Last week I discussed the danger of chasing money without the guidance of a higher value as depicted in the hit movie The Wolf of Wall Street. Today I wish to share with you the story of a great investor named John Templeton (1912-2008), an American-born British stock investor, mutual fund pioneer, businessman and philanthropist.
John Marks Templeton was born on November 29, 1912 in Winchester Tennessee. His parents had great influence in developing John’s entrepreneurial spirit. He saw how his father engaged in his various trades like providing legal services, buying and selling of land, cotton gin operation, etc. His mother, who was highly educated for her time, not only helped the four year old John in earning his first profits from the sale of beans they planted in their yard, but created a big impact on his views about spirituality which he applied in his investing process.
Growing up, John saw how his mother and aunt raised funds to help the church and learned what money can do to help others. Despite being Presbyterian, the mother was committed to the movement called Unity School of Christianity. Later on, John would write books not only about investing but also about spirituality. I admire the open-mindedness in his spiritual views that some Christians might not find acceptable. In some of his literary works he was quoted as saying, “I have no quarrel with what I learned in the Presbyterian Church — I am still an enthusiastic Christian. But why shouldn’t I try to learn more? Why shouldn’t I go to Hindu services? Why shouldn’t I go to Muslim services? If you are not egotistical, you will welcome the opportunity to learn more.”
Here’s another one: “Suppose you went to your priest and asked for help; he would refer you to the Bible. But if you went the next day to your medical doctor and he referred you to the book of Hippocrates (ancient Greek physician, considered the Father of Western Medicine), which was written at about the same time as the Bible, you would think that was old-fashioned.” But if you look deeper into his spiritual views it is his distinct flavor of humility that made him open-minded. He said that it is self-centered to think that human beings, as limited as they are, can describe divinity; and that it is egotistical not to welcome the opportunity to learn more.
This acceptance of the greatness of the universe, his humility to accept that he had not yet figured out everything, was the same principle he applied to his investing and life in general: How little we know, how eager to learn.
Poker, Studies & Wall Street:
John was an A student. He went to Yale University but when the Great Depression happened, his father told him that they could not afford to give him money to continue his studies. That was devastating news for him, which later on turned out to be a blessing in disguise, as it taught him how to fend for himself. Using his extraordinary intelligence in Math and probabilities, he financed his way through college by playing poker with his richer classmates. In fact, poker also helped finance his way through his Oxford M.A. and trips around the world.
He started working at Wall Street in 1937. He loved taking advantage of what he called “points of maximum pessimism.” When war began in Europe in 1939 he bought stocks that were trading at less than $1 per share. Out of the 104 companies whose stock he invested in (34 of which were in bankruptcy), only 4 turned out worthless. With an average holding period of four years his original $10,000 was worth $40,000. This was his seed money to buy an investment company.
He studied his investments carefully and continued to use his philosophy of buying at the point of maximum pessimism. In fact he said that the question we should ask when investing is not “Where are the prospects rosy?” but “Where are the prospects gloomy?”
His trips around the world and his aversion to egotistical thinking (maybe, the belief that America was “the only investment haven” prevalent during his time) made him venture into investing abroad, particularly Japan in the 1960s. He became a billionaire by pioneering in globally diversified mutual funds through his Templeton Growth Fund established in 1954. With dividends reinvested, each $10,000 invested in the Templeton Growth Fund Class A at its inception would have grown to $2 million by 1992, when he sold the family of Templeton Funds to the Franklin Group. In 1999, Money magazine called him “arguably the greatest global stock picker of the century.”
His decision to be a British citizen in 1964 also saved him some $100 million in taxes when he sold his international investment fund, which he reportedly used for philanthropy. He was among the most generous ones giving over $1 billion to charitable causes in finance, science and spirituality.
Purpose, Thrift and Optimism
Among the great things I admire about Templeton are his commitment to his purpose, thrift and optimism.
With the influence of his mother who was active in church, Templeton first sought to be a missionary but discovered that he was not cut to be one. He discovered his strength in investing so he helped the missionaries handle their money. And helping others manage their money became his purpose. He treated OPM sacred. OPM for Templeton was Other People’s Money, not Original Pinoy Music, okay.
Thrift is another cornerstone in the Templeton success. It’s interesting to know that besides the usual marriage vows he and his wife Judith (said to be among the most dated women in her time) also vowed to save 50% of their earnings! Wow! Maybe if all marriage vows would include this in the wedding ceremonies, we will see a drastic decline in marriage failures because 7 out of 10 marital separations are caused by money problems. Calling all churches and those involved in officiating civil weddings, maybe it’s time to add this feature.
Optimism is an essential ingredient in success. He said it is difficult to build a corporation if you’re a pessimist. To be successful, you must expect success.
There are so many other great lessons to learn from the life of Sir John Templeton. He was knighted in 1987 by Queen Elizabeth II. I suggest you read his biography and the books he wrote. I wish to end this article with the 22 investment maxims he lived by.
The Time Tested Maxims of the Templeton Touch
1. For all long-term investors, there is only one objective – “maximum total real return after taxes.”
2. Achieving a good record takes much study and work, and is a lot harder than most people think.
3. It is impossible to produce a superior performance unless you do something different from the majority.
4. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
5. To put “maxim 4″ in somewhat different terms, in the stock market the only way to get a bargain is to buy what most investors are selling.
6. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude, even while offering the greatest reward.
7. Bear markets have always been temporary. Share prices turn upward from one to twelve months before the bottom of the business cycle.
8. 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.
9. In the long run, the stock market indexes fluctuate around the long-term upward trend of earnings per share.
10. In free-enterprise nations, the earnings on stock market indexes fluctuate around the replacement book value of the shares of the index.
11. If you buy the same securities as other people, you will have the same results as other people.
12. The time to buy a stock is when the short-term owners have finished their selling, and the time to sell a stock is often when short-term owners have finished buying.
13. Share prices fluctuate much more widely than values. Therefore, index funds will never produce the best total return performance.
14. Too many investors focus on “outlook” and “trends.” Therefore, more profit is made by focusing on value.
15. If you search worldwide, you will find more bargains and better bargains than by studying only one nation. Also you gain the safety of diversification.
16. The fluctuation of share prices is roughly proportional to the square root of the price.
17. The time to sell an asset is when you have found a much better bargain to replace it.
18. When any method for selecting stocks becomes popular, then switch to unpopular methods. As has been suggested in ‘maxim 3,’ too many investors can spoil any share-selection method or any market-timing formula.
19. Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and skeptical. Long-term top results are achieved only by changing from popular to unpopular types of securities you favor and your methods of selection.
20. The skill factor in selection is largest for the common-stock part of your investments.
21. The best performance is produced by a person, not a committee.
22. If you begin with prayer, you can think more clearly and make fewer stupid mistakes.
I wish you’d be able to apply the above maxims for maximum returns of your investments. But as you do so, please be guided by these words from the same man, “I’m only going to be on this planet once and only for a short period of time. What can I do with my life that will lead to permanent benefits?”
Wishing you a happy and meaningful investing,