The thought of giving up a once-treasured possession can be an emotional exercise for anyone, even if the object of affection has outlived its use. As investors, we can find it difficult to sell a once-favored holding — even more difficult than the decision to purchase it. But sometimes, you just have to let go.
I’ve often been asked about my team’s process, not only in selecting potential opportunities, but also when and how we determine a particular holding may not be worth keeping in a portfolio and bears replacing with something we deem to be a better opportunity. Emotion simply can’t play a role in our decisions. Instead, we pair bottom-up, rigorous research with step-by-step analysis, first identifying potential bargains within a dataset of more than 25,000 securities, then conducting deep quantitative and qualitative analysis to assess each company’s long-term value potential.Our quantitative analysis includes five-year historical audited financial statements and five-year forecasts based on projected future normalised earnings, cash flow, or asset value potential. Qualitative analysis covers understanding of the company’s business, management quality, ownership structure, corporate governance and commitment to creating shareholder value. That includes an understanding of who owns and controls the company, how it operates, and in what markets. As you can see, our research approach is extensive.
As I’ve said time and again, we firmly believe an on-the-ground presence is necessary to provide local, first-hand understanding of investment opportunities. Our Templeton Emerging Markets team currently numbers 53 investment professionals spread across 18 global offices and visits as many companies as we can—approximately 1,500-2,000 per year— to tour facilities and conduct management interviews. I personally travel more than 250 days a year. (more…)