Advisors are stressed, clients are anxious, and the market continues to yo-yo.
But Martin Cobb, lead manager of the Templeton Global Smaller Companies Fund, isn’t worried. The market, while volatile, is in good shape, he said at a Franklin Templeton Investments lunch yesterday. And if you look deep enough, there are great investment opportunities.
Cobb says research and caution are the two practices that’ll help protect your client’s portfolios. Educate them about high-quality investment vehicles and companies, while encouraging them to stick to their allocation goals and risk profiles.
For his own fund, he looks at companies with good prospects over the next 3-to-5 years. “If a company sells a good product, has a solid history of performance, and will likely be around in the next five years, it’s worth a second look.”
Cobb, therefore, has researched resilient businesses as farming in emerging markets and funeral companies in economies with aging populations.
He adds, “A business may be undervalued, but if you’ve made an informed decision, your client will benefit when sentiment improves.” While most people only want to invest in a company once they’ve seen great performance over a few years, they need to be buying earlier to take full advantage of the investment.
It’s also crucial for advisors to define volatility and risk, says Cobb. Risk involves insecure, questionable investments, and putting your money in danger.
Volatility, on the other hand, refers more to the short-term instability of a stock or product due to frenzied markets. When markets are down, a company that provides a useful, durable product may be affected. When the market calms, however, the company’s stock price will rise again.
Cobb suggests value investing is still effective, and advocates of the “coffee-can approach” – buying and holding something stable.
Hiding money away is not a good solution, and constantly revising portfolios costs money. In the end, both create a gap between your actual returns and the average market return.
“There’s no magic way to avoid low returns. Don’t try to beat the market, be the next Buffett or pick the next hot stock. Look for tangible, long-term opportunities,” says Cobb.
Take the recent Facebook enthusiasts: greed caused their downfall, he says. Investors thought they had found the hottest stock. In reality, the company was facing revenue issues and was overvalued. Buying stock so you can turn it over for a quick profit isn’t safe or smart.
Most importantly, don’t be discouraged by market headlines, he says. The market has much to offer investors willing to do a little extra legwork.