Late Sept 2001 John Templeton Interview Transcript ...
moneycentral.msn.com
Templeton paints a bearish picture
Sir John Templeton’s 70 years of investing experience tell him the bear market could last another five to 10 years. His advice: Diversify and buy Treasuries.
Sir John Templeton, a pioneer in the mutual fund business, thinks stock prices are still too high. The namesake of the Templeton Funds, knighted in 1987 for his lifetime of investing achievement, explains in an exclusive interview with CNBC’s Consuelo Mack why the next five to 10 years could be one long bear market.
See the conclusion of Mack’s interview on Business Center Monday beginning at 6 p.m. ET. Below is an excerpt.
“It’s still much too high in relation to basic earning power,” Sir John says of the stock market. “And when you get into a bear market, the bottom is not just back to normal. If you’ve been far above normal, then the bear market carries you far below normal. We’re nowhere near the end of the bear market yet.
Consuelo Mack: You've been quoted in the past as saying we go through cycles essentially of extreme optimism, which we did in the ‘90s, and extreme pessimism. Is that what we're going through now? If so, how long does it last?
Sir John: The odds are in favor of it being at least another year, maybe two or three years more, of down bear markets. To take an example, the greatest financial insanity to ever enter any nation was what happened with the technology stocks up until 18 months ago.
Mack: The Nasdaq for instance, has gone down 70% since its high reached in March 2000. That's still not enough for you? Still not low enough?
Sir John: In particular cases, yes, but not as a whole. If you look at what are the earnings on those stocks -- let’s say the Nasdaq 100 stocks -- the last time I looked, it was selling at infinite price/earnings ratios because the group as a whole had no earnings. So it’s still too soon to expect a bottom in technology stocks.
Mack: What kind of performance do you expect from the U.S. stock market short term and longer term?
Sir John: Over the next century, prices will probably be a hundred times as high. But that means they’ll only go up 6% a year. So that’s probably normal that over the next century you should expect your share prices to average 6% [return] a year. We’ve been starting from such an extremely high level. The stock market 18 months ago was 10 times as high as it had been only 12 years earlier. So it’s not yet back down to normal, or it’s certainly not below normal. So over the next five years, 10 years, I think you’ll be lucky to come out even on share prices.
Mack: Now let me ask you about the bombing in New York. Do you think this could kick us into recession?
Sir John: I would say it’s unlikely, not impossible, but unlikely that the income per person in America will go down as much as 1%. But the stock market could easily go down more than 30%. They’re two different things.
Mack: Now a lot of people have lost a huge amount of their retirement wealth in the past few years. What should they do with their investments at this point?
Sir John: Buy bonds. The safest investments in the world are U.S. Treasury bonds. And I’ve been buying those just recently to yield 5.7%. And I think that’s better than you would get over the next five years on the average common stock portfolio.
Mack: Sir John Templeton is buying bonds. Now, one of the things you've also said in the past is that U.S. investors put too much money in stocks and that essentially only the very young should invest in stocks. So what kind of diversity do you think we should have now?
Sir John: Clearly when share prices are at the bottom, you should have everything in stocks. When share prices are at the top, you should have no stocks. But we will never know when that is. Consequently, since you never know when that is, it’s probably best to aim at having never less than 50% of your money in stocks on a worldwide basis and the other 50% will sometimes be in bonds and sometimes be in stocks. So even though the odds are that we will see lower share prices in America and other nations, I still think you can hold 50% in well-managed portfolios worldwide of common stocks.
Mack: Now I have to ask you, one of your famous investment maxims is "Invest where there is maximum pessimism." Where is there maximum pessimism right now?
Sir John: Share prices are especially low now in comparison with America in Korea and in Singapore, and to a lesser extent in China and Canada.
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