Message from Mobius

Prieur du Plessis put up an interview with Mark Mobius about, what else, emerging markets. Toward the end of the interview Mobius shared four “key principles.”

 

1) diversify - it is important to diversify in order to minimize risk - this is why investing in a diversified mutual fund is best for investors

2) look globally - no country has a monopoly on good opportunities so you must search globally - this is why we have global emerging-market funds

3) be patient - don’t expect to obtain quick gains - the long-term investors do best

4) don’t invest unless you understand the investment you are making - understanding will strengthen your confidence and enable you to make long-term investments.

 

It seems that despite diversification being a cornerstone to investing many people struggle with this. The consequence of being wrong when a stock originally weighted at 10% gets crushed can be a big problem. Additionally putting 25% into certain bigger themes like emerging markets or commodities at the wrong time can also be very problematic yet these mistakes get repeated frequently.

Usually similar countries tend in the same direction (like commodity countries, or deficit countries and the like). Occasionally one may veer off course for some reason, maybe as an early warning of trouble as was the case with Iceland a couple of years ago or for some other reason. This makes the case for owning several commodity (or any other) countries as opposed to just one. There are plenty of countries that are accessible to US investors and more becoming available all the time. It is good to make use of the choices available.

Impatience might be a sign of emotion. By removing emotion we might become more patient.

Understanding the investment these days means not only the fundamentals of whatever you are buying but the mechanics of the product. For example any of the iPath ETNs requires following Barclays debt ratings. There was never a high probability of Barclays going under but there was a short while there where market prices gave the chance of failing a higher probability than normal.

While Mobius was focused on emerging markets in his comments I believe these principles can apply to all parts of the investment process. They are simplistic and obvious but that is the starting point for investing.