PRABHU PALANI IS A SENIOR VICE PRESIDENT and director of institutional strategies, and portfolio manager for Franklin Advisers, Inc., an affiliate of FTI Institutional, the global institutional business development platform for Franklin Advisers, Templeton Investment Counsel LLC and Fiduciary Trust Company International. All three investment managers are members of Franklin Templeton Investments in San Mateo, California.

At Franklin Advisers, Palani manages accounts for U.S.-based investors, but the investments themselves involve global markets. While the Franklin part of the company manages U.S.-based equities and fixed income, Templeton, based in Fort Lauderdale, Florida, manages global investments. Franklin Templeton's 2001 acquisition of Fiduciary Trust in New York has brought added strength in global growth equity and fixed income.

“We believe that fundamental bottom-up research will lead to sustained growth in the long term. This forms the basis of our investment philosophy,” says Palani. “Our goal has always been to provide excess returns with below-average risk to our clients. Different funds follow different tactics towards achieving this goal, but we strongly believe that fundamental research to be the cornerstone in any investing we do.” Palani and his team at Franklin Advisers agree that this fundamental research is academic and have built a strong research team, hiring from the top schools in the U.S. “While the quantitative screening we do is crucial, we believe that the key differentiator is our qualitative analysis,” says Palani. “We meet with about 1200 to 1500 companies a year. Our size often helps us to gain access to speak directly to CEOs and CFOs of the companies we're looking at. These dialogues help us develop better investment scenarios.”

“When you look it, investment management is both an art and a science,” says Palani. “We try to be as objective as possible. Take a look at a company's balance-sheet over a period of time, and you can derive very objective conclusions on the ROE, cash-flow management, sales growth, bottom line growth and so on. But beyond this, how do you forecast the future? When we invest, our normal time horizon is 3 to 5 years, and markets change drastically in this period.” To handle these unpredictable fluctuations and investment upheavals, Palani and his team stress-test their portfolios, and use multiples to create possible answers to future scenarios.

Palani is upbeat in these times, too. “Regardless of market fluctuations, there are companies which are making money. We ask our analysts to study companies that outperform the markets,” says Palani. He feels that the individual investor should also follow these strategies. “Asset allocation is the key. Regardless of whether you are an institutional or individual investor, you are going to invest for the long term. Many individual investors miss this key, and are driven more by emotion than by cold figures. It is very important to stay away from the noise in the market, and step back to get a clear view of long-term plans,” advises the Franklin Advisers portfolio manager. Individual investors have also tried to time the market, comments Palani, and this, he says, is futile. “Academic studies have proven that timing the market is not a very successful tool in investment,” says Palani. “It may sound cliché, but it is very important to have a well-diversified portfolio. Many who invested in the equity market in the late 1990s, appeared to have done very well at the time. It doesn't mean that they had picked up some tactic to best the market. In hindsight, they were simply playing the momentum game: what moves up has the tendency to move up for some more time.”

Palani declares that over long periods of time markets tend to be rational, and market evaluations tend to be efficient. “If an investor can avoid the emotions in the intermediate periods of time, markets will deliver in the long term.” Palani recommends that individuals consult with an investment consultant who can plan their asset allocations based on their time horizon, current earnings, earnings potential, future commitments, and risk-taking capacity. Investors can then make distinctions in their portfolios. This, he says, is very similar to institutional investment strategies.

“Avoiding the wrong companies is as important as investing in the right ones,” cautions Palani. “At FTI Institutional, our outperformance comes as much from avoiding making these wrong calls as making the right calls.” Fear and greed drive the markets, cautions Palani. “Long-term planning is essential, and individuals should maintain sufficient liquidity before embarking on investing. Investment consultants are your best bet. Their only job is to study funds and markets and make educated decisions. They could grow an individual's portfolio well,” advises Palani.