Lessons From Sir John Templeton

Sir John Templeton is one of history’s most famous investors. Known for his contrarian nature, Templeton liked to buy stocks trading at deeply discounted prices, a trait personified by his great World War II trade.

In 1939, Templeton made a large $10,000 bet on stocks trading on the New York Stock Exchange by buying every stock trading under $1 (104 equities). Near the end of the war, he sold the stocks for around $40,000.

Throughout the rest of his career, Templeton founded a number of mutual funds and asset managers, the largest of which was the Templeton Funds Group, which he sold in 1992.

Godfather of international value

If Benjamin Graham is the godfather of value investing in the U.S., Templeton can be called the godfather of international value investing. His mantra was to search for companies around the world that offered low prices and an excellent long-term outlook. He only investigated stocks that were completely neglected; all others were not considered to be worth studying. The Templeton Growth Fund, launched in 1954, achieved annualized returns of 15% a year until Templeton retired in 1992.

Despite Templeton’s prominence as an investor, however, his returns are often overlooked as famous value investors such as Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) steal the spotlight. To follow are some of Templeton's most informative and well-known investment quotes. They will hopefully give some insight into the investment philosophy of this often overlooked investor.

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

“The four most dangerous words in investing are ‘This time it’s different.’”

“Remember, no investment is forever.”

“Invest for maximum total real return. This means the return on invested dollars after taxes and after inflation. This is the only rational objective for most long-term investors. Any investment strategy that fails to recognize the insidious effect of taxes and inflation, fails to recognize the true nature of the investment environment and thus is severely handicapped.”

“Keep in mind the wise words of Lucien Hooper, a Wall Street legend, 'What always impresses me,' he wrote, 'is how much better the relaxed, long-term owners of stock do with their portfolios than the traders do with their switching of inventory. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he pays smaller capital gains taxes; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by thinking too much.’”

“When almost everyone is pessimistic at the same time, the entire market collapses. More often, just stocks in particular fields fall. Industries such as automaking and casualty insurance go through regular cycles. Sometimes stocks of companies like the thrift institutions or money-center banks fall out of favor all at once. Whatever the reason, investors are on the sidelines, sitting on their wallets. Yes, they tell you: 'Buy low, sell high.' But all too many of them bought high and sold low. Then you ask: 'When will you buy the stock?' The usual answer: 'Why, after analysts agree on a favorable outlook.' This is foolish, but it is human nature. It is extremely difficult to go against the crowd—to buy when everyone else is selling or has sold, to buy when things look darkest, to buy when so many experts are telling you that stocks in general, or in this particular industry, or even in this particular company, are risky right now.”

“No matter how careful you are, you can neither predict nor control the future. A hurricane or earthquake, a strike at a supplier, an unexpected technological advance by a competitor or a government-ordered product recall—any one of these can cost a company millions of dollars. Then, too, what looked like such a well-managed company may turn out to have serious internal problems that weren’t apparent when you bought the stock.”

“If you expect a company to be acquired or dissolved at a premium over its market price, you may be buying assets. Years ago Forbes regularly published lists of these so-called 'loaded laggards.' But remember, there are far fewer of these companies today. Raiders have swept through the marketplace over the past 10 to 15 years; be very suspicious of what they left behind.”

“Forgive yourself for your errors. Don’t become discouraged, and certainly don’t try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience. Determine exactly what went wrong and how you can avoid the same mistake in the future.”

“The challenge is not simply making better investment decisions than the average investor. The real challenge is making investment decisions that are better than those of the professionals who manage the big institutions.”

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