Timeless Wisdom of Sir John Tempeton
05/18/2017 2:50 am EST
My favorite investor of all-time is Sir John Templeton (1912-2008). He may be gone, but he will always be remembered as one of the greatest investors ever, notes Tony Daltorio, editor of the just-launched advisory newsletter, Investing Alley's The Growth Stock Advisor.
John Templeton was the first person to introduce the idea of investing globally to U.S. investors. He launched his flagship Templeton Growth Fund when the thought of ever investing outside U.S. borders had never occurred to most domestic investors.
Sir John's pioneering fund racked up an enviable track record, returning an average of 13.8% annually from 1954 to 2004. Even though we are in 2017, many of Templeton's timeless investing principles apply as much today as back in 1954.
Below are some of Templeton's principles which have shaped how I approach investing and what you can expect to be as the core to my strategy during my tenure as the Growth Stock Advisor editor. I hope you can take some of Sir John's wisdom and incorporate it into your own investing style.
#1 – Buy Low.
Obvious, right? But in practice, many investors do the opposite. They chase hot sectors after dramatic moves higher. Think of the frenzy among investors in the period leading up to the bursting of the Nasdaq bubble in 2001. Or the similar fate that befell investors that thought the commodity super-cycle, thanks to China's build-out of infrastructure, would never end.
Sir John always scoured the globe for bargains. He told investors to buy when everyone else is selling, when things look darkest, when all the experts say a certain investment is too risky. Templeton wrote “buy when others are despondently selling and sell when others are avidly buying.”
He would often say, “People are always asking me where the outlook is good, but that's the wrong question. The right question is: Where is the outlook most miserable? The obvious application of this concept in practice is to avoid following the crowd.”
#2 – Invest for the Long-Term.
Hand-in-hand with value investing is investing for the long-term. Templeton said, “Experience teaches us that one of the most common errors in selecting stocks… is the tendency to emphasize only the most obvious factor – namely the temporary outlook for sales and profits of the company.”
In other words, ignore Wall Street's emphasis on quarterly earnings reports. Too many investors spend too much time looking at the short-term market outlooks and trends.
Instead focus on long-term trends in sectors such as technology and medicine to spot growth areas to invest in.
#3 – Diversify.
Sir John believed there was no one kind of investment that is always best. Although over the long-term, stocks do outperform other asset classes such as cash and bonds.
No one can predict the future. So, if you're focused too much on one company or sector or country, events can happen that could devastate your portfolio. Sir John advised to diversify by risk, by industry and by country. He would say, “In stocks and bonds, as in much else, there is safety in numbers.”
#4 – Learn from Past Mistakes.
Everyone makes mistakes investing, even Sir John. As he said, “the only way to avoid mistakes is to not invest – which is the biggest mistake of all.”
Templeton urged investors not to become discouraged. But he warned against taking even greater risks to try and recoup your loss all at once.
Sir John believed that the difference between successful investors and those that are not is that successful investors learn from their mistakes and the mistakes of others.
Anytime you hear someone on CNBC say it's a new era or it's different today, run for the hills.
This is a true investing gem: Templeton wrote “the investor who says, “This time is different”, when in fact it's virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”
Those investors are simply repeating the same mistakes of a past generation but without realizing it. Let’s not be those investors.
#5 – Don't Be Overconfident. I
In other words, always question your investment approach. Is it still valid? Sir John wrote, “Everything is in a constant state of change, and the wise investor recognizes that success is a process of continually seeking answers to new questions.”
A great example of this is how much the investment climate has changed surrounding energy MLPs. Investors poured tens of billions of dollars into funds investing in the sector, only to see losses mount as the price of oil plunged.
Believers in a permanently high plateau for oil prices were given a rude awakening as the price of oil plummeted from above $110 a barrel in the summer of 2013 to the mid-$20s a barrel in January 2016.
Other Templeton Insights
There are other insights to be gleaned from Sir John's vast experience.
Sir John Templeton was not a fan of trading - “the stock market is not a casino.” I am in total agreement with that statement.
Nor was he a fan of index funds - “If you buy the same securities everyone else is buying, you will have the same results as everyone else. By definition, you can't outperform the market if you buy the market.”
And as seen by the performance of the fund he ran, Templeton did an amazing job of beating the market averages over the long-term.
I tend to agree with Templeton on index funds. I have no problem with investors using them as a base, but they should not make up 100% of your portfolio.
Sir John also gave other common sense tips for investors. Such as: not forgetting about inflation and taxes when investing, doing your homework before investing, and always monitoring your investments.