How can we invest like Roger Montgomery? This is the second post on Invest Fair 2016 and I would share what Roger Montgomery of the Montgomery Investment Management spoke about on 30 July 2016.
The End of the World as We know It and How to Profit? A Value Investor’s Perspective by Roger Montgomery, Montgomery Investment Management
The situation now is low interest rate but P/E ratio getting higher, even higher then pre-global financial crisis, because investors are willing to pay more for same amount of money. This is ok if the businesses are growing. But companies are not growing and paying 100% of their earnings, ie not retaining earnings to grow.
2016 is a dangerous time to invest if you are investing in the broad market. The best outlook for index is a single digit growth rate. You have to be selective and look at business with the criteria to grow.
When interest rates go up, the price of asset will drop because an asset is only worth the future cash discounted to present value.
To Roger, it doesn’t matter when the US Fed will hike interest rates again, because from history, it shows that when interest rates stayed constant or rise, the rate of returns of S&P 500 were about the same.
Currently, with the low interest rates, and when stock price drops, investors chasing yield might bid and cause the stock prices to go up. When interest rates eventually increases, the volatility might be more violent. However, if you have a portfolio of extraordinary businesses, you don’t have to worry whether interest rates increase or not.
The tip to finding extraordinary business is to find business that grows equity while maintaining the dividend rate, and think long-term in terms of the businesses.
Roger’s tips for finding extraordinary businesses are:
- Only invest in high quality business
- Make sure the company has bright prospects in future, ie you are sure company is much bigger in 5 to 10 years’ time.
- Make sure that you pay a price less than the intrinsic value
Want to read the other articles about Invest Fair 2016:
Invest Fair 2016: Invest Like Jim Rogers – The Right Stock to Buy After a Bear Market
