Dr. Mark Mobius is one of the most recognized fund managers in the world. The Templeton Emerging Markets Fund that he manages has grown 11-fold since its launch in the late 1980s. That equates to a return of more than 12% a year.
In a recent interview with The Times Online in London, Dr. Mobius offered some advice for investors. As investment advisers, we thought it was worth taking a closer look at his advice. His first advice was to watch the value. We are not surprised that this was his first point. He is famous for his value approach. He looks for companies trading below their book value, or with a very low earnings multiple.
He also advises people not to follow the herd. By this he refers to the fact that markets often act irrationally. During good times they can become overly exuberant and during tough times they can drop well below fair value. It is often worth buying when others are selling and selling when others are buying.
According to Mobius, investing is a long-term endeavor. “Rome was not built in a day and companies take time to grow to their full potential.” It can be difficult to sit in a volatile market, and there are times when, if a business is facing life-threatening issues, selling is the best option. But in general, a longer-term approach helps smooth out short-term market ups and downs and is the best way to approach stock investing.
One of the most important investment tips was to inject money into the market. The idea of buying -and ‘selling’- on premises is being talked about much more in recent years.
Nobody knows, including investment advisers, how the markets will behave in the short term and it is incredibly important to input and extract information from the markets. There is nothing worse than investing just before a sharp market decline. Investing in bites over a period of time is the best way to avoid wasting time in the market.
Mobius goes on to say that you should only invest in stocks if you are comfortable with the risks involved. This is the most fundamental advice of all. While stocks offer the highest potential returns, they are also a highly volatile investment.
Although the average annual return on stocks can be 9.5%, which is the average annual return they have generated over the long term, it is rare that the annual return is actually 9.5%.
It is more likely to range from more than 20% to less than 20%, with even more drastic gains and losses from time to time. People who are not comfortable with this degree of volatility should include fixed income in their portfolio.
Just to show that I’m not the only investment researcher talking about diversification, Mobius also advises diversifying a stock portfolio. There is no ‘perfect’ number of shares for a portfolio. Several studies have shown that having 15 stocks in a portfolio is enough to eliminate almost all stock-specific risk from a portfolio. Many people prefer to have a lot more stocks in their portfolio. Ultimately, how many stocks you include in your portfolio is a personal decision. But generally speaking, when it comes to investing in stocks, there’s safety in numbers: more is better than less.
Mobius also recommends that we not listen to our neighbors when it comes to making investment decisions, or believe everything we read in the newspapers. The overriding message here seems to be that there is nothing more valuable than doing your own research on his investments and being comfortable with each and every investment you have.
Given that he manages emerging market funds, it is perhaps not surprising that Dr. Mobius also recommends people invest in emerging markets. He believes that developing countries, with their young populations, will continue to grow at a faster rate than developed economies.