Ten great investors

1  2  3  4  5  6  7  8  9  10  11   

9. Sir John Templeton

Job description

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:

1. Invest for real returns
   The true objective for any long-term investor is maximum total real return after taxes.
2. Keep an open mind
   Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sceptical...
3. 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.
4. Everything changes
   Bear markets have always been temporary. And so have bull markets...
5. Consider avoiding the popular
   ...Too many investors can spoil any share selection method or any market timing formula.
6. Learn from your mistakes
   This time is different are among the most costly four words in market history.
7. 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.
8. 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.
9. Search worldwide
   ...If you search worldwide, you will find more bargains and better bargains than by studying only one nation...
10. 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:

1. The P/E ratio in relation to other comparable companies
2. Operating profit margins, particularly if they are rising
3. Liquidating value, i.e. the price the firm would fetch if sold off
4. 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.

1. Warren Buffett 2. T Rowe Price 3. Philip A Fisher 4. Kenneth L Fisher 5. Jim Slater 6. Peter Lynch 7. Ralph Wanger 8. William O'Neil 9. Sir John Templeton 10. John Neff 11. Conclusion

• Beating the Street
• One Up on Wall Street
• 24 Essential Lessons for Investment Success
• The Only Three Questions That Count