05 December Mark Mobius Live with Young Investors Society By: YIS | Category: Uncategorized

LIVE YIS interview with Mark Mobius Transcript

James: Welcome everyone to Young Investors Society broadcast with the famous, Mark Mobius. And we have Kailyn Tai, a Young Investors Society Member from Hong Kong here at Hong Kong International School. I am James Fletcher with Young Investors Society. A quick reminder before we get started. We are doing our “Dollar-A-Day” sponsorship challenge and those essays are due by the end of December.  We have a partnership with Stockpile where you can get free $5 for everyone that signs up. By the end of December, just a reminder to get your essays in and you’ll eligible for a match for your investing. With that, I am going to give an introduction to Mark and then will turn over to ask questions.

Mark Mobius barely needs an introduction. He is the executive chairman of Templeton Emerging Markets Group. He spent 40 years working in emerging markets. I think I watched a video where you started investing in 1987.

Mark: That’s right. That was when I was 4 years old.

James: It is when I was pretty close to 4 years old.  And that time they have five countries in the emerging market?

Mark: Six countries.

James: Now, it is 40 countries. And Mark is author of many books, “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” and some of you know – we actually gave copies of the comic book as a prize to everyone who submitted questions to this interview. So, many of you know, he wrote the comic book called “Team Mobius: The Leverage Adventure” which I thought was just fantastic.

Dr. Mobius graduated with a bachelor’s from Boston University, and Doctor of Philosophy Economics and Political Science from MIT University. Mark was named by Asiamoney magazine as Top 100 Most Powerful and Influential People, Bloomberg Markets made him the 50 Most Influential People in 2011, the Emerging Markets Equity Manager of the Year in  2001 by Institutional Money Marketing, Top 10 Money Managers of the 20th Century by the Carson Group in 1999, and as a personal note, as an investor in emerging markets, you have always been a hero of mine. Someone that I look up to. Someone I modeled my career after, your courage, your belief in emerging markets, your investment philosophy, you are respected, and it’s truly an honor.

Mark: Thank you very much.

James: I’d like to introduce,Kailyn Tai.Kailyn is a sophomore from Hong Kong International School here in Hong Kong. She is also a pretty accomplished investor in her own right. She and her brother, Joshua, placed 2nd place in our global stock pitch competition.  She did this fantastic stock pitch report on the Walt Disney Company. Out of more than a hundred teams globally, she placed second.Kailyn, I will turn the table to you then. Ask the first question.

Kailyn: Mr. Mobius. thank you for interviewing with us. My first question is tell us about how you got into investing and what are your key factors that led to your investment success?

Mark: I would say the key factors were my interest in numbers every day. I went to school at Boston University. I went to University of Wisconsin, Syracuse University, Kyoto University in Japan, University of Mexico. I was a professional student. And I ended up at MIT where I got my Ph.D. It was really amazing because, at the end of my Ph.D., when I got my degree, I really didn’t know what I want to do. I sat down and figured out,  I was really interested in everything. If you are a global investor, you have to be interested in everything. You have to learn everything. That’s what drove me to become a fund manager because you are free to open up your mind to every possibility, every sector, every company around the world. And that’s what really is fun and makes it challenging as you know.

Kailyn: Tell us about a stock that you bought and why? Either one from a while back or a recent purchase. What was the process that led you to that decision?

Mark: You know I did my Ph.D. thesis on communication satellites. That was when the Kennedy administration was looking at a whole lot of communication. If you go back in history, you will know that AT&T was a monopoly. It was called Ma Bell because the symbol was a bell. When they were looking at communication satellites, there had to be some legislation done in Congress, I decided to look at this whole area in the political and technical area. AT&T said that you’ve got to have medium altitude satellites, which means they move faster than the revolution of the earth, so you have to track them with antennas. And then Howard Hughes, you know the legendary Howard Hughes, Hughes Corporation came up with the idea. Actually, they didn’t have the idea. The idea came from Arthur Clarke, who’s a science fiction writer. You can read his books about science fiction. He theorized that a satellite put 24,000 miles up in space, would move at the same revolution as the earth so it would appear stationary. So, Hughes said, “Look, with three of these, I could cover  the world.”Thankfully, Congress went with that idea and formed a communication satellite corporation. That was my first investment. Of course, when it was listed, I invested. It is still in existence.

James: Tell us about those early days going into emerging markets. I mentioned that I admire your courage and your faith. In the late 80s, early 90s, these are early days going into the countries. What did you see that others didn’t? What was it like in investment banking?

Mark: What we saw was incredible potential because many of these countries were beginning to emerge out of years of dictatorship, years of communist/socialist governments, there was no growth, people were poor. There were many cases where there were countries that had gone from tremendous wealth to poverty. Argentina was a good example. In the 30s, Argentina was one of the richest countries in the world. By the time the 80s came along, they were in trouble. That’s what I saw. I saw this incredible opportunity because things are changing the philosophy of government was changing towards a more market-oriented philosophy. That’s what put emerging markets on the map. The adoption of the philosophy which says,“Look,  the government cannot do everything. We got to have a market and market shares allocate capital.”

James: We have a couple of questions about investing in emerging markets. One of them was: There’s an enormous growth potential,  but there are challenges in corrupt governments, limited investment and human rights, and political risks. This was a student from Franklin, Massachusetts.

Mark: There is corruption and political risks everywhere including the United States. You know many people in America and some developed countries, feel that there is a period to emerging markets. No! The governments are having the same problems. The only difference is that the rule of law tends to win over in developed countries than the less developed.  That’s really the big difference. The problem is the same. Corruption is the same.If you look at the lobbyist situation in America, you realize, basically, this is a very corrupt system. If you have money, you can influence congressmen to vote the way you think they should vote.  What’s the difference between that and what you see in other countries? As I have said, at least in the United States and developed countries you can have your day in court. You can fight corruption in that way.The good news is that things are getting a lot better. Mainly because of people like you. Young people who are on the internet are developing this communication skill to communicate with your friends and neighbors around the world. And reveal what’s happening in government. It’s having a tremendous impact.

Kailyn: Personally, the question I want to ask is about cryptocurrency. There has been an emerging market on cryptocurrency. What are your thoughts about this new type of currency?

Mark: When you look at these cryptocurrencies, it’s not any different from any other market development in a sense that a product or service grows on the back of demand. Now, there is a tremendous demand for cryptocurrencies. Why? Because it’s a way of transferring money without being revealing. You can secretly transfer money from A to B without people knowing who you are and what you are doing.  So, there is this demand. I don’t like to talk about cryptocurrencies because it’s like talking about religion.  You can get into trouble talking about religion. Cryptocurrencies is like religion. You’ve got to have faith that Mr. Sakamoto who was supposed to have created this cryptocurrency actually exist. He’s probably a very smart Russian guy somewhere in Siberia. Very interesting! So you got to suspend this belief. And that is the danger. At the end of the day, people will find out that this algorithm can be created by anybody and anybody can create Bitcoin. So this is the situation that you have now. I think another development is that governments around the world are beginning to wake up to the danger in those currencies. That’s why China, as you know, has cracked down on the IPOs or ICOs or whatever they call them. It’s going to be interesting to see how this develops and what happens to these cryptocurrencies. It’s interesting enough the Bank of International Settlements in Switzerland. This is the banks of banks. The association of all banks around the world. They recommended that countries develop their own cryptocurrencies based on their own currency. In other words, you have a US dollar cryptocurrency which facilitates transfers and enables faster banking transactions.

Kailyn: I was watching a video on this last night. I heard that there is this base or like a farm in Inner Mongolia, there is cracking but they are also expanding to the US. There were like meetings with the media’s held in the US like in New York and Los Angeles,  major banks about cryptocurrencies that made me interested in cryptocurrency. What do you think about cryptocurrency?

Mark: It will be interesting to see how this develops.

James: It’s so new.

Mark: Again, this is the creation of the internet. The way people can communicate. As I have said, there is a demand both legitimate and illegitimate in this kind of currency.

Kailyn: Another question that was commonly asked. Which industry will deliver above-market returns in the next 20 or 30 years? if you were in your teens of early 20s? How would you position yourself?

Mark: Which industry will deliver above-market returns in the next 20 or 30 years?  I have no clue. Because a lot of industries have not been created yet. You must remember, where was the internet 20 years ago? No one was aware of what it could do. One of the challenges for fund managers is how do you look forward to seeing what is happening? I personally missed a lot of the internet excitement, the second time around. The first time as you know in 2000, they had a big boom, the stocks. We didn’t like to be value investors. We didn’t see where the money was coming from. The second time around, the recent booming that it’s completely different. They are actually earning money. So, it’s really difficult to say what’s going to happen in 20 or 30 years which industries would be the best and so forth. I would say that out of the industries you now have, the best performing will be the worst performing now. In other words, you got to look at what is unpopular now, to see what is going to be popular in the next 15 or 20 years. One example of that would be recent, commodities have been very popular. Most of the money goes to the internet but commodities are still in demand. Many of the commodity companies have been oversold. So you might say well let’s look at commodities because that’s the most unpopular.

James: That’s the contrarian theory investor.

Mark: You got to be a value investor. You look at what other people are not looking at and what other people are rejecting.

James: We at Young Investors Society, we teach them, we call it the Seven Golden Rules of Investing. There are different rules like think long terms, invest with a margin of safety and one of our rules is don’t follow the herd.

Mark: Don’t follow the herd. Exactly. Be different. I just saw a quote while reading a book that said, “Please tell the moment in history when the crowd was right?”  How many times has a crowd has been right?

Kailyn: This question is a little about your background. When you were in high school or college, did you know about investing in a 3-year plan in general? If not, when and how did you know that investing is for you?

Mark: When I was in high school, I had no clue of what investing was. I had no clue what stock market was. It’s probably true of many of high school students today. Which is why what you are doing is very good. Educating these kids what investing is all about. When I was in high school, I had no clue. I thought I might want to be a doctor. I  might be a coach. These are kinds of things that I speculated on. I had no clue really. By the way, that’s why it’s probably a good idea to keep an open mind. Don’t fix yourself in one particular goal.  If you are really not enamored with it, you have to love what you do. For some reasons, if you love to study physics then, by all means, that’s what you pursue.

James: I think that’s the fun thing about investing is that you can learn about a lot of industries and different companies. We had a student last year. She did a report on a drone company. After that, she came away saying that she wanted to go into engineering, going into that field. That is kind of a fun thing about investing. You learn about a lot of different industries and companies.

James: I have a question. Our kids love stories. I know you have been investing for a long time. Do you have any particular stories or milestones that you can think back on? Different countries that you traveled to?

Mark: There are many. But one interesting story in the early 90’s In Latin America, Brazil and Argentina, there was what you would call “hyperinflation.” The inflation was out of control. The government was just printing money. I remember arriving in Brazil at Rio de Janeiro Airport. I was visiting with friends. At that time the numbers that I saw was 2000 percent inflation. I said. “Two thousand percent inflation?” And they said, “Yes, Isn’t that wonderful?” I said, “What do you mean?” They said, “Last week, it was 3000%!” That was the situation. So, how do you advance in a situation like that, because you can’t cap any earnings accurately?  What we did is we looked at the assets of companies. What were the assets worth in dollars? If we were in the United States, what would an asset like this be worth? And then we purchase on the basis of a discount to the value of the assets. That worked out to be very good because eventually the inflation came down and these companies were worth a lot of money. This is an example where we have to be flexible. We have to have a good grounding in what’s really happening in the economy because of inflation and other factors like that.

James: What are your views on the markets today in China, India, and Brazil? And I guess the second part of my question is we receive a number of questions of should be worried about interest rates too much since the stock market crashed?  How emerging markets do about it?

Mark: There has been a tremendous concern about interest rates in America. As you know, emerging markets would be deeply affected. Before 2006, emerging markets weren’t performing for 2 to 3 years against the US bond. The primary reason that people concern about interest rates because there was a theory that America would go up and interest rates went up; the emerging market stock would go down. But if you look at the history of Fed rate, Federal Reserve interest rate, and the emerging markets performance, there are no correlations. There is no consistent correlation. Sometimes the Fed rate goes up, and the market goes down, which what the people expect. Sometimes the rate goes up, and the market goes up. You see it right now. The emerging markets are outperforming. On the back of the fear of our reality actually, that interest rates are going up. So, I think you have to be very careful with one variable like that. Interest rates as a predictor as to what’s going to happen to the market. As far as what’s happening now, I believe that emerging markets will continually outperform because of the momentum that we’ve seen. There is more money flowing into these markets. The interesting thing about the development now is in the past, the emerging markets were very dependent on the money from Europe and the United States. Now, there’s momentum within these markets themselves. Those people are getting wealthier.  You see that in China. There’s a lot of money in China waiting to be invested in the stock market, in the bond market, where ever.

Kailyn: There is a question that intrigues me as well which is submitted by somebody from Malaysia. For those of us who live in countries considered as emerging markets, I want to know that investing in the stock market in the local companies be a good idea or to stick to markets overseas?

Mark: Well, you are asking the wrong person because I would always say emerging markets.  Because if you look at the long history of emerging markets since 1987, emerging markets are far outperformed any single market in general. Two things that you remember; Malaysia is a good market. Sometimes it outperforms.  But it will never be outperforming every year. Guarantee you! We have a table which I think I can give to you; it shows years and countries. It shows which countries are outperforming have lower marks. No market has outperformed for two consecutive years. I think in 20 years we have, some market never outperformed. I think there was two countries outperformance in two years. What does that say? It says that you must be an aggressive buyer. If you were in Malaysia, you should not be investing only in Malaysia. You should be investing in many countries around the world.

James: What are 2 or 3 items of advice would you give to teenagers whether investment advice or life advice?

Mark: First of all, study hard. Read as much as you can. Learn as much as you can. Do what interest you the most and try to keep an open mind. Keep healthy. We have to exercise every day. Eat the right things.

James: My last question for you is what’s next for Mark Mobius? Are you going to be like Warren Buffett?

Mark: My feeling is as young as you feel. My feeling is I feel fine. I enjoy what I am doing so it doesn’t make sense to abandon… By the way, it’s a very good question in a sense what is happening globally. And that is we have an aging population. The idea of retirement, you know it was invented by Bismarck, Otto von Bismarck in Germany which was in the 1880s. He came up an idea – let’s create a program. Pensions for old people because on those days, the average of life like at 60 you are probably dead. When they set up a retirement age in Germany, I think the retirement is 60. Not much payout because most people would be dead by that time. The problem now, we adopted this idea at 60 or 65. It is not appropriate for the situation which is why the pension system in the world is in trouble. Nowadays, a lot of pension needs funding. They don’t have enough money to pay out these pensions. The people are living to 80, 90 to a hundred. And this length is increasing. It is a healthcare situation. I would say that something to be considered. The reality is that people shouldn’t be retiring at 60. They should work.

James; They should be traveling the world like you.

Mark: I found this. When people retire, they tend to die very quickly because they have nothing to enjoy.  No goal.

Kailyn: What advice do you have for high school students as to financial venture? As you know in college, they get in a debt or they can get a job right now. What can I do right now so that I wouldn’t be in too much of trouble?

Mark: It’s a good question.  I know a lot of students go to college and get into debt.  That’s a real problem. When I went to college, I got a work. I had a small fund but I worked. To pay tuition or what. Nowadays, the cost is too high. I would recommend for a lot of people. don’t go to college. Because one would pay. Now, you can learn on the internet. There are incredible courses. Learn whatever you want. You can learn from of the successful people in the world. How many did what it costs you? Think about that. I think high school students – by the way, my own high school, I went a few weeks ago. I asked the principal “What’s the percentage of the graduates go to college?” He said that almost everyone. It’s 90%. I found that it’s very shocking because most kids don’t need to go to college.  Sometimes you are very suited to do some kind of technical skill. Some are an artistic skill which they can learn on their own.  Learn on the internet. Learn on the people. So this idea of people being in college is I think misleading. Of course, if you go to a normal job interview, they would say “Okay. What’s your education? No, you didn’t go to college.” They reject it. But the reality is the great innovative people in the world don’t have this kind of education. Anyway, having said that, what I would advise is that don’t go into debt. Find a school that isn’t so expensive. It doesn’t have to be in your own country. It doesn’t have to be in the US or anywhere in the world. The fact is it would be better to go to another country to learn another culture, another language and it would be a greater tool. And if you insist on going to college, you better start saving now. Don’t go into debt.

Kailyn: Two weeks ago, I was told that I have to pay my own college.

James: Mark, thank you very much. It’s such an honor.

Mark: It’s nice seeing you. Thank you.

Kailyn: Thank you!