Sir John Templeton is probably best known for introducing international investing to U.S. investors. He was the global bargain hunter.
But before all that, he was a Yale graduate, a Rhodes Scholar, and a world traveler (on 90 pounds of poker winnings at Oxford). After the globe-trotting, he landed a job on Wall Street, before opening his own firm four years later.
Templeton’s Growth Fund, created in 1954, went on to earn about a 14% annual return over the next 38 years when he retired in 1992.
He famously bought stocks in 1939 as WWII broke out. He recounted the story in a 1997 interview.
Well, it was clear if ever the companies that are worthless and are losing money ever come back to life, it’s during a major world war. So the– a couple of days after Hitler invaded Poland, I looked over all the New York Stock Exchange and the American Stock Exchange. There were 104 companies whose prices had gone down below a dollar a share. And so I called up Dick Platt and said, ”Buy me $100 worth of everything below a dollar a share” and he did what you just said, he called back and said, ”We’re doing it, but 37 of them are in bankruptcy.” And I said, ”Oh, no. Those are the best of all.” The one outstanding one…was the $7 preferred stock of Missouri-Pacific Railway. It had gotten down to 12 cents a share.
It hadn’t paid dividends in years. But boy, railroads come back in a war. So we bought 800 shares for $100 and when it got up to 40 times what I paid for it, I sold out and it went up to 105.
And he sold short Nasdaq stocks at the peak of the Dot-Com boom. He explained his thought process behind the short position in a 2001 interview.
I gave Merrill Lynch an order to short 84 Nasdaq stocks which were a sizable tech IPO selling at three times the price set in the IPO and where insder holdings were locked up so insiders couldn’t sell. I shorted about 11 days before the lock-up period expired and remained short unless 11 days after the lock-up expired the stock was still going up. I covered because that could mean I had made a mistake and something positive like an acquisition or a new product success might happen.
I lost about a thrid of the time and just broke even or made a little money 17% of the time. In the remaining 50% of the cases I covered the short positions at 1/20th of the short sale price I shorted at. For example, I shorted one stock at $40 and covered it at $2. I had quite a few like that.
Over the course of his career, he collected a list of rules to invest by, which he first wrote about in a 1993 article for World Monitor titled “16 Rules for Investment Success.” An expanded list of 22 maxims was later published in The Templeton Touch.
Here are Templeton’s 22 time-tested maxims:
- For all long-term investors, there is only one objective maximum total real return after taxes.
- Achieving a good record takes much study and work, and is a lot harder than most people think.
- It is impossible to produce a superior performance unless you do something different from the majority.
- The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
- To put Maxim 4 in somewhat different terms, in the stock market the only way to get a bargain is to buy what most investors are selling.
- To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude, even while offering the greatest reward.
- Bear markets have always been temporary. Share prices turn upward from one to twelve months before the bottom of the business cycle.
- If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and, when lost, won’t return for many years.
- In the long run, the stock market indexes fluctuate around the long-term upward trend of earnings per share.
- In free-enterprise nations, the earnings on stock market indexes fluctuate around the replacement book value of the shares of the index.
- If you buy the same securities as other people, you will have the same results as other people.
- The time to buy a stock is when the short-term owners have finished their selling, and the time to sell a stock is often when short-term owners have finished their buying.
- Share prices fluctuate much more widely than values. Therefore, index funds will never produce the best total return performance.
- Too many investors focus on outlook and trend. Therefore, more profit is made by focusing on value.
- If you search worldwide, you will nd more bargains and better bargains than by studying only one nation. Also, you gain the safety of diversification.
- The fluctuation of share prices is roughly proportional to the square root of the price.
- The time to sell an asset is when you have found a much better bargain to replace it.
- When any method for selecting stocks becomes popular, then switch to unpopular methods. As has been suggested in Maxim 3, too many investors can spoil any share-selection method or any market-timing formula.
- Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded, and skeptical. Long-term top results are achieved only by changing from popular to unpopular the types of securities you favor and your methods of selection.
- The skill factor in selection is largest for the common-stock part of your investments.
- The best performance is produced by a person, not a committee.
- If you begin with prayer, you can think more clearly and make fewer stupid mistakes.
Source:
John Templeton Interview w/ Charlie Rose 5/14/1997
After the Bubble Burst – Equities March/April 2001
The Templeton Touch
