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

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Thanks. Most investments have done well recently.

Roger was, and probably is, very active in promoting his services and most service provider analysts, IMO, don't become quiet in bearish or bullish times.

I am not bothered. Just noticed the ASF inactivity.
 
I get emails from him regarding Skafold, my "free report" etc. I don't read them. He hasn't been on Switzer for a long time yet he use to be a regular. I'm only guessing that Switzer has some viewers who probably let him know that there weren't happy about what some might view as a pump-and-dump approach to MCE. In fact Switzer got the CEO of MCE onto his show back when the MCE share price was on the back of just how much Roger was pumping the stock at the time.

I saw Roger on ABC's 'The Business' last night. He and Ticky get on just fine. I doubt Ticky owns any shares directly. She probably leaves that to her pony and Marcus Padley.
 
tinhat said:
I saw Roger on ABC's 'The Business' last night. He and Ticky get on just fine. I doubt Ticky owns any shares directly. She probably leaves that to her pony and Marcus Padley.
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Friday funnies!

I'm pretty sure I read something by Padley in 2011 saying everyone should sell all their shares. Good call.
 
McLovin said:


Friday funnies!

I'm pretty sure I read something by Padley in 2011 saying everyone should sell all their shares. Good call.
Click to expand...

I recall last year around the bottom of the market Padley was on 'Business Insiders' (ABC) and said (to paraphrase) "Would you rather be at sea in a small boat during a storm or safely on the shore?". I think not much later in the year Alan Kohler was saying sell everything.
 

I wouldn't listen to anything Kohler says. Journos are too interested in stories and hyperbole.
 
Greetings all! After reading the book i am checking to see if i have the formulas correct in excel. I've used the 2012 figures and done a quick intrinsic value calculation for WOW and TRS for 2012. Would anyone mind seeing how they compare to your valuations to see if i am on the right track roughly?

Assuming 10% required return for now***

$29.67 WOW Intrinsic Value
$8.60 TRS Intrinsic Value
 

Sorry lets make that my correct valuations of:

$29.67 WOW Intrinsic Value
$9.78 TRS Intrinsic Value
$17.34 FGE Intrinsic Value
 
Not a lot of activity here for a while..

Without crunching any numbers, WOW is probably around the mark but FGE seems to be quite high, the highest i've seen may have been around $13. Money magazine had a skaffold article recently with a lot of values if you wanted to compare.
 
thanks Tightwad!

I found the article and it gave COH at $28.98. Will use that to see if my values are similar.
 
Well it should be clear to most people that it is half advertising for Skaffold, half advice. Or some similar ratio. the magazine seems to be like a brochure for super funds.
 
InCasinoOut said:
Well it should be clear to most people that it is half advertising for Skaffold, half advice. Or some similar ratio. the magazine seems to be like a brochure for super funds.
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Have you had a read through this thread? It's worthwhile for someone contemplating putting money on the table based on Montgomery's formula.
 
McLovin said:
Have you had a read through this thread? It's worthwhile for someone contemplating putting money on the table based on Montgomery's formula.
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Hey McLovin, yes i'm afraid i now have. I've only recently decided to invest in the stock market. Started off on the Intellligent Investor, then i read Value.Able, now i read this whole thread and see that a lot of people do not agree with this approach.

Sucks a bit as i now have to re-evaluate how i am going to invest. At first i was happy i might of founf a sensible way for a newbie to value companies to invest in. I've got a few more months until i have my starting funds together so where to next.....? More reading.

Haven't read annything in the way of Technical Analysis yet, but i wanted to steer clear of gambling, and i have a day job so i was looking for more long term investment strategies.
 

Well it's not a complete waste of time I am sure. You've read a method, you've read about the pitfalls of this method, so you should be in a position to take what is useful and discard what doesn't work...

e.g. Not use the method when company's earnings are inherently cyclical...
 

Montgomery's valuation method is mainly based on ROE and the dividend payout ratio (or inversely the ratio of retained earnings). If you follow his approach by merely implementing his formula there are two major assumptions that are implicit in that formula:

1) That the business will be able to maintain its ROE into the foreseeable future, which includes
2) The business being able to generate the same marginal ROE on retained earnings into the future.

So, IMHO, for Roger's formula to be of any use you have to be confident that the company will continue to be able to grow earnings and maintain its ROE. To do this you have to analyse the business in more details. Debt can improve ROE but is the debt good debt, is it generating growing earnings? What are the competitive advantages the company has in its industry or markets and are they sustainable.

The formula in Value.able is inadequate in that it takes the current ROE and payout-ratio and projects them into the long term. Huge assumptions.
 
Re: Students of Roger Montgomery's CRAP intrinsic valuation method

skc said:
e.g. Not use the method when company's earnings are inherently cyclical...
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RM secret miracle formula for the reinvested component of earnings is simply a rip-off of the Walter’s Dividend Model.

When Walter devised his model he spelt out the limitations very clearly.

• It assumes the firms investments are purely financed by retained earnings. Not realistic or efficient for most companies
• The assumption that the expected rate of return on firm’s investments are constant. Not realistic.
• The assumption of a constant cost of equity capital. Is not realistic and ignores the effect of risk on the value of the firm.

One that I would add.

•It assumes accounting derived returns represent economic reality. Often not the case.
 
I have not bothered to read any of Roger's stuff on this method, yet the answer seems obvious to me. Test it.

If the valuation formula is based on some numbers from the annual reports, or a series of them, then it should simply be a matter of checking some numbers from 6 or 7 years ago for a few companies selected at random. Take the fifth company from each letter of the alphabet and see how the companies went on a walk forward basis, based on the valuation you came up with.

All the imformation from old Annual reports can be found here...

http://asx.com.au/asx/statistics/announcements.do

Remember that doing this type of study has survivorship bias built in, but it is not a bad place to start.
 
Someone has been regularly calling YMYC whenever one of the Dodger's minions is on air, having a crack at the Dodger's aptitude for spruiking a stock on the way up and going silent on the way down as they sell out. I've read his book and apply his valuation approach to companies of interest to me, but I wouldn't invest with him and it isn't the only way I look at a company.
 
When it comes to your money NO ONE has its best interest better than you

they all out there dipping into your pocket, whether its fund management, selling subscriptions, software, books, pump and dump article etc.

Most of the principles of good investing are freely available on the net time is better spent on acquiring these knowledge and make your own decision.

and be very weary of people who run a fund business or selling a service at the same time spruiking free information these free information could end up costing you a fortune.

Learn the trade yourself, anyone with average intelligent can do it, it is not that hard and make your own decision, be conservative, patient and sensible that is the only way to build wealth.

ignore all the hype and celebrities ... they have only one goal -> dipping their hand into your pocket.
 
Haven't seen much activity lately but thought I'd throw this question out and get your thoughts.

If a company that does a share buyback below the equity per share increases intrinsic value and a share buyback above equity per share decreases intrinsic value, how can it not be good for the company to do a share buyback below the intrinsic value of its own shares even if it is at a price above equity per share?
 
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