Concerns over China’s economic growth rate and collapsing oil prices have roiled financial markets in the first days of 2016, so it’s perfectly natural for investors to feel confused and uncertain. Here at Franklin Templeton, we’ve been investing in global markets for more than 65 years, across bull and bear markets alike, and we know that while volatility can be unnerving and confusing, it can also be a time for great opportunity for savvy investors. Here we share some thoughts and experiences of handling the highs and lows of financial markets from our investment professionals, including their take on some of the more recent bouts of volatility.
Even the most experienced investors can get spooked by heightened volatility in financial markets. When stock prices are tumbling, the urge to do something—anything—can be overwhelming. Our brochure Five Things You Need to Know to Ride Out a Volatile Stock Market provides a handful of strategies for investors who may be wondering how—or if—to respond to turmoil in the market. It includes some thoughts on resisting the urge to convert your investments to cash.
Our experience has shown us that selling is not always the most appropriate response to market turmoil. In fact, there may be occasions when such conditions present a good opportunity to think again about buying. In this short flyer entitled Why Should I Invest in the Stock Market Now? we set out a number of reasons why investors may not want to sit on the sidelines during periods of market downturn.
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We think there’s no substitute for experience, especially when it comes to handling market turmoil and volatility. In the history of investment management, there have been few individuals as revered as Sir John Templeton. He was well known for his many aphorisms on the subject of investment. Here’s a collection of some of his thoughts, called 16 Rules for Investment Success. We think Sir John’s reflections are as relevant today as when they were first published more than 20 years ago.
One thing we have learned over more than 65 years of global investing experience is that trying to predict market declines or rallies is not the way investors achieve success. Much more important, in our view, is preparing for incipient shocks smartly and strategically. In this light-hearted blog entitled Shrugging Along, Brooks Ritchey of K2 Advisors uses the classic comedy Caddyshack as inspiration as he encourages investors to be vigilant about actively managing risk.
Managing risk is, in fact, at the heart of our investing ethos. Our experience tells us that it is often during the most intense market turmoil that skilled investment managers get their chance to shine. Our investment professionals take an unashamedly active approach to managing their portfolios. We feel that while passive approaches can be successful at capturing upside in a rising market, they also risk capturing all of the downside when markets turn sour.
Active fund managers, in contrast, often focus on risk management. Our brochure What Matters Most: The Case for Active Risk Management makes the argument that managing risk, which can be especially important in times of market volatility, requires a truly active investment manager.
Taking up the theme in this blog entitled Active Opportunities in a Passive World, members of Templeton Global Equity Group provide a spirited defense of active fund management. Using research from prominent academics, the team shows that index funds’ focus on yesterday’s winners may not always be an appropriate investment strategy.
So, finally, let’s look at a recent example of market volatility, and the lessons learned from it. In August 2015, concern about a possible slowdown in China’s economic growth, coupled with uncertainty about measures taken by its government to calm stock market nerves, caused panic across global markets.
Mark Mobius, with decades of experience investing in emerging markets, puts that correction in China’s stock market into historical context in this Investing Adventures in Emerging Markets blog. He also discusses the reform efforts underway that may benefit the country’s economy in the future.
In this blog, published under the title A Macro View of Recent Market Volatility, Michael Hasenstab and Sonal Desai of Templeton Global Macro analyze the factors that drove investor sentiment during that period of turmoil, and they provide some context to explain why they didn’t share the panic.
While volatile markets occasionally present a challenge for global investors, a kneejerk reaction is rarely the best response. With careful consideration, the benefit of experience and an active approach, we believe they can be a time of great opportunity.
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This information is intended for US residents only.
The comments, opinions and analyses provided are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
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Beyond Bulls & Bears – Perspective from Franklin Templeton Investments (U.S.) – At Beyond Bulls & Bears, our mission is not to bring you the latest hot stock tip or bit of Wall Street gossip. It’s to share the on-the-ground, long-term perspectives of investment professionals adept at navigating the increasingly complex world of global investing. Markets change. The fundamentals of good investing don’t.