Sir John: Worldly Insights
02/13/2004 12:00 am EST
As one of the world's greatest investors, and among the leading proponents of global investing, there is nobody more appropriate to help launch The World Money Show and this special highlights issue than Sir John Templeton. He is truly a remarkable man, and we are thrilled to share his latest insights.
Just prior to the start of The World Money Show in Orlando, I was fortunate enough to go to The John Templeton Foundation in Nassau, Bahamas, along with Paul Kangas, host of Nightly Business Report , and Charles and Kim Githler, chairman and president of InterShow respectively, to spend the afternoon with Sir John Templeton. He is a remarkable investor: $100,000 invested in the Templeton Fund in 1954 grew to a total of $51 million by May of 2002. He is also a remarkable man: he was knighted by Queen Elizabeth II for his extraordinary contributions.
It's been nearly ten years since I last visited with Sir John, and while he has spent much of the past decade funding research into the exploration of science and religion, he remains one of the world's most insightful observers of the financial markets. Here are some highlights, as Sir John discusses a range of topics, including terrorism, currencies, freedom, and the global investment markets.
Charles Githler: Sir John, your career spans both World Wars and many other conflicts. How does the war on terrorism compare to prior wars and how does the threat of another terrorist strike impact your long-range outlook on global investing?
Sir John Templeton: Since terrorism became newsworthy about ten years ago, the total number of Americans killed by terrorism in that entire decade is less than the number that die every day by heart failure. But heart failure is not so newsworthy. So while terrorism is certainly not desirable, I wouldn't give it too much thought in terms of one's long-term investments. It should also prove to be less of a problem in the long run than it is now.
Paul Kangas: Sir John, what is your long-term outlook for the world economy?
Sir John Templeton: Let me preface this by saying that we are coming into the most glorious century the world ever saw. The standard of living worldwide will be at least ten times higher than it ever has been before. The speed of progress is speeding up. Specific regions around the world will speed up more rapidly if they start from a lower level. For example, the income per person in China is about one-fortieth of what it is in America, so it is easier to have a rapid speed-up in the standard of living. To some extent, that applies also in Russia where the income per person is about one-tenth what it is in America. So Russia will be fast, China will be fast, and Korea is likely to continue to speed up--those are the nations that come to mind. Some of the other poorer nations have not yet realized that in order to be prosperous they have to treat people honestly and fairly. When that comes about some of the other nations will race ahead.
Paul Kangas: You don't think the US will be speeding up because we are already at a higher level. Will we manage to hold our status quo?
Sir John Templeton: The United States will continue to have one of the highest incomes of any nation, the highest of any big nation on earth.
Charles Githler: Are you concerned over corporate accounting scandals?
Sir John Templeton: If you do the arithmetic, I think you will find that there has never been a period in world history, or a nation in world history, where the standards of honesty were as high as they are in America now. And one reason they are high in America is the publicity about anybody who does something that might be considered undesirable. So publicity is helping standards to become amazingly high, far greater than anybody could have imagined until recently.
Paul Kangas: Gold has risen sharply along with many other industrial commodities. You were right a few years ago when you told us not to worry about deflation. Is it just normal reflation as many global economies recover that we are seeing, or are interest rates and inflation headed significantly higher?
Sir John Templeton: No. I would be surprised if inflation speeds up for the next three or four years. My guess is that it will be about normal. In terms of the value of gold, it has risen greatly in the last five years, and it may rise somewhat further but much of the rise is behind you.
Charles Githler: Among the super successful money managers of all times none has been a stronger advocate for free enterprise than you, Sir John. Should we be concerned about 'creeping socialism' in the US and other developing countries?
Sir John Templeton: Very much. You've touched upon a very important subject. So many people do not realize that they are limiting the future expansion of humanity by demanding regulation. Socialism is creeping in without people realizing it even in the most free nations. When any problem comes up, the majority of people will say put on regulation. Consequently, we become too highly regulated. You will accomplish ten times as much if instead of regulation you rely on free competition, public awareness, and free competition, which takes care of these problems.
Paul Kangas: The Bush administration has shown little concern over the significant weakness of the US dollar rates recently, especially against the Euro. Give us your reflections on this development?
Sir John Templeton: The American dollar became so high that people tried to smuggle themselves into the United States in order to benefit from it. That will be less of a problem if the American dollar comes more into line with world currencies. The declining US dollar only becomes a danger in a sense that other nations will have to compete, other nations will have to reduce the value of their money, too. All currencies do tend to go down in terms of purchasing power, and that is likely to continue.
Paul Kangas: So it is a time for the investor to go for safety?
Sir John Templeton: Yes. If your time horizon is the next two, three, or four years, I would certainly advise your audience to play it safe.
Paul Kangas: For US investors, what portion of their portfolio should be invested for growth and income outside the United States?
Sir John Templeton: Over half, which is unusual for most Americans. Indeed, you won't find many Americans keeping over half of their stocks and bonds outside America, but I think that is a near-sighted view. I recommend that Americans begin to look around the world to find the best opportunities.
Charles Githler: How high would you see the US markets go over the long term?
Sir John Templeton: I have given a lot of study to the history, and I believe it will go up at least as much in the next century as it did in the past century. The Dow industrial average is now 100 times what it was a century ago. So it is quite likely it will be at least 100 times as high a century from now."