Headlines surround us of pending financial gloom and doom. Another recession is headed our way. Interest rate hikes are on the way to slow down inflation before the economy has actually recovered. The Chinese economy is slowing down and Google (GOOG, Financial) is facing an antitrust lawsuit. Everywhere you turn, headlines drone on about the pessimism in front of us and yet value investors would be wise to turn to the wisdom of Sir John Templeton:
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.
The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Sir John left us with many such tenets that we can rely on during these times and it would serve all investors well to review many of them. In 1993, Templeton published “16 Rules for Investment Success.” Below is a summary of each point:
Invest for Maximum Total Real Return
This is the No. 1 priority for investors, the maximizing of returns. He advises us to be diligent and recognize how inflation and taxes can affect the bottom line. “It is vital that you protect your purchasing power.”
Invest – Don’t Trade or Speculate
Like Benjamin Graham, we are admonished by Templeton to not move in and out of the market and lose a great deal in commissions. Stay focused, stay calm and mostly, be a patient investor.
Remain Flexible and Open-Minded About Types of Investments
No one type of investment is perfect. Be open-minded and realize there are times to buy Dow industrials, cyclical, net-nets or others. Sometimes these can run together and other times certain stocks are undervalued and are a better value.
Buy Low
Never follow the crowd advises Bernard Baruch, presidential adviser. Don’t buy what the crowd is buying. When pessimism sets in, people are selling, prices are going down and you should be ready to buy.
When Buying Stocks, Search for Bargains Among Quality Stocks
Find stocks with good products, strong management, trusted names, which lead to higher margins.
Buy Value, Not Market Trends or the Economic Outlook
Remember that it is the stock that pulls the market along and not the other way around. “All too many investors focus on the market trend or economic outlook.”
Diversify. In Stocks and Bonds, as in Much Else, There Is Safety in Numbers
The only way to protect yourself from the unknowns is to diversify. One cannot always tell when the next earthquake, terrorist attack or government intervention may take place and cause a stock to change direction. Diversification will soften the effect.
Do Your Homework or Hire Wise Experts to Help You
Investigate stocks thoroughly and study what makes them successful. “Remember, in most instances, you are buying either earnings or assets.”
Aggressively Monitor Your Investments
Sir John reminds us that there are no stocks that you can buy and forget. Monitor them and expect changes and react accordingly. (React… not overreact!)
Don’t Panic
Faced with a sudden loss in market value, don’t sell. If you did not sell prior to the downturn, ask whether you would still own it. If the answer is yes, buy more or sit tight.
Learn From Your Mistakes
The only way you can be free of mistakes is to not invest. Learn from them, but don’t beat yourself up over a mistake. Learn from it. Sit down and ask, “What happened?”
Begin with a Prayer
Starting with prayer makes one think more calmly and less likely to make mistakes.
Outperforming the Market is a Difficult Task
It’s hard work. Ok, it’s very hard work, but you can do it.
An Investor Who Has All the Answers, Doesn’t Even Understand All the Questions
You cannot apply investment principles or a checklist to each stock in a world where things are constantly changing. “…the wise investor recognizes that success is a process of continually seeking answers to new questions.”
There’s No Free Lunch
Never invest from sentiment. Even if you liked your 1969 Mustang, Ford (F, Financial) is a different company from back then. Even companies you may really like and wish to invest in may not be good investments at that time.
Do Not Be Fearful or Negative Too Often
There are always corrections, bubbles and crashes we may be faced with, but stocks will go up.
The ninth investment tenet regarding monitoring your investments (and my favorite), Templeton wrote:
Expect and react to change. No bull market is permanent. No bear market is permanent. And there are no stocks that you can buy and forget. The pace of change is too great. Being relaxed, as Hooper advised, doesn’t mean being complacent.
One of the greatest ideas Sir John left us with is to seek out good stocks before they are undervalued. That is, find stocks that you would like to own and determine a price in advance that you would purchase that stock for. As always, Mr. Market will eventually get it wrong and your stock will become undervalued. Likewise, be prepared so that you know, in advance of a correction or crash, exactly where you would sell. Buy Low, Sell High.
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.
The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Sir John left us with many such tenets that we can rely on during these times and it would serve all investors well to review many of them. In 1993, Templeton published “16 Rules for Investment Success.” Below is a summary of each point:
Invest for Maximum Total Real Return
This is the No. 1 priority for investors, the maximizing of returns. He advises us to be diligent and recognize how inflation and taxes can affect the bottom line. “It is vital that you protect your purchasing power.”
Invest – Don’t Trade or Speculate
Like Benjamin Graham, we are admonished by Templeton to not move in and out of the market and lose a great deal in commissions. Stay focused, stay calm and mostly, be a patient investor.
Remain Flexible and Open-Minded About Types of Investments
No one type of investment is perfect. Be open-minded and realize there are times to buy Dow industrials, cyclical, net-nets or others. Sometimes these can run together and other times certain stocks are undervalued and are a better value.
Buy Low
Never follow the crowd advises Bernard Baruch, presidential adviser. Don’t buy what the crowd is buying. When pessimism sets in, people are selling, prices are going down and you should be ready to buy.
When Buying Stocks, Search for Bargains Among Quality Stocks
Find stocks with good products, strong management, trusted names, which lead to higher margins.
Buy Value, Not Market Trends or the Economic Outlook
Remember that it is the stock that pulls the market along and not the other way around. “All too many investors focus on the market trend or economic outlook.”
Diversify. In Stocks and Bonds, as in Much Else, There Is Safety in Numbers
The only way to protect yourself from the unknowns is to diversify. One cannot always tell when the next earthquake, terrorist attack or government intervention may take place and cause a stock to change direction. Diversification will soften the effect.
Do Your Homework or Hire Wise Experts to Help You
Investigate stocks thoroughly and study what makes them successful. “Remember, in most instances, you are buying either earnings or assets.”
Aggressively Monitor Your Investments
Sir John reminds us that there are no stocks that you can buy and forget. Monitor them and expect changes and react accordingly. (React… not overreact!)
Don’t Panic
Faced with a sudden loss in market value, don’t sell. If you did not sell prior to the downturn, ask whether you would still own it. If the answer is yes, buy more or sit tight.
Learn From Your Mistakes
The only way you can be free of mistakes is to not invest. Learn from them, but don’t beat yourself up over a mistake. Learn from it. Sit down and ask, “What happened?”
Begin with a Prayer
Starting with prayer makes one think more calmly and less likely to make mistakes.
Outperforming the Market is a Difficult Task
It’s hard work. Ok, it’s very hard work, but you can do it.
An Investor Who Has All the Answers, Doesn’t Even Understand All the Questions
You cannot apply investment principles or a checklist to each stock in a world where things are constantly changing. “…the wise investor recognizes that success is a process of continually seeking answers to new questions.”
There’s No Free Lunch
Never invest from sentiment. Even if you liked your 1969 Mustang, Ford (F, Financial) is a different company from back then. Even companies you may really like and wish to invest in may not be good investments at that time.
Do Not Be Fearful or Negative Too Often
There are always corrections, bubbles and crashes we may be faced with, but stocks will go up.
The ninth investment tenet regarding monitoring your investments (and my favorite), Templeton wrote:
Expect and react to change. No bull market is permanent. No bear market is permanent. And there are no stocks that you can buy and forget. The pace of change is too great. Being relaxed, as Hooper advised, doesn’t mean being complacent.
One of the greatest ideas Sir John left us with is to seek out good stocks before they are undervalued. That is, find stocks that you would like to own and determine a price in advance that you would purchase that stock for. As always, Mr. Market will eventually get it wrong and your stock will become undervalued. Likewise, be prepared so that you know, in advance of a correction or crash, exactly where you would sell. Buy Low, Sell High.
