For Sir John Marks Templeton, the road not taken really did make all the difference in the world.
A true contrarian, the legendary investor became a billionaire by “avoiding the herd”.
He bought low, sold high, and was always working against the grains of extreme bullish and bearish sentiment.
In fact, it is when the streets were the bloodiest that Templeton became the most eager to invest.
It was at these moments of what Templeton called “points of maximum pessimism” that he began to wade in snapping up rock bottom bargains along the way..
Going Long on Pessimism
To his credit, that included one of Templeton’s most daring plays.
As the U.S. was still mired in The Great Depression and the war drums in Europe began to beat, Templeton borrowed enough money to invest in U.S. markets during the dark days of 1939.
With a war chest of $10,000, Templeton bought 100 shares in every single company that was trading for less than a dollar a share on the New York Stock Exchange. When he was done, Templeton had bet on 104 companies, including 34 that were already in bankruptcy.
A short four years later, only four of them turned out to be worthless, while Templeton’s initial investment grew 400% to $40,000.
That was the start of long and successful career. Not long after, he became a billionaire by pioneering the use of globally diversified mutual funds.
Established in 1954, his Templeton Growth Fund was the granddaddy of them all. It grew at an astonishing rate of nearly 16% a year until Templeton’s retirement in 1992, handily beating the Standard & Poor’s gains of 11.1%.
With dividends reinvested, each $10,000 invested in the Templeton Growth Fund at its inception would have grown to $2 million by 1992, before it was sold to the Franklin Group.
A fundamentalist by nature, Templeton’s overall investment thesis was simple: it was to “search for companies around the world that offered low prices and an excellent long-term outlook.”
That usually included areas of the world other investors had completely overlooked–most notably post-war Japan. Templeton was not only one of the first investors to place bets there, he was also one of the first investors to sell out as the Japanese bubble peaked in the mid-1980’s.
Likewise, his timing couldn’t have been better in the late 1990’s.
At the height of the Internet bubble Templeton predicted 90% of the new Internet companies would be bankrupt within five years.
Confident in his prediction, Templeton went short dozens of technology companies, making himself over $80 million in a matter of weeks. He later called it “the easiest money I ever made.”
After a long and profitable career, Money magazine dubbed him “arguably the greatest global stock picker of the century” in 1999.
Of course, along the way he also left behind a wealth of investment advice for stock pickers at every level.
Templeton’s 10 Maxims
He called them Templeton’s 10 Principles for Successful Investing. They included the following:
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 skeptical. Long term top results are achieved only by changing from popular to unpopular the types of securities you favour and your methods of selection.”
3. Never follow the crowd: “If you buy the same securities as other people, you will have the same results as other people. It is impossible to produce superior performance unless you do something different from the majority. Buying when others are despondently selling and selling 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. Avoid the popular: “When any method for selecting stocks becomes popular, you will need to switch to unpopular methods.”
6. Learn from your mistakes: “‘This time is different’ are among the most costly four words in market history.”
7. Buy during times of pessimism: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
8. Search worldwide: “To avoid having all your eggs in the wrong basket at the wrong time, you should diversify. When you search worldwide, you find more better bargains than when you monitor only one nation. You also benefit from more safety thanks to diversification.”
9. Hunt for value and bargains: “Too many investors focus on outlook and trend. Therefore, more profit is made by focusing on value. In the stock market the only way to get a bargain is to buy what most investors are selling.”
10. No-one knows everything: “An investor who has all of the answers doesn’t even understand the questions.”
Of course, those aren’t the only words of wisdom Templeton had to offer. He also once said, “It’s nice to be important, but it is more important to be nice.”
Templeton passed away in July 2008 at the age of 95.