The World’s Greatest Investors – Sir John Templeton
Born in Tennessee of British parents in nineteen twelve, Sir John Templeton is best known today as a hugely successful stock investor, businessman and philanthropist. His interest in business developed at an early age and he first made a name for himself with a gutsy bet on the future of the American economy when it was on its knees. John was in his early twenties during the great depression that gripped American and the rest of the world. Share prices were at record lows.
He later established the Templeton Growth Fund and, while in charge of it, he was one of the very few to spot the potential for super-growth in the Japanese economy in the nineteen sixties. At the time, the reputation of Japanese manufacturing was about as strong as the paper walls they use to divide up their houses. He bought into swathes of Japanese manufacturing companies and simply held stock until the country’s economy took off. The result is that today The Templeton Growth Fund, now called Franklin Templeton, manages over fifteen billion dollars worth of assets, turning a tidy profit of nearly three billion a year.
So, how did Templeton achieve the returns he did? What strategies did he use? Well, although he died in two thousand and eight at the ripe old age of ninety five, his sixteen rules for investment are still pinned to the walls at Franklin Templeton and are very much in use today. Templeton’s sixteen rules provide a way to look for an undervalued stock which might outperform the market. If a stock price is low, but the company behind that stock price has good fundamentals in place, you’re looking at a low risk investment with the potential for big gains. For Templeton, good fundamentals meant having a favourable balance sheet, lots of assets, lots of customers and great products or services.
He also looked for companies that had paid out regular dividends going back over many years. Of course, these companies were not easy to come by. At any given time, the majority of good companies would be priced at value or be overvalued. But that didn’t deter Templeton. He stuck to his system of only investing in companies whose stock he believed to be undervalued. The more undervalued the better. John’s most important rule is to understand as much as you can before you invest. If you need to pay someone to help you understand something, pay them.
Every time you invest, you should know the exact reasons why you’re investing. Don’t be second-guessing. It’s a mugs game that will lose you money. If a trade feels good, stick with your gut feeling and don’t get put off by hysterical newspaper articles or media hype. That said, circumstances do change and as an investor, you should always be on the look-out for political, economic, social or environmental triggers which could affect your investments. Templeton warned against being complacent and he’s right. Just because you made what you thought was a good investment decision two years back, it doesn’t mean it’s still a good investment decision today. You should regularly return to your investments, not just to check their performance. But to examine the reasoning behind why you made that investment decision in the first place. Is it still relevant today? Don’t be afraid to question your own decisions but if you do change your mind, make sure your decision is based on logic and reasoning and not influenced by your emotions or market sentiment.
Templeton’s investment decisions in the late nineties are a case in point. He never saw any value in dot com shares and made a fortune for clients shorting them after correctly predicting that the majority of them would be bust in five years’ time. Speaking to Forbes a decade earlier in nineteen eighty eight John said, “People are always asking me where the outlook is good, but that’s the wrong question. The right question is, Where is the outlook most miserable?”. His decision to short the Nasdaq was ridiculed by many seasoned investors at the time but it was Templeton who had the last laugh as the returns rolled in.
If you’d have invested ten thousand dollars in the Templeton Growth Fund in nineteen fifty four with dividends reinvested, it would now be worth around two million dollars. That’s not a bad retirement fund by anyone’s measure. And that’s why many funds and fund managers still follow some of Templeton’s investment rules to this day. But will you do the same?
It takes a lot of courage to follow Templeton’s strategy so, unless you’re prepared to hold on to your investments for up to twenty years before seeing a return, be very careful out there.