Let's learn from Mark Mobius, the well-known investment guru

The new, professional Chairman of the SEC and his Commissioners can now make a fresh start, since the dust finally seems to have settled on the recent unsavoury SEC saga. Therefore, the time has come for serious investors to focus on the value proposition of many available investments, and benefit by the unprecedented developments that are taking place in the economy.

An assessment of the earnings of the listed companies shows that the vast majority of corporates have done better, year-on-year. Many others have also made plans to benefit by the strong earnings momentum, notwithstanding the tough global outlook.

In that background, serious investors would do well to take a cue from Mark Mobius, who is acknowledged globally as a maestro at picking stocks, and as a person who has displayed an uncanny ability to invest in profitable, or soon-to-be-profitable companies all over the world. That is probably why his book, "Passport to Profits" is generally considered a must-read for any investor who is formulating an investment strategy.

While his book carries some excellent guidelines for investment, it is also spiced with many common-sense principles. Since Sri Lankan investors are today at a point where they are poised to re-kindle and renew their interest in the CSE, it would be sensible for them to refer to some of Mobius' Rules of Investment which have been set out in his best-selling book.

Mobius' first Rule is, "Your best protection is Diversification". He explains that Templeton, one of the world's largest Funds, limits the Fund's exposure to a particular region by allocating only a pre-determined percentage of capital for investment in that region. Within such region, they also limit the exposure to any one country while setting limits for sectors as well as individual companies. Mobius strongly advises investors to adopt a similar diversification strategy in their own investment policy guidelines.

Mobius cautions investors that "High volatility is characteristic of all markets, even most mature ones", and advises investors to "Factor emotion out of the equation and base their strategies on long term fundamentals so that they could win when markets fall, as well as when markets rise". Sound advice, which Sri Lankan investors would do well to keep in mind.

One of Mobius' most interesting rules is his advice to "Wait five years and call me in the morning!" In this regard, he goes on to explain that the most important question an investor must ask himself is, as to where he believes the investee company would be, in five years' time. If the investor is convinced that the company would do well over the long term, then, he could move into the investment process. That is obviously sound advice that investors are likely to take seriously.

Mobius also suggests that "bad times can be good times", which statement he elaborates by explaining that temporary setbacks could be useful opportunities for long term investors to pick up good stocks. That advice is further clarified by his claim that, "times that people think are bad, are often good" and also by the rather provocative suggestion that "stocks, people think are bad, are often good".

In his book, Mobius insists that the "quality of management is paramount". In this regard, he advises investors to make company visits whenever possible so that they can get to know the top people, assess their goals and aspirations, and understand whether they have developed responses to deal with emerging problems and challenges. At the same time, Mobius advises that "Patience is more than its own just reward" and warns that if someone tells him, 'I want to make a killing in an emerging market in two years', he will tell him to take his money elsewhere!

He advises that the way to be consistently ahead of the game, is to adopt a long-term view and in certain instances to do so, with a strong contrarian spin; i.e., doing the opposite of what everyone else is doing. His wise counsel includes the contention that the "Time of maximum pessimism is the best time to buy" and that the "Time of maximum optimism is the best time to sell". Interestingly, Mobius also suggests, "If you can see the light at the end of the tunnel, it is too late to buy or sell".

A Mobius rule which seems to be very appropriate and timely for investors in the Sri Lankan market is that, "If a market is down 20 percent or more from a recent peak and the value can be seen, start loading up". The recent bullish tendency displayed by foreign investors in CSE, perhaps indicates that they are adhering to Mobius rule seriously.

Prior to 2012, the highest annual net foreign inflow into CSE was in the year 2008,when Rs. 14 billion (approximately US$ 128 million) flowed into the country. In comparison, in just the first eight months of this year, there has been a massive inflow of over Rs. 28 billion (approximately US$2 25 million).

This shows that foreign investors have seen and understood the potential in the CSE and are strategically positioning themselves to benefit by the expected upswing of the market which obviously contains value.

Unfortunately, the Sri Lankans, have not yet begun to appreciate this potential, possibly as a result of the negative publicity that is pumped into their veins on a daily basis by Opposition politicians and some sections of the media.

In their own interest as well as from a national point of view, it is time that local investors begin to understand the basic, globally accepted investment principles as enunciated by global investment experts, including Mark Mobius, and return to the bourse so that they could benefit by the excellent opportunities that are available. If they do so, they would undoubtedly be successful, as investors such as Mark Mobius who have done exceedingly well in emerging markets, have repeatedly showed.