Sir John Templeton

Retired, but formerly head of Templeton Investment Management.

Investment style

Deep-value contrarian with truly global perspective.

Profile

John Templeton was born into a poor Tennessee family. Shortly before the war, he joined a brokerage in New York. His first investment coup was to turn $10,000 borrowed from his boss into $40,000 over 4 years. His strategy was to buy all the 104 US stocks that were selling for less than $1 at the outbreak of the war.

Shortly afterwards, he launched his own investment advisory firm. At the age of 56, he sold this and started again with a single fund - Templeton Growth - based in Nassau in the Bahamas. This became the top performer among all US funds over the following twenty years. High on the list of reasons for its success was Templeton's ability to spot opportunities abroad before the crowd, e.g. Japan in the early Sixties, Canadian property in the Seventies.

Now retired, Templeton continues to live in Nassau and take an active interest in investment. As a committed Christian, he believes his financial success and philanthropic achievements have been closely linked to his own spiritual development.

Long-term returns

From 1954-2000, the Templeton Growth Fund averaged gains of around 15% a year.

Biggest success

Since Templeton's value-based methods have led him to buy large numbers of stocks, individual successes have been less important than overall averages. Perhaps his most remarkable move was to invest heavily in Japan in 1962. It went on to become the world's most dynamic market in the years up to 1990.

Method and guidelines

Templeton has distilled his principles of investment success into ten maxims, which still act as the basis of his old firm's culture and share selection process:

Invest for real returns
The true objective for any long-term investor is maximum total real return after taxes.

Keep an open mind
Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sceptical...

Why follow the crowd?
If you buy the same securities as other people, you will have the same results as other people... To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.

Everything changes
Bear markets have always been temporary. And so have bull markets...

Consider avoiding the popular
...Too many investors can spoil any share selection method or any market timing formula.

Learn from your mistakes
This time is different are among the most costly four words in market history.

Buy during times of market pessimism
...The time of maximum pessimism can be the best time to buy, and the time of maximum optimism can be the best time to sell.

Hunt for value and bargains
...In the stock market, the only way to get a bargain is to buy considering what most investors are selling.

Search worldwide
...If you search worldwide, you will find more bargains and better bargains than by studying only one nation...

No-one knows everything
An investor who has all the answers doesn't even understand the questions.
Source: Templeton Maxims, published by Templeton Investment Management Limited

The four key factors to consider in fundamental analysis of any company are:

The P/E ratio in relation to other comparable companies
Operating profit margins, particularly if they are rising
Liquidating value, i.e. the price the firm would fetch if sold off
The average growth rate of earnings, and especially the consistency of growth. In general, avoid buying companies whose earnings slip two years in a row. Also steer clear of those growing at an unsustainable pace.
When deciding which countries to invest in,

Avoid those plagued by socialist policies and/or inflation
Favour those with high long-term growth rates
Especially favour those showing a trend towards economic liberalisation, e.g. privatisation, anti-union legislation, greater openness and transparency in stock market dealings.
Key sayings

"History shows that time, not timing, is the key to investment success. Therefore, the best time to buy stocks is when you have money."

"I never made money for clients by buying anything expensive."

Further information

A good account of the man and his methods is given by John Train in Chapter 7 of The Money Masters (1980). Free booklets describing the organization and its history are occasionally issued by Templeton Investment Management, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EH, tel 0131 469 4000.

INTEGRATE

Born: Winchester, Tennessee, in 1912


Affiliations:

•Fenner & Beane
•Templeton, Dobbrow & Vance, Inc.
•Templeton Growth, Ltd.

Most Famous For: In 1939, with Hitler's Germany ravaging Europe, John Templeton bought $100 of every stock trading below $1 on the New York and American stock exchanges. Templeton's trade got him a junk pile of some 104 companies, 34 of which were bankrupt, for a total investment of roughly $10,400. Four years later he sold these stocks for more than $40,000!

Templeton became a billionaire as a true pioneer of globally diversified mutual funds, including the Templeton World Fund, which was formed in 1978. His flagship Templeton Growth Fund posted a 13.8% annualized average return from 1954 to 2004, well ahead of the Standard & Poor's 11.1%.

Personal Profile


John Templeton was born into a poor Tennessee family. He attended Yale University on a scholarship and graduated at the top of his class with a degree in economics in 1934. He went on to Oxford as a Rhodes Scholar and obtained a master of arts in law in 1936. Returning to the United States he went to New York to work as a trainee for Fenner & Beane, one of the predecessor firms of Merrill Lynch.

Templeton co-founded an investment firm that would become Templeton, Dobbrow & Vance in the depths of the Depression in 1937. The firm was successful and grew to $300 million in assets with eight mutual funds under management. In 1954, Templeton also started the Templeton Growth Fund, based in Nassau in the Bahamas. Templeton, Dobbrow & Vance eventually changed its name to Templeton Damroth, and Templeton eventually sold his stake in the firm in 1962.

During the next 25 years, Templeton created some of the world's largest and most successful international investment funds. He sold his Templeton funds in 1992 to the Franklin Group. In 1999, Money Magazine called him "arguably the greatest global stock picker of the century." As a naturalized British citizen living in the Bahamas, Templeton was knighted by Queen Elizabeth II for his many accomplishments.

Upon his retirement from the investment business, Templeton became an active philanthropist worldwide through his John Templeton Foundation, which focuses its donations on spiritual and scientific research.

Investment Style

One of the past century's top contrarians, it is said about John Templeton that "he bought low during the Depression, sold high during the internet boom and made more than a few good calls in between."

His investing style can be summed up as looking for value investments, what he called "bargain hunting,"by searching out such targets in many countries instead of just one. Templeton's investing mantra was "search for companies around the world that offered low prices and an excellent long-term outlook."

As a value-contrarian investor, Templeton believed that the best bargains were in stocks that were completely neglected - those that other investors were not even studying. In this regard, he had an advantage not readily available to the average individual investor – his residence in Lyford Cay in the Bahamas. The Lyford Key Club was populated with successful businessmen from all parts of the world.

Templeton found he could easily exchange ideas and opinions with them in that attractive ambiance, which, for him, worked better than networking with Wall Street contacts with limited information who were always trying to sell him things. Not unlike fellow legendary investor Phillip Fisher, Templeton systematically mined his numerous contacts for valuable, objective investment data, which in his case related to market conditions and investment targets around the world.

Publications

•"Spiritual Investments: Wall Street Wisdom From The Career Of Sir John Templeton" by Gary D. Moore (1998)
•"Golden Nuggets From Sir John Templeton" by John Templeton(1997)
•"21 Steps To Personal Success And Real Happiness" by John Marks Templeton and James Ellison (1992)

Quotes

"Rejecting technical analysis as a method for investing, Templeton says, "You must be a fundamentalist to be really successful in the market."

"Invest at the point of maximum pessimism."

"If you want to have a better performance than the crowd, you must do things differently from the crowd."

"When asked about living and working in the Bahamas during his management of the Templeton Group, Templeton replied, "I've found my results for investment clients were far better here than when I had my office in 30 Rockefeller Plaza. When you're in Manhattan, it's much more difficult to go opposite the crowd."

More quotes:

On Finance


"Before this century is over, the Dow Jones Industrial Average will probably be over one million versus around 10,000 now. So for the long-term, the outlook is tremendously bullish if you buy stocks blindly to keep for a century."



"The other boys at Yale came from wealthy families, and none of them were investing outside the United States, and I thought, 'That is very egotistical. Why be so shortsighted or near-sighted as to focus only on America? Shouldn't you be more open-minded?'"



"See the investment world as an ocean and buy where you get the most value for your money. Right now the value is in non-callable bonds. Most bonds are callable so when they start going up in price, the debtor calls them away from you. But the non-callable bonds, especially those non-callable for 25-30 years, can go way up in price if interest rates go way down."



"If you buy all the stocks selling at or below two times earnings, you will loose money on half of them because instead of making profits they will actually lose money, but you will only loose a dollar or so a share at most. Then others will be mediocre performers. But the remaining big winners will go up and produce fabulous results and also ensure a good overall result."



"How about no income tax at all on people over 65? People would continue working, remain healthier, not be an economic and social drain on society. Then the elderly would also have more disposable income to help charitable activities."



"In my 45-year career as an investment counselor, humility did show me the need for worldwide diversification to reduce risk. That career did help me to become more and more humble because statistics showed that when I advised a client to buy one stock to replace another, about one-third of the time the client would have done better to ignore my advice. In other endeavors, humility about how little I know has encouraged me to listen more carefully and more wisely."



"If governments encourage people to become more spiritual, there will be a reduction in healthcare."