Tag Archives: Montier

Prayer for a Deep Value Investor; Special Project (Montier Reading)


If— A poem Phil Fisher kept by his bedside to emphasize independence of spirit and rationality/grace under pressure.


If you can keep your head when all about you

    Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
    But make allowance for their doubting too;
If you can wait and not be tired by waiting,
    Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
    And yet don’t look too good, nor talk too wise:
If you can dream—and not make dreams your master;
    If you can think—and not make thoughts your aim;
If you can meet with Triumph and Disaster
    And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
    Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
    And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
    And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
    And never breathe a word about your loss;
If you can force your heart and nerve and sinew
    To serve your turn long after they are gone,
And so hold on when there is nothing in you
    Except the Will which says to them: ‘Hold on!’
If you can talk with crowds and keep your virtue,
    Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
    If all men count with you, but none too much;
If you can fill the unforgiving minute
    With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
    And—which is more—you’ll be a Man, my son!
You should have received Value Investing by Montier (attachment in the email)  If YOU did NOT, then check your spam filter or email me at Aldridge56@aol.com.
Volunteer(s) (especially a CFA or MBA) to read and discuss via a post with links PART 1: WHY EVERYTHING YOU LEARNED IN BUSINESS SCHOOL IS WRONG   (pages 1 – 72).  I will discuss the details to cover later.
PS: The questions posted for reading Lesson one (1) are to help YOU in understanding/questioning the reading. You do NOT have to send to me unless you want to or you can post to the blogs’ comments’ section with your comments/additional thoughts.  If you disagree or have another perspective on what you have read then do not hesitate to share.  Deep Value Investors tend to be contrarian/iconoclastic.

Behavioral Finance; Pop Quiz on BDX

Munger’s Mental Models: http://robdkelly.com/blog/models-frameworks/munger-mental-models/


Another Great Blog: http://www.frankvoisin.com/  Search.

All things Montier: http://www.eurosharelab.com/james-montier-resource-page. Follow links to his 2002-2011 papers.


Pop Quiz

Your boss says to put together a conservative portfolio, so naturally you start flipping through the Value-Line which you do religiously each week–glancing at every page of the 250 pages of Value-Line.  You come across BDX_VL.

What two or three things do you notice? for a passing grade what ONE (1) metric should jump out at you!  What pile would you put it–investigate, ignore, potential short?

Many “hedgies” and Wall Street “Analysts” miss this but YOU won’t.

Please keep replies short, two or three sentences at most. Prize emailed to the best response.


I wanted to see whether you picked out:

  1. The announced $1.5 billion plan to buy back shares or about 10% of the outstanding shares. Couple that observation with the steady buy back/shrinking of shares with increasing dividend payments. Management is serious about return of capital. They get it. At least they are not empire builders.
  2. The consistent and high ROC of 15% or more over the past 12 years. Note that the business was barely dented in 2008 and 2009. Sales and cash flows rose. This is a stable business in the face of a credit crisis, so demand for their services/products seems inelastic. Good. They probably have pricing power.
  3. The company has debt-say around $5 billion but in light of its steady cash flows and 0.89 debt-to-equity ratio, the company is well-financed. Not the difference in capitalization structure with another slow growth franchise: CLX_VL! Management knows that the company has excess capital and slow growth ahead of it, so capital is being returned to shareholders.
  4. This company is a slow, growth decent business with profitable growth. Probably the moat is not due to proprietary patents. My guess–subject to reading a few years of annual reports and MD&A discussions in the 10-K–is that BDX has a powerful distribution network coupled with some customer captivity.
  5. Nobody addressed why this might be mispriced (assuming that it is)? Note the dotted line that goes up sharply during 2007/2009 then has dropped for the past 3.5 years. The price has gone “nowhere.”  Certainly the stock price has “underperformed” the general market. Why?

Value PER share has been rising and management is set to shrink the share count further at these “reasonable” prices. I can’t say that the current price is attractive for you because of your return requirements. Have reasonable expectations, since I doubt BDX will double in price in the next two years. However, I CAN say, based on the numbers that this company is more stable operationally, generates higher returns than most businesses and near term returns will be driven by return of capital over the next few years, so my risk might be lower–than the average company. Yet, the company is priced at or below a market multiple. Now, even if the long bond Treasury was 6% instead of 2.9%, would this be interesting? Yes.

If I can find 20 to 25 of these companies at moderate discounts (15% to 25%), I might be able to preserve my capital over time.  These stable companies rarely provide steep discounts to intrinsic value, but you have the benefit of profitable growth over time. The price you pay, ironically, has to be more precise than when buying a micro-cap due to the moderate price discount.

Prizes will be emailed out. Thanks. Excellent responses. Please take my grades with a large dose of salt 🙂

Let me know if you enjoyed your prizes:

Gravity: http://www.youtube.com/watch?NR=1&v=y4znJTziDg4&feature=endscreen

Bad Teacher: http://www.youtube.com/watch?feature=endscreen&v=h6E0Shqba6g&NR=1

Updated Post on Dangers of Using a DCF

I updated this post http://wp.me/p1PgpH-WC with two articles from Montier and Mauboussin on the Errors and Dangers of using the DCF approach.

Thanks to a reader in Norway!

I occasionally update prior posts with additional material so be aware that this blog is fluid.

Corporate Profits and Reversion to the Mean

Stein was the formulator of “Herbert Stein’s Law,” which he expressed as “If something cannot go on forever, it will stop,” by which he meant that if a trend (balance of payments deficits in his example) cannot go on forever, there is no need for action or a program to make it stop, much less to make it stop immediately; it will stop of its own accord.[2] It is often rephrased as: “Trends that can’t continue, won’t.”






Go read the full post on corporate profits here: http://scottgrannis.blogspot.com/2012/03/corporate-profits-continue-to-impress.html

Perhaps the market is already anticipating a reversion to the mean:






James Montier of GMO emphatically says reversion is inevitable. However, does that mean stocks will decline?




Efficient Market Theory

Does anyone think EMT–say it fast five times as loud as you can, what do you hear–is like the BLACK KNIGHT?http://www.youtube.com/watch?v=dhRUe-gz690

No matter what the evidence or facts against the theory, it is only a flesh wound?