Featured Post

Trust: Missing in action where it counts

Whom do you trust? That's a big, loaded question. And at least one organisation has been putting out a Trust Barometer for 14 years now...

Saturday, July 29, 2006

Mark Mobius: Godfather of emerging markets

He is considered 'the Guru' to emulate, when spotting emerging markets and everyone wants to know how Templeton Emerging Markets Fund picks stocks to invest in. Looking up to him and learning from him is what most rookie analysts and investment bankers do. That's Mark Mobius for you - the Godfather of investing in emerging economies.

Mark Mobius is the son of a German father and a Puerto Rican mother and he says that he had exposure to very different cultures, which really helped him. One of his brothers, Schroeder, thought he would be a pianist because as Mark told CNBC-TV18, "My parents really forced us into music, in my case the piano and my brothers - the cello and the violin. Ofcourse, I still love the piano but I don't have much chance to play."

He also loved theatre and films and got his undergraduation degree in Fine Arts. From here he moved to psychology and from there he moved onto economics. Then it was consumer behaviour which grabbed his attention - which was a amalgamation of economics and psychology. He explains, "I did a lot of work on consumer surveys with international research associations." So, he studied social psychology and also briefly did clinical psychology from the University of New Mexico.

Interestingly, Mark was intrigued by stocks when he did his PhD thesis on communication satellites! It was around the time that President Kennedy was in office (early 1960s) and there were decisions to be made about whether Americans needed to stick with AT&T or whether something independent would be done.

The Kennedy administration and the Congress decided to do things independently and started the Comsat Corporation. It was listed on the NYSE and Mark invested in the stock after doing his research. It goes without saying that he made a lot of money. So, that's how the story of Mark Mobius's stint with investing began.

Also at the point, Japan was a sort of emerging market and he began to take an interest in it. But otherwise, 'emerging markets' were not words that had yet been coined back then in the 1970s. It was when the IFC and the World Bank decided to fund development in the underdeveloped countries, that the term 'emerging markets' came up.

Mark says that Sir John Templeton had the sense to invest in such markets before anyone else thought of doing so. He was in Mexico and Japan before the others and he "had the ability to condense things in a very nice way. He was able to summarise a idea very nicely and he said, 'If you want to get the best bargains, you've got to look globally'." So Templeton was really the real reason for the existence of the Toyotas and the Datsuns of the world.

The big charm of these new markets were, as Mark recalls, "The stocks and the P/Es were cheap. There were a lot of undiscovered companies and no one ever believed that Japan would be where they are today."

In all this time, Mark Mobius still didn't know whether he wanted to be in the business of stocks. He worked with Monsanto and wrote a book called 'Trading with China' and also was eager to see the world, especially Asia. So he went to Japan, Korea, Thailand and Taiwan, mostly on work. It was in Taiwan, where he was on the board of the International Investment Trust, and after a board member who was running the trust left, Mark took over. So, that's when he got his first taste of investing and managing a portfolio.

So despite Wall Street's siren call, Mark Mobius continued with his exploration of the Asian markets and was well positioned to take advantage, when globally, emerging markets in Latin America and Eastern Europe were opened to the world.

So in 1987, Mark Mobius was handpicked by Sir John Templeton to head Templeton Emerging Markets and till date, Mark is unaware of why he was picked! He hazards a guess though and says, "The fact that I was out here (in Asia) and seemed to be knowledgeable about what was happening in Asia and was enthusiastic about it."

They started out with $100 million and with only one analyst and himself as the only 'team' in place! The only countries, he could invest in, in those days were six in all - five in Asia and one in Latin America. Today, the statistical projections he made in his book on China, seems like one of Nostradamus's predictions but back in the 1970s, he wasn't believed at all!

While investing in stocks in emerging markets, he uses the same system that Sir Templeton used. He explains, "His belief was that you got to pick stocks that in five years, according to your projections, will be inexpensive." Mark does his homework as well. He looks at profit & loss statements, cashflows, balancesheets in detail and visits factories. Corporate governance is also a big issue he looks at.

Today, Mark Mobius is sitting on an incredible emerging markets database. Templeton analysts can access data from the Oracle based system that has now been installed and share information with one another, across the world. He elaborates, "We started out with a list of 17,000 companies and we sifted through that. Now we have 900 companies in our database." But they are constantly adding to this "action list" and subtracting from it.

The criteria used to eliminate companies were size, liquidity, other problems like remittances out of the country or poor corporate governance norms, were also taken into account. Currencies are also evaluated with relation to the dollar or the euro and then the impact on a company is studied. So an undervalued local currency will help exporting companies, which makes their stocks attractive.

When it comes to the stocks of the 900 companies that are on his database, they keep their eyes on the ball, at all times. Mark Mobius elaborates, "We have a target buying price and a target selling price." He cites a study that Templeton did, where it seemed they were leaving stocks a little too early, so now they keep moving the limit up with a moving stop loss.

So, how does a Templeton analyst make a stock pick? He analyses a stock, then it is reviewed by a peer team of six people, which also includes the sector expert. They agree among themselves on buy and sell limits. If there is a disagreement, then Mark steps in. Otherwise, the process moves on and a team of allocators comes in and allocates these stocks into the portfolios.

At the end of the day, though, Mark says that "You should stick to your convictions if you have done your research. Process is key and you should stick to your stocks, otherwise, you are really in trouble."

Written for www.moneycontrol.com

No comments: