John Marks Templeton (29 November 1912 – 8 July 2008) was an American-born British investor who was known as the world’s first (and one of the greatest) global stock picker. His Templeton Growth fund managed an average growth rate over 15% p.a. for 38 years.
Depressed Stocks & Going Global
Templeton is famous for buying 100 shares of each NYSE listed company selling for less than $1 a share during the depression of the 1930s. Though some firms went bankrupt, US industry picked up during the start of World War II and Sir John profited handsomely from his decision. He told his broker when WWII broke out to buy every stock selling for less than a dollar, essentially repeating his pattern of the 30s. This strategy of buying cheap made Templeton a wealthy man. After the war he set his visions outside the US in his quest for bargain stocks; Something barely anyone was doing at the time.
Templeton had seen the potential of Japan after WWII when he visited the country in the 1950s and 1960s. He later remarked the following:
“It is a joy to visit Japan and see the attitude of the people. Fifty or sixty years ago in the United States businessmen were admired. People took pride in working hard and producing good products. They worked on Saturdays. People were proud of the company they worked for. And all those things still exist in Japan, so Japan is going to continue to grow industrially twice as fast as the United States.” – Sir John Templeton 1981.
By the time Templeton made the above remarks, his funds were largely unwound from their heavy concentration in Japanese stocks as a result of their increasing popularity and rising market values. His heavy investment in Japan was led principally by low p/e and high growth rate companies he found in the 1950s and 1960s.
So what are some lessons we can learn from Sir John?
Go Where Others Wont
Templeton was famous for being an international investor. He looked for opportunities outside the US when others didn’t. Therefore, the lesson for you is: If you cannot find opportunities domestically, expand your horizons. There are plenty of first world nations outside North America that have well established stock markets. Another option is to look into Emerging Markets, but be extra careful here. Remember to to consider the following before making an investment: Rule of law, institutions and levels of corruption. Can you trust the information you come across? But if you understand the country you are looking at, and know what you’re doing, emerging markets can provide opportunities.
Maximum Pessimism = Maximum Opportunity
Sir John believed that the best time to invest is during maximum pessimism. Essentially when a company is unloved by everyone. The reason is obvious: This is when the greatest bargains can be found. Templeton has remarked that “sometimes high prices are the reason for high prices”. You cannot be a contrarian and participate in the crowd. You are going to need some psychological artillery for the battle you are undertaking as an investor in neglected stocks. The problem with neglected stocks is that they reward patience. Outsized gains are made when buying during maximum pessimism, not optimism.
Use Multiple Valuation Metrics To Increase Certainty
Don’t just look at companies’ p/e or p/b ratios to determine if a stock is cheap. In order to gain surety in your conviction, use multiple ratios. Look at the situation from a DCF perspective or EV/EBITDA angle. If you can see that a stock is a bargain on e.g. five different measures, that should increase your conviction that the stock is a bargain. Raising your conviction level is an important psychological asset as you face the volatility of the stock market. If you only use p/e or p/b, you are taking mental shortcuts. Resist the temptation. And remember, no investment strategy works 100% of the time.
Pay Attention To Economic Realities – Also in Bargain Stocks
As value investors, we aim to be extremely price-conscious when buying stocks. Be careful not to be lulled by the siren songs of a quantitatively cheap company. Remember to consider the economic realities of business. Competition can be ruthless and the average lifespan of todays firms has decreased dramatically. Thus you must pay attention to the quality of the bargain you are looking at and see if you can identify a moat.
Conclusion
To conclude the key lessons of Sir John Templeton, focus on buying during maximum pessimism, buy that which is unloved, look for opportunities across the globe and have patience. Clearly he was ready to wait, as his average holding period for stocks was six years. Below is an old TV interview from the 1980’s of the charming gentleman at his home in the Bahamas.
I recommend to all the book “Investing the Templeton Way” by Lauren Templeton & Scott Phillips. It’s packed with timeless advice coupled with great stories of how he found great bargain stocks in Asia.
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” – Sir John Templeton.
-IGTSKasimir
Further Reading
Warren Buffett – The Partnership Days (1956 – 1969)
Philip A. Fisher – Lessons From The 15% Man
The Best of Ben Graham – Security Analysis
Phil Town – The Compounding River Guide
Margin of Safety – The Most Important Thing
Intelligent Investing = Thinking In Probabilities
The Emotional Stages of a Value Investor
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