I recently had the pleasure of hearing Roger Montgomery as a keynote speaker on the topic ‘Why dividends are bad for your wealth’. I was so impressed with what he had to say, I contemplated investing in one of his managed funds. This is something I have done in the last twenty years. The reason is that he could demonstrate exceptional returns over an extended period of time. I believe these constantly higher returns than the ASX200 and other managed funds, was that he had a unique insight into value investing.
I, therefore, decided to read his book ‘Value.Able – How to value the best stocks and buy them for less than they’re worth’, (Published 2010).
This book is about how to identify exceptional companies and invest in them for the long term. He was looking for shares with high returns on equity, low debt and low payout of dividends. One of the advantages of this type of investing is that once you have purchased the shares, they generally tend to increase in value over the long term and you are not constantly buying and selling shares. For many, this alone, is reason to understand what Roger is saying in his book.
The general principles of Roger’s philosophy are based on the works of Warren Buffett and the original creator of the concept of value investing, Benjamin Graham. However, I believe he has taken the methodology to a new level and for those who are prepared to take the time to study his book and apply his formula, I am sure the results will be worthwhile. Roger makes an interesting comment on the use of PE ratios. While he accepts that many people of been successful buying companies with low PE ratios, he believes that some companies can have a high PE ratio, but still be exceptional companies with the prospect of rising prices for many years. You will have to read his book to find out why.
For those of you who prefer to let someone else do the hard work by investing in managed funds, you may like to read what Roger has to say with a view to purchasing one of his funds. He also has some good videos to watch on his website, www.rogermontgomery.com.
I enjoyed this book so much, I recommended the book to my husband who is also an avid reader of all things financial. After reading the first three chapters, he said ‘This is the first time someone has clearly explained to me what value investing is really about’.
I would like to make the comment that, from my experience, there are several methods of share investing and share trading which have demonstrated the ability to outperform the ASX200. However, you should be you are prepared to take the time to study the methodology and apply it consistently. The method you choose should be one that suits your personality, risk tolerance and time you are prepared to devote to management of your investments. I will discuss some of these other methods in future book reviews.
For those of you who prefer value investing, I would recommend this book as being the one which will guide you through the process of identifying good shares for your portfolio. I will leave you with a quote from the book:
`Value.Able demystifies investing by describing, explaining and demonstrating an approach to selecting the best shares and buying them below their true value or worth.’
Glenis Phillips SF Fin – Designer of Good Financial Reads