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Strategies & Market Trends : Asia Forum
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To: Paul Berliner who wrote (6788)9/29/1998 11:30:00 AM
From: Robert Douglas  Read Replies (1) of 9980
 
Paul,

I don't remember if it was John Templeton who coined the phrase “blood in the streets”, but I am familiar with his “Principle of Maximum Pessimism.” I still keep the Forbes article from Jan. 1995 where he extolled the virtue of this investment strategy. Here are some excerpts.

So, of course, we asked John Templeton: Where are the good buys now?

“People are always asking me where is the outlook good, but that's the wrong question,” he responds. “The right question is: Where is the outlook the most miserable?” Templeton calls this approach to investing “the principle of maximum pessimism.” Others might call it contrarianism. He explains it this way:

“In almost every activity of normal life people try to go where the outlook is best. You look for a job in an industry with a good future, or build a factory where the prospects are best. But my contention is if you're selecting publicly traded investments, you have to do the opposite. You're trying to buy a share at the lowest possible price in relation to what that corporation is worth. And there's only one reason a share goes to a bargain price: Because other people are selling. There is no other reason.

“To get a bargain price, you've got to look for where the public is most frightened and pessimistic.”

Not many of us are temperamentally equipped to buy into a country where the mobs are in the streets of the currency is collapsing amid runaway inflation. Templeton grants it: The are of successful investment is counterintuitive. The time to buy is when everyone is scared and you are a bit scared yourself.

I love that last part about being scared yourself.

-Robert

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