Is there life beyond the P/E ratio?
As shares in Lehman Brothers headed towards the floor last summer, many were sure it was on the verge of bankruptcy. Not all, though. The fund managers at Franklin Mutual Series mutual funds could hardly believe their luck. Here was a bank trading at 65% of its book value, yet with what they considered to be a strong franchise in investment banking and fixed income. So they bought the stock.
A classic example of value-investing, and something which Franklin Mutual has been doing for 50 years now. But the last few years have not been so kind to value investors: growth and momentum stocks have been the big movers, especially in the US. Franklin Mutual has suffered along with the rest - with a bit of managerial restructuring along the way, of course. The pressure can be immense: as momentum stocks, such as technology and internet-related businesses, bring in almost instant double-, often triple-digit returns, how do you persuade your clients to keep their money with you?
Franklin Mutual now has $22 billion under management, as opposed to a high of $33 billion, and has stuck to its guns.