An Investment Review of Dr Mobius' Advice by Cam Watson
Dr Mark Mobius is one of the most renowned fund managers in the world. The Templeton Emerging Markets Fund that he manages has risen 11-fold since its launch in the late 1980s. This equates to a return of over 12% a year.
In a recent interview with The Times Online in London Dr Mobius offered some advice for investors. As investment advisors ourselves, we thought it worthwhile taking a closer look at his advice. His first piece of advice was to keep an eye on value. It is no surprise to us that this was his first point. He is famous for his value approach. He looks for companies trading below their book value, or at a very low multiple of earnings.
He also advises people don't follow the herd. By this he is referring to the fact that markets often act irrationally. During good times they can become overly exuberant and during tough times they can fall well below fair value. It often pays to buy when others are selling, and sell when others are buying.
According to Mobius, investment is a long-term endeavour. "Rome was not built in a day and companies take time to grow to their full potential". It can be difficult to sit through a volatile market, and there are times when, if a company strikes life-threatening problems, selling is the best option. But generally, a longer-term approach helps smooth the short-term market ructions and is the best way to approach share investing.
One of the most important pieces of investment advice was to drip feed money into the market. The idea of buying - and 'selling' - in instalments is becoming much more talked about over recent years.
Nobody knows, including investment advisors, how markets will perform over the short term and it is incredibly important to drip feed into, and out of, markets. There is nothing worse that investing just prior to a sharp market decline. Investing in bites over a period of time is the best way to avoid mis-timing the market.
Mobius goes on to say that you should only invest in shares if you are comfortable with the risks involved. This is the most fundamental piece of advice of all. While shares do offer the highest potential returns, they also are a very volatile investment.
Although the average annual return from shares might be 9.5%, which is the average annual return they have delivered over the long term, it is a rare year when the return actually equals 9.5%.
It is more likely to range anywhere from plus 20% to minus 20%, with even more dramatic gains and losses possible from time to time. People not comfortable with this degree of volatility must include fixed income in their portfolio.
Just to prove that I'm not the only investment researcher who bats on about diversification, Mobius also counsels that a portfolio of stocks be diversified. There is no 'perfect' number of shares for a portfolio. Various studies have shown that having 15 stocks in a portfolio is enough to remove almost all stock specific risk from a portfolio. Many people prefer to hold many more shares than this in their portfolio. Ultimately, how many shares you include in your portfolio is a personal decision. But in general terms, when it comes to share investing, there is safety in numbers - more is better than less.
Mobius also recommends we don't listen to our neighbours when it comes to making investment decisions, nor should we believe everything we read in newspapers. The overriding message here appears to be that there is nothing more valuable than doing your own research on your investments and being comfortable with each and every investment you hold.
Given he manages emerging markets funds, it is perhaps unsurprising that Dr Mobius also recommends people invest in emerging markets. He believes developing countries, with their young populations will continue to grow at a faster clip than developed economies.
Cam Watson is the Chief Investment Officer for Craigs Investment Partners, one of New Zealand's largest independent investment firms. ...