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The Way Of The Value Investor
British investor Sir John Templeton was known for his investment prowess for at least half a century. He was a pioneer in investing globally across many markets, and was known for his shrewd bargain purchases.
He made so much money for his clients and himself that he could live in the beautiful Bahamas and set up many charitable organisations for philanthropic purposes (i.e. Templeton Prize). In his later years, he sold his investment firm to Franklin Group and hence their current name: Franklin Templeton.
Luckily for us; when he was asked what was needed to be successful in the markets, Templeton penned his thoughts in a short piece, and it’s now widely known globally as the ’16 Rules For Investment Success’.
In this ‘Holy Grail’, he provided tips on how to buy low and sell high, while advocating investors to be long-term orientated, adopt a value approach, and to diversify widely. What stood out to us at FSMOne was the paramount focus on looking for value, instead of chasing after market trends or the latest hot fads.
All successful investors subconsciously know this; just think of Warren Buffett/Charlie Munger, Julian Robertson Jr., Mohnish Pabrai and many more. They never chase after the latest trends, and are very patient while waiting for 'Mr Market' to offer them bargains. Buying undervalued assets and waiting for them to recover to their fair value is a time-tested investment strategy.
It requires a mind-set change for most people, particularly those new to the financial markets. Learn to be stoic and switch your perspective to focus on what is cheap and unimpressive.
Be Wary Of Chasing Performance; Focus On 'Unimpressive Markets' & Value
It's difficult not to chase. Humans are generally emotional creatures as much as we hate to admit it. At times, our rationality could be influenced by our emotional states, leading us to make sub-optimal decisions or mistakes.
Remember the recent cryptocurrency craze? How many of us could stand aside and stoically watch Bitcoin rally more than 1800% (and also not be influenced by our friends or associates telling us about it)? For those who have chased the rally in the later part of 2017, they may have incurred losses following the crash in prices since the start of 2018. It’s tough to ignore spectacular rallies.
Year-to-date, some of the top performing market segments include the technology sector (tech stocks) and certain emerging and frontier markets (Vietnam). Their impressive performance thus far has caught on the attention of many from around the world.
While we certainly do not deny growth prospects and upside potential of some of these segments, chasing after their performance may not necessarily be an optimal course of action. Learn to switch your perspective, seek out areas that no one is interested in. Chances are you’ll find some bargains there.
Additionally, because the top performers always get all the attention, many market participants will typically be involved in them. These makes their 'alpha' lesser as there are more people chasing after them.
Sir Templeton has something to say about this. He writes: “if you buy the same securities everyone else is buying, you will have the same results as everyone else. If you want to have a better performance than the crowd, you must do things differently from the crowd.”
Switch your perspective – focus on unimpressive markets that no one is interested in.
What Are Some Of These Markets?
While we like emerging markets particularly the region of Asia ex Japan for their attractive valuations, there are certain markets within Asia that have lagged their peers, and are relatively cheap relative to their prospects.
The history of financial markets tells us that neglected markets, for whatever reason, tend to be depressed and usually trade at attractive valuations. While the performance of the Chinese equity markets have been stellar last year and year-to-date, her counterparts such as Taiwan and South Korea have lagged behind.
Chart 1: Several Attractive Asian Equity Markets
Chart 1 above shows the valuations of these equity markets, and they all trade at compelling levels relative to where we deem them to be fair. The local market is still cheap as well, while the Japanese market is also attractive not just on a relative basis to the Western developed markets but also from a perspective of it being ‘unimpressive’ in recent weeks – we happen to think that it’ll be the dark horse this year.
At FSMOne, we offer equity funds for these markets for you to choose from. Simply use the Fund Selector tool to filter for the relevant product. If you’re new and unsure which funds to choose, don’t fret. Look to our Recommended List, which is rigorously prepared by our in-house team research team.
Additionally, you could also go for direct stocks: check out our Value List for ideas for your portfolio. If you have any more questions, look to our friendly and helpful team of investment advisors for help!
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