James Montier Cooking the Books is a short selling strategy based on research by economist and equity strategist James Montier. It uses Low Quality criteria to identify stocks that could be at risk of bad accounting practice. The 6-point C-Score checklist looks at the divergence between net income and cash-flow, increasing days sales outstanding, increasing days sales of inventory, increasing current assets to revenues, declining depreciation relative to property, plant and equipment and high total asset growth. Montier found that the C-Score was even more effective when used to assess stocks that look over-valued on a price-to-sales ratio basis. James Montier wrote: "In good times, few focus on such 'mundane' issues as earnings quality and footnotes. However, this lack of attention to 'detail' tends to come back and bite investors in the arse during bad times." Montier found that stocks with a C-score of 5 and a price-to-sales ratio of greater than 2 tend to generate a negative absolute return of 4% per year. Short selling shares can be very risky but the C-Score can still be used as an indicator of which stocks should be avoided.
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Former head of Global Strategy at Société Générale, now works for GMO. Author of 'Behavioural Investing' & 'Value Investing: Tools and Techniques for Intelligent Investment'.
Value Investing Montier
by James Montier
The seductive elegance of classical finance theory is powerful, yet value investing requires that we reject both the precepts of modern portfolio theory (MPT) and pretty much all of its tools and techniques. This book explains how value investing is the only tried and tested method of delivering sustainable long-term returns.
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| Returns |  |
 |
 |
 |
 |
 |
 |
FTSE 100 |
|---|---|---|---|---|---|---|---|---|
| 1 week | 0.4% | 4.2% | 2.5% | 0.1% | 0.3% | 0.6% | 2.2% | 0.2% |
| 1 month | 0.3% | 8.5% | 1.6% | -2.3% | -1.7% | -7.9% | 1.5% | 0.7% |
| 3 months | 7.3% | 7.5% | 18.4% | -4.4% | 4.2% | -8.6% | -4.2% | 4.2% |
| 6 months | 3.4% | -5.7% | 14.5% | -22.8% | -7.7% | -16.2% | -21.0% | -0.7% |
| 1 year | 19.4% | 5.4% | 11.4% | -23.5% | 2.7% | -6.2% | 10.6% | 2.5% |
| 2 years | 19.4% | 42.4% | 35.3% | -10.7% | -7.1% | -15.8% | -18.5% | 14.1% |
| Annualised | -3.2% | 5.7% | 5.1% | 1.4% | 8.2% | -6.9% | -3.1% | |
| Risks | ||||||||
| Max Drawdown | -49.2% | -34.8% | -34.3% | -30.4% | -21.8% | -31.3% | -31.7% | |
| Avg Holdings | 24 | 24.6 | 25 | 25 | 23.5 | 25 | 24.9 | |
| Diversification | Good | Good | Good | Good | Good | Good | Good | |
Studies based on equal weighted portfolios of max 25 stocks rebalanced quarterly. Qualifying shares below updated daily. Past performance not indicative of future returns.
Please note that 'short selling' strategies are designed to underperform the market - they are best used for hedging long portfolios rather than for absolute negative returns.
