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2024/08
8 golden rules of investment from John Templeton
John Templeton, known as the “bargain hunter,” was one of the most insightful and successful investors of the 20th century. He earned his reputation by seeking out undervalued stocks and making bold, calculated investments that paid off perfectly.
A Bold Move in a Time of Crisis
In 1939, as World War II loomed, markets were gripped by fear and pessimism. Templeton, then working at Rockefeller Center in Manhattan, made a daring move. He borrowed $10,000 from his boss and invested in deeply undervalued stocks, some teetering on the brink of bankruptcy.
Templeton’s thorough research and understanding of the market led to a remarkable outcome despite the risks. Within four years, his initial $10,000 had grown to $40,000, solidifying his reputation as a “bargain hunter.”
Global Diversification: A Key Strategy
Templeton strongly advocated global diversification, believing that the best investment opportunities could be found anywhere globally, not just in one country.
For 40 years, he scoured global markets for undervalued stocks. His keen eye for value was evident when he visited Japan and saw the country’s rapid industrialization.
At the time, Japanese stocks had a price-to-earnings (P/E) ratio of just 4, compared to 19.5 for U.S. stocks, despite Japan’s economy growing faster. Recognizing the opportunity, Templeton invested heavily in the Japanese market. When Japan lifted restrictions on foreign investors in 1960, his Templeton Growth Fund formally entered the market. By the late 1980s, after Japanese stocks surged, he began selling off his holdings, marking yet another victory in his illustrious career
The Eight Golden Rules of Investment
Templeton’s investment philosophy can be distilled into eight golden rules that have guided many successful investors:
- Buy When Others Are Selling, and Sell When Others Are Buying:Take advantage of market pessimism and sell into euphoria.
- Seek Deep Value:The best bargains are found where you can buy $1 worth of assets for 20 cents.
- Avoid the Biggest Mistake:The only way to avoid mistakes is not to invest at all – but that’s the biggest mistake.
- Use Cash for Purchases:Pay for cash investments to avoid debt and interest expenses.
- Beware of the Four Most Expensive Words:“This time it’s different” is a costly mindset.
- Focus on Value, Not Trends:Invest in value, not in fleeting market trends or economic predictions.
- Embrace Uncertainty: The future is unpredictable, regardless of how much research you conduct.
- Buy During Panic and Hold:Buy stocks during panic and hold them; profits will likely follow in the long run.
A Legendary Career
Born on November 29, 1912, in Winchester, Tennessee, Templeton attended Yale University on a scholarship, graduating with honors in 1934. He later received the prestigious Rhodes Scholarship and earned a master’s degree in law from Balliol College, Oxford. Templeton’s most famous investment occurred during the bleak days of 1939 when he purchased shares in 104 U.S. companies, each priced under $1 per share. This bold contrarian bet turned a $10,000 investment into over $40,000 in four years.
Templeton’s belief in contrarian investing—going against the crowd—was central to his success. He maintained that wealth would naturally follow those who remained calm, avoided anxiety, and adhered to disciplined investing. His remarkable foresight, rigorous research, and disciplined approach led to one of the most significant investment success stories of the 20th century.
John Templeton’s life and legacy inspire investors worldwide, reminding them of the timeless value of patience, discipline, and the courage to act when others are fearful.
