective bid on Apple.
Yep they've invented a time machine and are clearly waiting on the patent.

In hindsight, probably a great indicator that growth was slowing.

I mean were they really that far removed from reality that they thought they would take on Apple?

Maybe they've been reading what GCN are upto and thought "yeah, we can do that too".

 

[quadfin]

notting"The thing that really spooked me a while ago when JBH was around 18 was that management were gearing up"

good point good you noticed good i did as well, people are asleep at the wheel, than complain when they crash