Sir John Templeton - an optimist who doesn't like to follow the crowd

Not every trader who thinks against the crowd has the perseverance to follow their strategy, even during periods of underperformance. Most traders suffer from inconsistency. As a result, they jump from strategy to strategy. The problem with many of them is that they choose their system based on historical returns, and the psychological aspect is overlooked. For this reason, strategies often do not match the psychological profile of the investor. However, there are those who have been able to consistently beat the market for several decades. At that time, they were faithful to their choice of companies. He was such a person Sir John Templetonwho is the hero of this article.

Who was Sir John Templeton?

John Templeton is an example of an investor who liked to go against the flow and make unobvious decisions. It is not so much the rate of return that arouses admiration, but rather the period during which his funds achieved a very good rate of return. The flagship fund, Templeton Growth Fund, achieved an average annual rate of return of 15% for 38 years. No wonder in 1999 Money magazine named John Templeton “The best stock picker of the century".

stock picker is a person who can properly select companies with the potential for an above-average rate of return on investment.

Sir John Templeton was too one of the first professional investors in emerging markets. He had a nose for investing in promising markets. Most often, he started his investments at a time when most people had a negative attitude towards a given sector or country. This was the case with investing in the Japanese stock market in the 50s or in the United States in the 70s.

He is the author of numerous quotes. Among them are:

“The point of maximum pessimism is a good time to buy, the time of maximum optimism is the best time to sell.”

“The four most expensive words are this time it will be different".

"Do not panic. The time to sell stocks is before the crash, not after it."

We hope that after reading this article you will analyze whether the Templeton strategy can help you improve the performance of your portfolio.

Education and career beginnings on Wall Street

Sir John M. Templeton was born on November 29, 1912 in a small town called Winchester, Tennessee. His family was poor. He made the situation even worse Great Depression. It led to a significant impoverishment of the family. Moreover, a significant part of the assets lost their value as a result of the aforementioned crisis. Because of this, young John had to earn his own money for his studies at Yale University. It was only during his studies that his financial situation improved thanks to a scholarship for very good academic results.

He graduated in 1934 with a result in the top of the year. At the same time, he left the university as President of Phi Beta Kappa. ΦΒΚ is one of the oldest university fraternities. Its motto is:

"love of wisdom, guide of life".

The beginning of Phi Beta Kappa took place in the XNUMXth century. Members of the fraternity include: Henry Kissinger, Bill Clinton or GHW Bush. During his education, he earned a CFA degree. He was also a student Benjamin Graham, who is the “father” of value investing. Graham's influence is evident in the early years of his investing career.

He began his adventure on Wall Street in 1938. Due to limited financial resources, he had to find a job. He was hired at Fenner and Beane. It was a small investment company, not very recognizable on the market. However, in the future, she became part of it Merrill Lynch.

Initially, Templeton was not afraid of high diversification and did not approach investing selectively. A great example was 1939. With the start of the war in Europe, John decided to buy shares on the stock exchange. He decided to buy 100 shares of each company that was trading at $1 or less. There were 104 such companies, including 34 in a very difficult financial situation. The transaction turned out to be very profitable. Only four companies failed, causing their share price to drop to 0. Most of the shares gave Templeton a very high profit.

Self-employed investing

When he had saved up enough money, he tried to make a name for himself. As a result, he acquired a small investment firm and renamed it Templeton, Dobbrow and Vance Inc.

His strategy in the early years evolved but focused on the acronym BLSH (Buy Low Sell High). When choosing investments, he did not look at the chart. He preferred to analyze the foundations. He was looking for good companies that were severely overpriced and they were located “at the point of maximum pessimism”. The strategy reminded buying “butts”, which is the one favored by Benjamin Graham.

In the following years, John continued his career in the capital market. In 1954, he decided to try his hand at the investment fund market. The return on the Templeton Growth Fund (Class A) was staggering. $10 invested in 000 yielded over $1954 million in 2.

Templeton wasn't focused on just one fund. He also created funds that invested in particular industries. These include funds investing in the chemical, electronic and nuclear energy industries. High rates of return resulted in assets under management (AuM) of $1959 million in 66.

In addition to qualitative analysis, Templeton and his associates developed methods for portfolio selection and management. Over time, the methods have been refined and we know them as: Shiller's P/E, portfolio rebalancing and q Tobin. In 1992, John Templeton sold his interest in Templeton, Galbraith & Hansberger. The company was purchased by Franklin, who paid $913 million for the stake. John Templeton with his son and John Galbraith owned 70% of the company. Franklin after the acquisition changed its name to franklin templeton.

Unconventional investing

Sir John Templeton wasn't thinking straight. For this reason, he was not afraid to invest outside the United States. This is interesting because most investors experience the so-called home bias. It is preferring to invest in shares of companies from the country of residence or origin. John was different. He wasn't afraid invest in Japanese companies in the 50s and 60s.

Japan was then a typical developing country. However, thanks to the appropriate institutions, work culture and geographical location, the country had great potential for further development. At the same time, Japanese companies were much cheaper than American ones. They also offered great development prospects. The situation was also facilitated by the fact that during existence The Bretton Woods system exchange rates did not change very often. As a result, the exchange rate risk was low. The problem, however, was that it was hard to find brokers who spoke both Japanese and English at the same time. But that's what allowed his funds to buy low-cost companies before Japan became the focus of investors in the 70s. then this Templeton began reducing exposure to the Japanese market and investing in the US market.

The reason for this decision was that American companies were in a strong bear market at the time. Therefore, it gave a chance for bargain purchases that would give high profits in a few years. Japanese stocks, on the other hand, traded at a premium. This was due to the rise of Japan's popularity as "global hegemon". Investors wanted to catch the dynamic development of this country. This "pumped up" valuations of Japanese companies. Selling Japanese shares and buying American shares was a good investment and allowed Templeton funds to generate a profit above the market average.

Sir John Templeton and investment philosophy

According to Sir John Templeton, a big component of investment success is that he tried not to succumb to violent mood swings. While speculating, he tried to keep his composure. In his opinion, many novice investors get too emotional about investing, which causes them to fall into extreme emotions. While profits fall into euphoria, and after a series of losses are upset. Occasionally, during periods of low valuations, such investors may feel fearful of investing. Traders who are not calm when trading may take on too little or too much risk depending on their mood.

John Templeton also did not use technical analysis. Instead of predicting market behavior, he focused on conducting thorough fundamental analysis.

He spent time selecting companies that are valued below their fundamental value. The larger the difference, the safer and potentially more profitable the trade was. Templeton liked profitable companies with great potential for further growth and with very good management.

Templeton did not seek to invest in fast-growing companies. This was due to the fact that the valuation of such companies was often high and already discounted a significant part of future profits. Sam has tried to avoid investing in companies that have a valuation higher than 12-14 times their profits in 5 years. Sometimes he invested in the typical "butts" (i.e. cigar butt). He invested in overvalued stocks, which he sold when the valuation equaled or was close to its intrinsic value.

He had a lot of patience. The average holding time of the company in the portfolio was 4 years. It is worth remembering that Sir John Templeton was not a one-dimensional investor. He was able to buy companies that were valued on average, but had a very large development potential. He also liked to have companies with very good management in his portfolio.

Templeton often had very different attitudes to the condition of the stock market than the market. During periods of shopping frenzy, he very often avoided buying stocks. The reason was too high prices, which resulted from excessive optimism among investors. On the other hand, during the bear market, John believed it was time to promote. Thanks to this, he was able to acquire good quality companies at very bargain prices. For this reason, a patch was pinned to it “not following the crowd”. The truth is, however, that he was simply looking for overpriced companies. He wasn't interested in the opinions of the "crowd".

It is worth remembering that his investment strategy did not focus only on the American market. He looked for investment opportunities everywhere. Especially where valuations encouraged investment. If John Templeton decided to buy a company, he had a lot of patience. The average holding time of a company in the portfolio was 4 years.

He believed that it is also worth focusing on what we know and understand best. Despite the vast assets under management, Templeton did not invest in "fashionable companies" he did not understand. Instead, he preferred "boring" companies that for some reason were not liked by investors. The reasons could have been different. From worse financial results to market panic.

Private life and views on the world

At the age of 25, John married Judith Folk. They had three children (John, Anne and Christopher). However, after 14 years of marriage, Judith died in a motorcycle accident. After 7 years, John Templeton remarried. His second wife was Irene Reynolds Butler. The wedding took place in 1958. However, the couple did not have children.

John Templeton rejected excessive consumerism. He lived relatively modestly and, even as a multi-millionaire, refused to fly first class on an airplane. He himself believed that:

“Making money is fine as long as you don't enjoy it”.

His lifestyle these days would seem boring. After all, many people, even middle-income people, constantly bombard their social profiles with a consumption lifestyle.

Templeton, in turn, focused on looking for investment opportunities, helping others and enjoying the "ordinary" life. He didn't buy overly expensive things to impress others. John Templeton died of pneumonia in 2008. He was 95 then.

Worth knowing that Templeton had dual citizenship: British i Bahamian. Some believed that tax matters were the reason for relinquishing his American citizenship. He renounced his American citizenship at the age of 56, in 1968. He was knighted by Queen Elizabeth II in 1983.

Philanthropic activities

John Templeton is one of the greatest donors of all time. He donated over $1 billion to charity. After all, he could have used the money to buy luxury villas, yachts, jets or build a home art gallery. However, luxury did not fit our hero's beliefs. He enjoyed helping other people much more.

John also created John Templeton Foundationwho coordinated charity work. In addition, the Templeton Prize is awarded. It was originally called Templeton Prize for Progress in Religion. In 2001, the name was changed to Templeton Prize for Progress Toward Research or Discoveries about Spiritual Realities. The prize is awarded for outstanding achievements in the scientific and religious or moral fields. The award winners include Polish physicist Michał Heller. Among other honorees are Freeman Dyson.

Templeton also invested in education. In 1983, he donated to the Oxford Center for Management Studies. The donation was so large that the college changed its name to Templeton College in gratitude. The purpose of the financial support was to improve the quality of management in the United Kingdom.

In 1984, Sir John Templeton founded the TRT, or Templeton Religion Trust. Its task was to support projects that explored human spirituality and supported initiatives related to spiritual development.

Sir John Templeton himself was not a dogmatist. He saw the benefit of drawing on the moral aspects of different religions. He did not mind seeing the added value of different religions. From Christianity through Muslimism to Hinduism.

Summary: John Templeton = humble billionaire

Sir John Templeton is one of the greatest investors in the history of capital markets. Its consistency and fantastic results in the long term are proof that active investing can provide very high rates of return.

He liked to take advantage of market discounts. Situations like this gave Templeton a chance to buy good companies at great prices. Of course, he also had well-managed companies with interesting business models in his portfolio. There was only one condition that such companies had to meet - were to be valued at a discount to intrinsic value.

Despite the fact that he walked his own path and liked to invest "against the tide", he was very optimistic. He also believed in the long-term progress of humanity. So it wasn't the "eternal bear" type. He was an optimist who paid much attention to the price at which he purchased shares.

It is worth remembering that Sir John Templeton did not lose his investment nose until old age. In the late 90s, he sold his block of shares in technology companies. It was right before dotcom bubble bursting.

In 2005 year Sir Templeton wrote a memorandumin which he envisaged that within 5 years there will be a global financial crisis. It will lead to problems in the housing market and reduce interest rates to around 0. In addition, he expected the traditional education system to erode within a few decades. The reason will be that more and more people will search for knowledge via the Internet. The memo itself was for many years circulated only within the Templeton family and Franklin-Templeton senior management. This text was made public in 2010.