The investment decisions of legendary investor Mark Mobius are followed quite keenly. Till date, the emerging markets specialist has invested in over 5,000 companies, visited over 100 countries while managing assets worth more than $40 billion.
After working with renowned value investor Sir John Templeton for over 30 years while managing the Templeton Emerging Markets, Mobius founded Mobius Capital Partners in 2018.
When it comes to investing, or more specifically stock picking, Mobius—who received his Ph.D in economics from MIT in 1964—does not rely on some of the popular metrics like price earnings (PE) ratio or even price-to-book.
While he does factor in these barometers, it is certainly not his starting point. According to Mobius, he likes to focus on metrics like return on capital, debt levels and liquidity before deciding on whether to invest in a particular company.
“We didn’t want to buy stocks that had too high a price earnings ratio or a high price to book value. My focus has not been on those indicators. My focus has been more on return on capital. So, when I look at a stock, the first thing that I ask is what is the return on capital, it has got to be at least over 20 per cent or return on equity,” said Mobius when asked about how he chooses a particular stock to invest.
“Secondly, the debt has to be low. It has to have a debt equity investment of 50 per cent. Thirdly, it has got to have a earnings growth of at least 10 per cent and of course there has to be liquidity. Following that kind of path could lead you to some very good companies but also lead you away from a lot of exciting tech stocks with no earnings,” he explained while speaking at a recent mutual fund event organised by Morningstar.
Meanwhile, when asked about why he likes to invest in emerging markets, he said that the growth rate and return in emerging economies is generally much higher than what one can get in a developed market.
“Why were emerging markets so exciting? It is because on an average, emerging markets were growing, and so is the case today as well, at a double the rate of the developed markets. If you extrapolate that into the stock markets, usually if a country is growing at say 7 per cent, then the market will be growing at 14 per cent that is double the GDP growth. So, that is the reason why we were always focused on growth,” he said.
Incidentally, India is the second-largest exposure in his fund, after Taiwan.
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