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SMSF – Your questions answered, day eight – Roger Montgomery’s stock tips for your self-managed super fund

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Which stocks are the best bet for your self-managed super fund? Independent investment expert and Switzer regular Roger Montgomery shares his super fund strategies for long-term investors.

“In terms of the stock market, the way I invest in stock would be the same whether I’m starting a fund or I’m well down the track in a super fund.

“The things that we’ve always talked about are this:
  • You want businesses with high rates of return on equity (you’ll always do well buying those sorts of businesses).
  • You’ll do well if you treat the stock market not like a horse race but like a supermarket. You want it to be on sale so we’re looking for the good businesses that are cheap.
  • Buy businesses with little or no debt.
  • Buy them at discounts to their intrinsic value.”
Businesses to bank on

Montgomery notes the following businesses are worthy of consideration when selecting shares for your SMSF:

  • Credit Court, a debt collection business.
  • Cash Converters – “I don’t personally think this is ever going to be a JB Hi-Fi but I think there’s a short-term opportunity perhaps in this business,” he says. “There’s some noise about them moving into consumer finance.”
  • JB Hi-Fi – “You want a very big discount to intrinsic value. The discount I’ve got at the moment is about 10 per cent. Ideally, you’d like businesses with 25 per cent or 30 per cent or even more, 50 per cent, to intrinsic value.”
  • ARB Corporation – “Another business that I think is at a discount at 11 per cent discount to its intrinsic value.”
  • Oroton Group – “Some caveats there – you’ve got to understand where the business is going to be in five or 10 years’ time. Does it have the opportunity to open a lot more stores? I think it does.”
  • DWS, an IT servicing, corporate IT servicing business – “There are a few of those around but this one has some really good clients. It has some really high rates of return on equity so the cash flow that it generates can be distributed back to shareholders or used to buy back shares.”
  • Flight Centre – “I’ve got its intrinsic value rising at about 10 per cent a year over the next three years.”
  • Commonwealth Bank – “It’s a business that’s trading at a slight discount to its intrinsic value and all the banks are trading at about their intrinsic value and I’ve got the values of all the banks rising at a good clip over the next couple of years.”

And if Montgomery could pick the ultimate additions to his SMSF, what would it be?

“If I could have anything, I’d have a vintage Maserati and I’d have some artwork,” he laughs.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, December 31, 2010

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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