John Templeton was my first investment hero and guru. He died just today, at the ripe old age of 95.
A visionary investor famous for the Templeton Funds and who amassed a fortune in global stocks, he also was a philanthropist who gave away hundreds of millions of dollars to various causes.
Who Was John Templeton?
John Marks Templeton was born November 29, 1912, in Winchester, a small farming town, 60 miles from Dayton, Tennessee, USA.
He was raised in a poor but devout Presbyterian household and was the first-ever student in town to go on to college. Supporting himself at Yale during the Depression, he graduated in economics, near the top of his class in 1934. He won a Rhodes Scholarship to Balliol College, Oxford, and earned a master’s in law in 1936. Later in life, among his many gifts was the 1984 endowment of Templeton College, a business and management school at Oxford. After earning his law degree, Templeton returned to New York and joined the firm of Fenner & Beane, a predecessor of Merrill Lynch, as a trainee.
He gave up his American citizenship in 1968 and moved to the Bahamas, where he became a British subject. The Bahamas is a Commonwealth country, and a tax haven. Officially known as Sir John Templeton, he was knighted by Queen Elizabeth in 1987 for his philanthropic efforts. He died in Nassau today, having fallen ill with pneumonia.
What Templeton Taught Me About Investing
Years ago, I visited Templeton one afternoon at his white-columned home at Lyford Cay. In typical British fashion (I was born in the UK), he served sandwiches and tea on the lawn. As we overlooked citrus trees, orchids, bougainvillea, and the ocean waves beyond, he explained how the market had waves of its own.
These waves, he explained, were quite predictable, and it is advice I have always followed with great success. Some people say that Templeton used only fundamental analysis and not technical analysis. He told me that this was not the case: that he used market cycle analysis plus stock technical and fundamental analysis.
He also told me that he became an even better investor after he got away from what he called the parochial Wall Street mentality. He invested early in Japan in the 1960’s and bought into Russia, China, and the Asian Tigers long before most others. One of his mantras was: "Search for companies around the world that offered low prices and an excellent long-term outlook." In 1999, Money Magazine called him "arguably the greatest global stock picker of the century."
But he also knew when to bail out. An avid student of stock market cycles, he also forewarned about the high-tech bubble that burst in 2000, and sold large holdings beforehand. He also warned a few years ago that real estate prices were too high and a housing bubble was forming that would burst — as is now happening.
The Investing Master: “Buy Low, Sell High”
Templeton was a master investor who dazzled Wall Street for decades. He organized some of the most successful mutual funds and led investors into foreign markets. He was, as I noted, particularly well known for tracking market cycles, spotting ballooning market bubbles, identifying their tops, and selling out with huge profits while urging others to do the same. Then he would buy back again after everyone bailed out.
He made billions as a pioneer mutual fund developer of his globally-diversified Templeton Funds. Thanks to his astute knowledge of cycles, he appeared to “buy low, sell high” in the extreme. But he was almost always right.
As noted, he began his Wall Street career in 1936, then only 24. But he started his own firm in 1937. He was a fearless and contrarian investor, a bargain-hunter who bought “when everyone else is selling” and sold “when everyone else is buying.”
The following story is legendary:
In 1939, as Hitler announced the invasion of Poland, people started selling. Templeton borrowed $10,000 from his boss, and bought a “junk pile” of 100 shares in each of every New York Stock Exchange listed stock that was trading under $1 per share — 104 companies, including 37 that were under bankruptcy protection. Within four years, he made huge profits on 100 of them, only 4 being duds. He sold them all, after repaying the loan, for a net profit of more than $40,000.
In 1940, already successful, he acquired a small investment firm that became “Templeton, Dubbrow, and Vance”. In 1954, he established the Templeton Growth Fund in Canada. This move not only avoided taxes for fund holders — Canada then had no capital gains tax — it also was a low-risk way to emphasize the global thrust of his investment strategy.
As the economy boomed in the 1950s, more and more investors were drawn into the market. In response, he started new funds that focused on nuclear energy, chemicals, electronics, and technology. By 1959, with five funds and $66 million under management, he started to take them public. His main Templeton Growth Fund achieved a 14.5% annual return between 1954 and 1992. Anyone investing just $1,000 would, with re-invested dividends, see that grow to $200,000.
Some famous Templeton quotes:* Invest at the point of maximum pessimism.
* When people are desperately trying to sell,
help them — by buy their shares.* When people are enthusiastically trying to buy,
help them — by selling them your shares.* Never overpay. Most of my life I found bargains,
one place or another, below 12 times earnings.* When people pay 4-5 times for a house what it
would cost to rebuild, you know there is a bubble.* If you want to have a better performance
than the crowd, you must do things
differently from the crowd.* If you're in Manhattan, it's much more
difficult to go against the crowd.* The four most dangerous words in investing
are: "This time it’s different".* There are at least 5 stock cycles every century.
Thanks to using these strategies, in 1992 Templeton sold all the Templeton funds, then with $13 billion in assets, to the Franklin Group for US$440 million. He then turned his attention to philanthropy.
Learn from his lessons. And prosper.
