Lessons from an Innovator in Global Investing, Sir John Templeton

Jul 08 2008

Lessons from an Innovator in Global Investing, Sir John Templeton

Published by Roland Manarin at 3:55 pm under Investing

Sir John Templeton has died at the age of 95. He was one of the great minds in the financial community as well as one of my early mentors. Below are some key excerpts from his 1993 article ”16 Rules For Investment Success.” They are as true today as they have ever been.

I can sum up my message by reminding you of Will Rogers’ famous advice:

Don’t gamble. Buy some good stock. Hold it till it goes up . . .and then sell it. If it doesn’t go up, don’t buy it!

There is as much wisdom as humor in this remark. Success in the stock market is based on the principle of buying low and selling high. Granted, one can make money by reversing the order - selling high and then buying low. And there is money to be made in those strange animals, options and futures. But, by and large, these are techniques for traders and speculators, not for investors. And I am writing as a professional investor, one who has enjoyed a certain degree of success as an investment counselor over the past half-century — and who wishes to share with others the lessons during this time.

1. INVEST FOR MAXIMUM TOTAL REAL RETURN. This means the return on invested dollars after taxes and after inflation. This is the only rational objective for most long-term investors.

2. INVEST - DON’T TRADE OR SPECULATE. The stock market is not a casino, but if you move in and out of stocks every time they move a point or two . . . the market will be your casino. And, like most gamblers, you may lose eventually - or frequently.

3. REMAIN FLEXIBLE AND OPEN-MINDED ABOUT TYPES OF INVESTMENT . . . The fact is there is no one kind of investment that is always best. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and - when lost - may not return for many years.

4. BUY LOW. Of course, you say, that’s obvious. Well, it may be, but that isn’t the way the market works. When prices are high, a lot of investors are buying a lot of stocks. Prices are low when demand is low. Investors have pulled back, people are discouraged and pessimistic . . . Heed the words of the great pioneer of stock analysis Benjamin Graham:

Buy when most people . . . including experts . . . are pessimistic, and sell when they are actively optimistic.

Bernard Baruch, advisor to presidents, was even more succinct:

Never follow the crowd.

So simple in concept. So difficult in execution.

5. WHEN BUYING STOCKS, SEARCH FOR BARGAINS AMONG QUALITY STOCKS.

6. BUY VALUE, NOT MARKET TRENDS OR THE ECONOMIC OUTLOOK. A wise investor knows that the stock market is really a market of stocks.

7. DIVERSIFY . . . AS IN MUCH ELSE, THERE IS SAFETY IN NUMBERS. No matter how careful you are, you can neither predict nor control the future.

8. DO YOUR HOMEWORK OR HIRE WISE EXPERTS TO HELP YOU.

9. AGGRESSIVELY MONITOR YOUR INVESTMENTS. Expect and react to change. No bull market is permanent. No bear market is permanent.

10. DON’T PANIC . . . The time to sell is before the crash, not after.

11. LEARN FROM YOUR MISTAKES. The only way to avoid mistakes is not to invest - which is the biggest mistake of all.

12. BEGIN WITH A PRAYER. If you begin with a prayer, you can think more clearly and make fewer mistakes.

13. OUTPERFORMING THE MARKET IS A DIFFICULT TASK.

14. AN INVESTOR WHO HAS ALL THE ANSWERS DOESN’T EVEN UNDERSTAND ALL THE QUESTIONS. A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster.

15. THERE’S NO FREE LUNCH.

16. DO NOT BE FEARFUL OR NEGATIVE TOO OFTEN . . . There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up . . . and up . . . and up . . . Despite all the current gloom about the economy, and about the future, more people will have more money than ever before in history. And much of it will be invested in stocks.

And throughout this wonderful time, the basic rules of building wealth by investing in stocks will hold true. In this century or next it’s still “Buy low, sell high.”

Republished with permission from Franklin Templeton Distributors, Inc.