Sir John Marks Templeton, the billionaire value-contrarian investor & mutual fund pioneer, is best known for his flagship Templeton Growth Fund which posted a return of 13.8%, compounded annually from 1954 to 2004, outperforming the Standard & Poor’s 11.1% return during the same period.
There have been marked examples of his exceptional style of investing:
During the Depression of 1930s, John Templeton bought $100 worth of every stock on the New York and American stock exchange that was, then, trading below $1 for a total investment of $10,400. Apparently, he had a pile of junk back then, consisting of stocks of some 104 companies, 34 of which were bankrupt! Just four years later, he sold these holdings for more than $40,000. A whopping CAGR return of ~40%!!
Sir John Marks Templeton… (1912-2008)
An American-born British stock investor, a CFA charter holder and a renowned philanthropist- very little of what describes the billionaire mutual fund magnate, Sir John Templeton. Quite interestingly, he renounced his U.S. citizenship in 1964, thus avoiding over $100 million in taxes by selling off his international investment fund ‘Templeton, Dobbrow & Vance’, and subsequently being dual naturalized as a Bahamian and British citizen.
During the next 25 years, Templeton created some of the worlds’ largest and most successful international investment funds. He became a billionaire by pioneering the use of globally diversified mutual funds. His investment fund, Templeton Growth Ltd., established in 1954, was among the first who invested in Japan in the middle of the 1960s. A sum of $10,000 invested in his Class A portfolio in 1954 would grow at a CAGR of 14.5% to a sum of $2 mn by 1992 is testament of the success of his Templeton Growth Fund.
In 1999, Money Magazine called him “arguably the greatest global stock picker of the century.”
Upon his retirement from the investment business, Templeton became an active philanthropist worldwide through his John Templeton Foundation, which focuses its donations on spiritual and scientific research.
Templeton on Investing
Just like Warren Buffet & Charlie Munger, he rejected technical analysis for stock trading, preferring instead to use fundamental analysis. As a value-contrarian investor, Templeton too believed that the best bargains were in stocks that were completely neglected – those that other investors were not even studying.
His investing style can be summed up as looking for value investments, what he called “bargain hunting”, by searching out such targets in many countries instead of just one. Templeton’s investing mantra was “search for companies around the world that offered low prices and an excellent long-term outlook” or simply:
Let me take you through a checklist of Templeton’s investment criteria for stock-picking for successful investing:
- Investing over trading or speculating
Your aim should not be just to outperform the average investor but, outperforming those who professionally manage big investment institutions. Trading and speculating are strategies better used at the casinos, where chances of loss are high and frequent. While investing one needs to have a long-term perspective.
- Do your homework
It is important to know the companies well before you invest in it. Be aware and make sure you fully understand its business model, its past performance and its future prospects. In the case of stocks, you are either buying earnings (if you expect growth) or assets (if you expect an acquisition).
- Invest in quality stocks available at a discount, place your money on the value and not price
Whether dining at a new restaurant or investing in a new stock, one needs to ensure the quality of the offering. Thus, the company’s past performance and future outlook should be looked into. Run a check for value creation and quality of earnings. Also, the market-determined or economy driven price does not reflect the true worth i.e. the intrinsic value of the stock, as these factors tend to drive the price of a stock up in times of a bull-run or vice-versa in the bear scenario. Hence, one should bet on value and not price. Buying when everyone else is also buying leaves no scope to outperform the market, so the best time to buy is when the markets are pessimistic.
- It is important to diversify
Spread your investments over a larger selection of investment vehicles to mitigate risk. You could diversify your equity portfolio by industry and by company. There are times to buy blue-chip stocks, cyclical stocks, convertible bonds, and there are times to sit on cash. The fact is that there is no ‘one kind’ of investment that is always best. Remember that no matter how careful you are, you cannot predict the future, so diversification provides a safety net.
- Resist investing on tips or sentiment
Don’t be greedy. Never invest on a sentiment, a tip or an IPO just to save commission. Tips often have a tendency to suggest that the giver has some inside information or some way to turn in fast profits.
- Focus on maximizing total real return
It is important to recognize that taxes and inflation erode real returns. It is for this reason that fixed income securities, due to the fixed nature of their return, often lead to deterioration in purchasing power with respect to the money spent to purchase them. Remember: Tax and inflation adjusted return is what you will pocket ultimately!
- Learn from past experience
It is good to learn from your mistakes. Do not stop investing in the effort to avoid making mistakes. Instead consider investing further as an opportunity to recoup your losses.
- Monitor your investments
Templeton belief was that “there are no stocks that you can buy and forget.” Markets are in a state of perpetual flux, and tend to get jittery on short-term news. Investors need to expect such changes, keep track and react accordingly.
- Avoid overconfidence
A cocksure approach will, sooner or later, lead to disappointment. An investor who has all the answers doesn’t even understand all the questions. An intelligent investor recognizes that success is achieved by being inquisitive and by seeking answers to new questions on a continual basis. Have a reality check in place as outperforming the market is not an easy task.
- Frequent pessimism is not good either
Markets are susceptible to corrections. This may entail a rise, a dip or even a crash. Have confidence in your investment philosophy. Moreover, globalization has been bullish for equities, so don’t be fearful or negative too often.
- Be flexible while investing
No one investment vehicle gives returns all the time. Be flexible in investing among stocks, bonds, futures etc.
- Market crashes do happen
Avoid panic selling when markets tread south. It may happen that you didn’t sell when everyone else is buying and ended up being caught in a market crash. However, don’t panic and rush to sell the next day; instead hold on to what you have, if you can’t find more attractive stocks.
- The power of prayer
Helps you think more clearly and make fewer mistakes.
The Return on your (time) Investment…
To recapitulate, the key takeaways from John Templeton’s investment philosophy:
- Invest in value and not price
- Buy low, sell high
- Focus on real returns
- Do your homework, and subsequently stick to your investments
- Don’t give in to panic selling and market crashes
Templeton’s philosophy is quite in parallel to that of Warren Buffett and Charlie Munger, being a value-contrarian investor himself. Additionally, his focus on diversification and his belief in the power of prayer should prove to be a good confidence builder to the intelligent investor.
The final word remains: Please read the Templeton document carefully before investing!
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