The Time-Tested Maxims of the Templeton Touch
Sir John Templeton
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It is impossible to produce a superior performance unless you do something different from the majority
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1. For all long-term investors, there is only one objective – “maximum total returns after taxes.”
2. Achieving a good record takes much study and work, and is a lot harder than most people think.
3. It is impossible to produce a superior performance unless you do something different from the majority.
4. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
5. 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.
6. 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.
7. Bear markets have always been temporary. Share prices turn upward from one to twelve months before the bottom of the business cycle.
8. 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.
9. In the long run, the stock market indexes fluctuate around the long-term upward trend of earnings per share.
10. In free-enterprise nations, the earnings on stock market indexes fluctuate around the replacement book value of the shares of the index.
11. If you buy the same securities as other people, you will have the same results as other people.
12. 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.
13. Share prices fluctuate much more widely than values. Therefore, index funds will never produce the best total return performance.
14. Too many investors focus on “outlook” and “trends.” Therefore, more profit is made by focusing on value.
15. If you search worldwide, you will find more bargains and better bargains than by studying only one nation. Also, you gain the safety of diversification.
16. The fluctuation of share prices is roughly proportional to the square root of the price.
17. The time to sell and asset is when you have found a much better bargain to replace it.
18. 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.
19. 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 favour and your methods of selection.
20. The skill factor in selection is largest for the common stock part of your investments.
21. The best performance is produced by a person, not a committee.
22. If you begin with prayer, you can think more clearly and make fewer stupid mistakes.
From The Book of Investing Wisdom, edited by Peter Krass, published in 1999
Sir John Templeton
As far back as the 1950s, long before global investing became fashionable, Sir John Templeton was searching the world for opportunity. By the mid-1960s, the Templeton Funds were investing in Japan. At that time Japanese stocks were trading at 4 times earnings, while U.S. stocks were at 16 times earnings. “People are always asking me, where is the outlook good,” he said, “but that’s the wrong question. The right question is: Where is the outlook most miserable?” The purpose it to find the most depressed prices. It’s about risk/reward ratios, and the risky international strategy paid off - a $ 10,000 investment with him in 1954 was worth $2.3 million 40 years later, which works out to a compound rate of 17% per year.
Growing up in rural Tennessee, Templeton was intrigued by the stories that visiting Christian missionaries told of foreign countries, and he decided to join them. However, after attending Yale and then going to Oxford as a Rhodes scholar, he realized he was not cut out to be a missionary. “But I also realized,” he said, “that I was more talented with money than they were. So I decided to devote myself to helping the missionaries financially.” His first major investment was in 1939, when he bought $100 worth of every stock on every exchange that was trading at less than $1 (the money to do so was borrowed). After holding onto them for an average of four years, he netted over $40,000. Shortly thereafter, Templeton found an investment counsellor who wanted to sell his business, which he bought for $5,000.
One of his habits over the years, was leading the Templeton Growth Fund directors in prayer – praying to make the right investment decisions. For Templeton, who became a British Citizen and was knighted in 1987, it was not blasphemous. “I think all career are more successful and satisfying if you use spiritual principles,” he said. Templeton believes that spiritual research and progress is just as important as that in science. In 1994, for example, he donated over $10 million to religious causes. Sir John Templeton is one of the few men to practice what might be called a reverse tithe: He customarily gives away to charity ten times the amount he spends on himself.
Prayers aside, Templeton had a well-defined strategy for investing, which he boils down to the essentials in The Time-Tested Maxims of the Templeton Touch.. |
