After having made so much money doing the work you love which means you are having fun most of the time and not really working at all what is your idea of happiness?
Who says one can't work and be happy at the same time? Yes, I enjoy my work, and therefore, am happy most of the time since I am working most of the time. Our work involves constant learning and I have a very active curiosity so it is quite enjoyable. Of course, there is stress because we want to make money for our clients and that is not easy since no one can predict how prices are going to move from one moment to the next. I'm someone who enjoys his work and receives great satisfaction and happiness from helping my investors make money in emerging markets.
Now that you have reached the pinnacle of your success as an investor and have millions to your name, while at the same time managing over US$50bil of someone else's money, what more in life do you want to achieve and why?
Thanks for the compliment but I don't think anyone can ever reach the “pinnacle” of success, particularly in the investment management business. Since the markets are constantly moving and changing there is no guarantee that a success last year will translate into a success this year. Yes, I have been fortunate enough to achieve some success in the emerging markets. I am very content because I enjoy what I do on a daily basis travelling around emerging markets looking for the best investment bargains for my clients. If anything, I wish there were more hours in the day so that I had more time to carry out my search. What more in life do I need? Time!
Do you enjoy the creative challenges and the exercise your brain synapses get in the process of wealth creation, or is the outcome of having more wealth the only motivating factor?
Without a doubt, I would have to say it's the challenges and opportunity to learn and explore emerging markets that motivate me. My tastes are relatively simple and I realise that having a lot of money means nothing if you don't have your health and if you are not happy. So the motivating factor is to learn more. Even after spending more than 40 years in these markets, I am still fascinated by how much there is to learn.
Having written The Little Book of Emerging Markets you really must believe in this region. What are the fundamentals which brought about this belief? Do you think the next big thing will come from emerging markets?
Emerging markets are an attractive investment opportunity because of their strong economic growth. This is particularly true of Asia where the growth has been remarkable. I studied in Japan in the 1960s, when it was an emerging market. That's when I got hooked. It was so exciting to see the changes and the way people worked. I then realised that I wanted to make emerging markets my life's work. Strong economic growth is accompanied by good corporate earning and good corporate earnings are accompanied by good stock prices. Therefore, emerging markets are the place to be.
The next big thing is already here and it's called frontier markets. Frontier markets are typically smaller and less developed than emerging markets but are growing at a fast pace and could become tomorrow's emerging markets. By offering investors the opportunity to invest in a “younger generation of emerging markets”, frontier markets provide an attractive investment opportunity. Frontier markets are found all over the world in Latin America, Africa, Eastern Europe, and Asia.
Apart from investing in the stock market, writing and being a public speaker, what are your other hobbies? What do you do for fun?
My hobbies include cycling and generally keeping physically fit through exercise. I go to the gym daily and try to cycle as much as I can during my travels. In fact, I have a portable bicycle that I take on all my trips so that I can explore the cities and the countryside where my work takes me.
What do you think are some of the characteristics investors should change to become better investors?
Some of the most important characteristics include patience, taking a long-term view, willingness to go against the crowd, discipline, hard work, humility, common sense, creativity, independence and flexibility. And of course, it is necessary to be optimistic. The fact remains that there have always been problems and there will continue to be so in the coming years throughout the world. However, with higher income and living standards, better communications and technology, improved travel, greater international trade, and generally better relations between nations, emerging-markets investors have the perfect opportunity to capitalise on the benefits. However, in order to take advantage of the opportunities it's necessary to look beyond today or tomorrow and patiently research each and every company so that when a decision to invest is made that decision is strong and can withstand the market fluctuations.
Your tertiary education started with a Bachelor of Arts, and then a Masters in Communication, followed by a PhD in Economics from MIT in 1964. Does this mean you were unsure of what you wanted to do? At what point did you decide you wanted to go into fund management?
Yes, it is true that only until I was working on my PhD did I finally get some idea of what specifically I wanted to do. However, ever since I was a child, I was interested in everything and wanted always to learn something new. My diverse educational background gave me that opportunity. It was when I was writing my PhD thesis at the Massachusetts Institute of Technology on communication satellites that I had my first taste of good returns in the stock market. I was studying both the technical and political aspects of the Comsat Corporation and ended up applying for the first share subscriptions of the Comsat Corporation. I made money and I was hooked. But it wasn't until I joined a British brokerage firm in Hong Kong, Vickers da Costa, that I became involved in the financial services industry from the inside. At that time I was researching companies in Asia. Then I moved to Taiwan to open Vickers' office in Taipei, and subsequently, was asked to become President of International Investment Trust, the joint venture between Vickers, Citibank, Lazard, Flemings, and a number of Taiwan banks. That company started the very first investment fund for foreign investors in Taiwan The Taiwan ROC Fund. We then started the very first open-ended public mutual fund in that country. In 1987, Sir John Templeton asked me to join his organisation to start the very first emerging markets fund, the Templeton Emerging Markets Fund, which is still in existence.
You've talked about the next big financial crisis. How will that affect the emerging markets, which you have been pretty bullish about?
Taking a short-term or immediate view, a financial crisis in this day and age of rapid communications and global flows of money will naturally affect markets globally, both emerging and developed markets. Volatility is increasing globally but during times of crisis, volatility increases and results in panics. Of course, the extent to which emerging markets are affected will depend on the location and gravity of the crisis. And, not all emerging markets will be affected in the same way. This is why it's important to take a long-term view, diversify and be prepared to take advantage of volatility by purchasing at low prices and selling at high prices.
A long-term view enables investors to look at a crisis as an opportunity to invest at more attractive prices. Emerging markets are in a strong position and should be able to overcome any financial crisis. These economies have strong economic growth rates, high foreign reserves and low debt levels factors which should enable emerging countries to overcome short-term crisis and recover. Looking back over the years, we have seen this hold true over and over again, whether it was the Asian contagion, the Latin American “tequila” effect, or the US subprime crisis, emerging markets bounced back stronger and higher. Hence, it's important to keep in mind that you're going to find the most and the best bargains during hard times, when the news is bad and when everyone else wants to sell.
What has Asia taught you as an international investor and as a person?
Living in Asia has taught me the importance of understanding different cultures but more importantly, it has taught me humility and patience. The cultures in Asia are very old and embedded in those cultures are lessons learned over centuries and are reflected in the people's behaviour. I've been able to learn from that.
You have seen the Asian financial crisis, the global financial crisis and now problems in Europe. What should investors learn from each crisis and what are the warning signs to watch out for?
The first and most important thing to learn from a crisis is patience you've got to be willing to wait for the market to return and go in when they are at the bottom. For example, the beginning of 2009 and end of 2008, was a wonderful time to be investing. Some investors made the mistake of getting out when the panic was at its peak and thus sold at very low prices. If they had, instead, bought more stocks their profits would have been substantial. So I would say patience and a willingness to go against the crowd is very, very important.
Here are some warning signs, by which you can sometimes tell if a boom is about to go bust:
● The nation's current account is perilously low. A current account takes the payments a country must make to outsiders, and compares them to all the revenues it's taking in. If the account is out of balance, that's a bad sign. And if the balance skews way toward the net outflow column, that's when global investors start getting nervous.
● Inflation is rising. If the inflation rate starts rising far and fast in any country, take it as a major red flag because the usual central bank response is to raise interest rates, which could create an economic downturn.
● Companies are taking out huge loans in foreign currencies thinking they could easily repay them when the local currency is healthier. Companies do this because the interest rates could be lower on foreign currency loans than on loans in their own currency.
● Everyone, including all your relatives and friends, are excited about the market and are investing eagerly without doing any in-depth research and ignoring earnings and dividend growth.
Source: www.thestar.com.my
