One World, One Dream
Cover Story, by Mark Robertson, Managing Partner August 1st, 2008
Patiently and persistently seek opportunity across the globe.
Sir John Templeton (1912-2008) started his Wall Street career in 1937 and went on to create some of the world’s largest and most successful international investment funds. He was called by Money magazine “arguably the greatest global stock picker of the century.”
Sir John Templeton gave us a legacy of long-term investing wisdom. Sadly, he passed away during July at the age of 95. A Rhodes Scholar, his adventures spanned the globe — seeking opportunity independent of domicile. His religion and philanthopy were very important to him. Did you know that Mother Theresa received the inaugural Templeton award, valued at $2 million? The monetary award is what it is because Sir John always wanted his faith-based awards to be worth more than the Nobel Prize. Inspired by MANIFEST subscriber Frank Bower, let’s take a look at some of Templeton’s guiding principles.
Over the years, Sir John Templeton published a number of articles and made speeches about his investing principles. This list was culled by John Christy from memories of working with Templeton for Forbes. Let’s visit these themes in our own words and methods.
1. All investing is global.
This one is probably the most renowned as he was hailed as “arguably the greatest global stock picker of the century” by a variety of sources. A lifetime quest of global opportunity began immediately after college in the mid-1930s. His conclusion: There are far too many opportunities outside the U.S. to ignore. For Templeton, it was common sense.
In our work with International Investing, we cite the work of Brad Perry who delivers the same encouragement. Solid ideas and investment opportunities are born in places like Helsinki, too. In the grand mix, it simply makes sense that our returns could be enhanced by discovering international leaders. Our work with the Motley Fool CAPS is already expanding our horizons and triggering coverage of more international stocks in our database. This will continue to grow.
2. Always take a contrarian approach…
“Where is the outlook most miserable?” This is Templeton’s famous “principle of maximum pessimism.”
But I think the question is framed improperly. The quest isn’t for the glass half empty … it’s for the glass half full. It’s a intention of perspective. When we characterize a situation differently than the rest of the investing crowd, we’re not trying to be argumentative or difficult, we’re simply maintaining an appropriate, steadfast, long-term perspective. Our version of “prices are down,” evolves into “projected returns are higher,” instead. It’s a powerful contrarian psychology for staying true to thinking differently than the average investor.
3. … But make sure the fundamentals are intact.
What is the quality rating? What is the quality trend? As we’ve discussed in a variety of ways, there are often clear indications of when the lug nuts start to come loose. Any tires gone flat? How many? We believe that management excellence means persistence and strength when it comes to the balance sheet, operating results and competitive position. Advantages must be sustainable and defensible.
4. Let valuation be your guide.
But only because of its mathematical role in the calculation of projected returns. This is the one that distorts and confuses many average investors.
Ken Fisher documents that the current P/E ratio is actually fairly uninformative about relative value in his book, The Only Three Questions … particularly when the time horizon becomes shorter.
The P/E that matters most is the forecasted long-term average P/E.
5. Don’t be afraid of big bets.
It’s not speculation, it’s investing. The work of Phil Fisher and experience of Warren Buffett certainly underscore the potential of “concentrated” investing in relatively few positions compared to average investors and mutual funds.
Investors shouldn’t be afraid of bold bets whenever their research uncovers a big opportunity. We counsel that opening positions can be as large as 10% (125%/12) of total assets for a 12-stock portfolio.
Current Holdings: Templeton Growth Fund (TEPLX) John Templeton generated a 13.3% rate of return while at the helm of this fund from 1954-1987. I’m pretty confident that his legacy persists and that this fund is probably a directional weather vane for shopping for ideas, globally. (Source: www.morningstar.com)
6. Don’t rush into positions.
In the words of Faith Hill, “Don’t hurry. But don’t wait.” The opening position just mentioned can be built over a period of time. Always put your new investment ideas on a watch list, or take a small position before rushing in. If it’s a truly great bargain, there’s no need to hurry.
7. Get away from the crowd.
Templeton lived in the Bahamas for a reason and it wasn’t just taxes. Buffett cites Omaha as one of the biggest reasons for his success because of the noise suppression.
That doesn’t mean ignore the direction of the latest rhino stampede.
At the same time, we know that the Wisdom of Crowds can be a powerful thing when harnessed and kept in perspective.
8. Don’t worry about the direction of the market.
In a 1978 Forbes cover story, Templeton summed it up this way: “I never ask if the market is going to go up or down because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: ‘Where is the one that is lowest-priced in relation to what I believe it is worth?’ Forty years of experience have taught me you can make money without ever knowing which way the market is going.”
Patient. Unhurried. Generous.
I had the opportunity to chat with John Templeton a few years ago while doing some research for Better Investing magazine. He was engaging and generous as always. I learned that he’d offered/explored supporting the NAIC by underwriting some of the educational infrastructure a few decades ago. We’re left to wonder what might have been.
Patience and understanding. We were reminded of Templeton’s attitude during July as Hugh McManus shared some YouTube links on the MANIFEST Forum. Appearances on Wall Street Week with Louis Rukeyser were captured at some memorable moments like 1987’s Black October. Sir John’s outlook echoed that of NAIC’s George Nicholson at the time.
He wasn’t concerned about “insurmountable problems.” “… be overwhelmingly thankful every day to be living in this period of world history in one of the most wonderful countries in the whole world history.” “The world is getting better and speeding up. [In 1995] the world spends $2 billion every business day on scientific research. When I was born, they hadn’t spent that much in a century.”
“This will lead to more rapid progress, a higher standard of living, more variety of products, a higher quality of products. And another thing I’m sure of is that people all over the world will become more spiritual, more minded toward brotherhood and love and better understanding of each other — more than ever, in any period of history.”
As I watched the Rukeyser appearances, I was reminded about patience, understanding and discipline when it comes to long-term investing.
Patiently and persistently seek opportunity across the globe. It seems fitting to recognize Sir John Templeton at the advent of the 2008 Olympics: One World, One Dream.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.