Roger Montgomery

[Huang Chung]

I often seem to find myself paraphrasing Roger Montgomery. Not sure if you Kiwi folk get Switzer or Your Money, Your Call, but Roger is sometimes a guest commentator and panalist. I really like his way of thinking, although it certainly isn't mainstream.

Roger is pretty famous for some of his big calls, like valuing ABC learning at just over $2 when it was trading at around $8, and his loathing of Wesfarmers purchase of the Coles supermarket business.

He has a small website, but probably his You Tube videos are a better way to understanding his way of thinking if you are unfamiliar with him.

http://www.youtube.com/user/RogerJMontgomery

I'm sure many of you will disagree with his views, but I guess it takes all views to make a market.

[wns]

I think he makes a lot of sense.

[Lizard]

From what I've read of his blog, Roger's method covers one type of value investing, which will tend to highlight one type of opportunity in the market. He is selecting largely by ROE which can pick businesses which are easier to grow as they require less capital. Of course, since using ROE would work badly with cyclicals, companies with high debt levels or capital intensive businesses which are operating at capacity (cash cow stage), he probably has a few other criteria in place to weed these out. This type of method will work well on established businesses in "forefront" industries (often service industries or tech business).

However, his method tends to exclude a host of other interesting opportunities including:
* Recovering cyclicals
* Asset plays with high un-utilised cash levels
* Companies which have recently undergone a major transformation - particularly a transformation that requires a large one-off investment in capital that will take some years to be fully utilised in terms of return.
* Undervalued micro-caps - those with no earnings history but valuable IP or mining leases

I prefer Peter Lynch ("One Up on Wall Street") - work out what type of company/opportunity you're dealing with before selecting a method of analysis. No one blanket method will suit all business types or all types of market opportunities. And there's no good reason to restrict yourself to one type of company/opportunity unless you're only comfortable with one type of analysis.

[Snow Leopard]

From what I've read of his blog, Roger's method covers one type of value investing, which will tend to highlight one type of opportunity in the market. He is selecting largely by ROE which can pick businesses which are easier to grow as they require less capital. Of course, since using ROE would work badly with cyclicals, companies with high debt levels or capital intensive businesses which are operating at capacity (cash cow stage), he probably has a few other criteria in place to weed these out. This type of method will work well on established businesses in "forefront" industries (often service industries or tech business).

However, his method tends to exclude a host of other interesting opportunities including:
* Recovering cyclicals
* Asset plays with high un-utilised cash levels
* Companies which have recently undergone a major transformation - particularly a transformation that requires a large one-off investment in capital that will take some years to be fully utilised in terms of return.
* Undervalued micro-caps - those with no earnings history but valuable IP or mining leases

I prefer Peter Lynch ("One Up on Wall Street") - work out what type of company/opportunity you're dealing with before selecting a method of analysis. No one blanket method will suit all business types or all types of market opportunities. And there's no good reason to restrict yourself to one type of company/opportunity unless you're only comfortable with one type of analysis.

I am impressed

regards
Paper Tiger

[Lizard]

I am impressed


Yep, next the book...

.... and then I should really start making some money from this sharemarket gig :t_up:

[mark100]

I do think ROE is an extremely important FA measure and over the long term I'm sure companies with consistently high ROE outperform. But I also think RM is a little too focused on just this one measure. He likes to quote his good calls ie ABC Learning but not his major bad call, Credit Corp CCP. CCP had very good ROE until they realised they had not been writing down the values of their purchased ledgers enough/overpaid for ledgers and then couldn't collect. Maybe the fact that CCP's PE was getting a bit stretched or that the chart was turning down would have been a warning

[Huang Chung]

I agree with Lizard that RM universe can be a bit small. Other than the big miners, he tends to stay away from the miners/explorers, as there are no earnings in most cases, and, he says he can't predict key variables like commodity prices. I think there are measures you can use to evaluate the worth of these stocks.

Interested to know if you Kiwis get Market Moves, Your Money Your Call or Switzer on pay TV in NZ, or are those You Tube videos new to you guys?

[Dr_Who]

Good analysts and explanation. What he is advocating is 101 finance and every major in finance from uni knows it. He should combine micro/macro and qualitative/quantitative into the equation.

For example, even if a company like OZL looks good on ROE and EV/EBITDA, you cant ignore the macro view that global copper prices may weaken if China tighten credit and slows down stimulus package.

[Huang Chung]

Good analysts and explanation. What he is advocating is 101 finance and every major in finance from uni knows it. He should combine micro/macro and qualitative/quantitative into the equation.



You are correct Doc, but how often do you see it being applied? There is far more emphasis in the market on other metrics such as the PE ratio from what I can see.