Templeton’s Way with Money – Learning Points

This is the first time that I read up on Templeton, who is a legendary investor and fund manager of the 20th century. I shall note down the learning points here:

  • Philosophy is important – Templeton looks for long-term (at least 5 years) earnings potential of a company as he believes that it is future earnings that should decide the value of a stock (or company). This seems to be the foundation that he based on for everything he does.
  • After Philosophy, comes the process – Templeton uses numerous indicators (>100) to value a stock; different situations call for different indicators, and he was extremely open about new ways of valuing a stock, as long as he had confirmed that they worked.
  • Buying cheap is key, regardless of asset class – he was also not adamant about buying only stocks; his funds had owned bonds, held cash when there was nothing cheap to buy.
  • “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards” – his exact words, which he wrote in 1938. I myself have failed to do this many times and could understand the courage needed to do this. It really takes a lot of guts and confidence to execute. I think the most difficult thing is selling the stocks when they become expensive. I have failed several times in this as well!
  • Best time to sell: time of maximum optimism
  • Best time to buy: time of maximum pessimism
  • Shut out the noise – Templeton moved to the Bahamas in the later part of his life and found that being far away from the Wall Street gave him the space and peace to act on the contrarian. He was without internet and fax machine; the information he received is already outdated when it reached him. However, he still outperformed the market. RESPECT.
  • It is impossible to produce a superior performance unless you do something different from the majority – need to develop independent thinking to do this and be brave when others are not. The best performance is produced by a person, not a committee.
  • Invest for Maximum Real Total Returns after tax, inflation, trading costs and fees.
  • Do not Trade or Speculate – Go for the long term view. The trading costs would also eat into profit. See above.
  • Remain Flexible – Templeton was willing to try ANY method that might help to identify bargain stocks. “Never adopt permanently any type of asset or any selection method” – his words. He would consider all asset classes, as long as they were cheap as compared to their intrinsic value.
  • Be open to new ideas. Once, his staff found him looking up at the sky in his office, using a comb to guide his lint of sight, and there was a book about sunspots and their impact on stock markets on his table as well. He was really trying out the idea, and was always asking his colleagues to search for explanations for apparently bizarre phenomena. This is a curious man and never complacent despite his achievements. “Colleagues lost count of the number of new stock screening ideas that he dreamed up or encouraged”. It must have been great working with him, and also tiring. LOL.
  • Search for Quality among Bargain Stocks – He looked for:
    • Strong management team with proven track record;
    • Evidence of technological leadership;
    • An industry with continued growth potential;
    • a respected and valuable brand;
    • low-cost production
  • Diversify your holdings – across assets, markets, and time. I myself have benefited from diversifying my holdings in stocks. If I did not, I could have suffered very serious losses.
  • Investors can find more and better bargains if they search worldwide, as compared to just one nation. Oh-oh, that is why I want to check out the foreign markets soon.
  • Do your homework – investing is hard work.You need to put in time and effort to read up on industries, companies’ annual reports and attend AGMs.
  • Aggressively monitor your investments – whenever I failed to keep up with some of my stocks, I sometimes get very rude shocks. I also observed that when I have time to review my portfolio frequently, my portfolio’s performance is better.
  • Do not panic – during crises, this could be hard to do, no matter how many times we told ourselves to buy during crises.
  • Learn from your mistakes – I hope to write down my mistakes to remind myself!
  • If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and, when lost, won’t return for many years.
  • Share prices fluctuate much more widely than values. Therefore index funds will never produce the best total return performance. Templeton used a framework to decide how much (percentage of portfolio) his clients should put into stocks based on how cheap or expensive he thought the market was. Hence, he really practised buy low sell high. He even gave the instructions to the brokers so that he would not change his mind due to his emotions.

I am interested to read more about Templeton, will check out his other books at the library. ?

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