Mark Mobius’ latest blog post tackles the issue of simple rules of investing.
He starts by narrating an incident at a conference in Canada. A young lady stood up and claimed that she had just inherited some money from her grandfather and posed a question to Sir John Templeton: When is the best time to invest it? Templeton’s answer was simple: “Young lady, the best time to invest is when you have money.”
So if the best time to invest is tackled, he moves on to two simple rules to making money.
Taking a long-term view
According to Mobius, there are two important emerging stock market trends.
- Historically, bull markets have gone up more, in percentage terms, than bear markets have gone down
- Bull markets have lasted longer than bear markets
His historical market study arrives at the conclusion that if you “dollar cost average,” meaning that you systematically invest the same amount each month or each quarter over a number of years, you would have found that over the long term you were in a bull market more than you are in a bear market.
His study also reveals that in percentage terms, the bull markets have grown more than the bear markets have declined. In addition, if you have the discipline to continue adding funds during those bear market cycles, that same amount of money would have bought you more stocks.
Lessons to be learnt:
- Have a long-term view. Only then will you be psychologically in a position to look beyond the immediate bad news and toward a potential future recovery.
- Without a long-term view you just aren’t likely to be able to have the discipline to continue investing in a bear market and wait for the potential upturn.
- A long-term view when investing in equity enables you not to get hung up on market timing and be a victim of herd mentality.
While there are instances of people who have made a fortune by investing in one company, he is quick to state that it is not common. Even professional investors realize that if they are not actually controlling the company in which they invest, some unknown or unexpected event can wipe them out.
He speaks of the importance of diverisifying across countries. One reason why professionally managed strategies are so popular globally is because they enable investors to be well-diversified and have a variety of stocks that they probably couldn’t properly research and invest in themselves. Unfortunately, many investors have portfolios that invest in only one country- their own. This is a big mistake because they are missing out on potential opportunities all over the globe.
His research of 72 stock markets over 25 years (1988 – 2012) revealed that there was not one single market that was the best performing for two consecutive years. And only one market was the best performing in four of those 25 years; Turkey. Only two markets were the best performing for two years; Russia and Argentina. Of the remaining 69 countries, only 16 ountries had one year as being the best performing. The rest of the 53 countries had not even one year of being the best performers; China and the US fall in this category.
Lessons to be learnt:
- Diversification does not guarantee a profit or protect against loss but can potentially mitigate some volatility.
- Diversification has many levels – across different companies, industries and countries.
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