Published in: 2008
The book is written by Lauren C. Templeton and Scott Phillips and is about Sir John Templeton’s investment career. Templeton ran the fund company Franklin Templeton Investments and outclassed its comparative indices during its seven decades under Templeton.
A LAISSEZ-FAIRE CHILDHOOD. Templeton was known for his curiosity and optimism. He learned early on that the stubborn one could outwork his opponents – “the doctrine of the extra ounce”. What distinguished the best from the average is often that extra hour of study or work. From childhood he also took an interest in seeing the world.
”Success is a process of continually seeking answers to new questions”
A GLOBAL CITIZEN. Templeton believed that borders were something artificially created by man and nothing that should stop an investor from looking for value in all corners of the world. In addition to better chances of finding value, Templeton also argued that it increased his chances of better returns at lower volatility. He was a diligent traveller and carefully studied the countries he visited. This made him dare to invest where others didn’t.
THE POINT OF MAXIMUM PESSIMISM. In the 1920s, Templeton’s father was a lawyer and from his office window he could see when bankrupt farms were sold in the town square. Most of the time he ignored the auctions, but when there were no buyers out in the town square, he walked downstairs and bought the farms at scrap prices. Much later, and in a better market, the father then sold the farms at a good profit. This theory of buying at maximum pessimism was later on applied by Templeton to the global stock markets.
“People are always asking me where the outlook is good, but that is the wrong question. The right question is: Where is the outlook most miserable?”
TEMPLETON’S SPIKE STRIP. On several occasions during his career, Templeton used the “spike strip approach” in markets that had reached maximum pessimism. He distributed his capital evenly over, for example, all shares traded below $1. The same approach was used when he successfully shorted 84 IT companies just before the IT bubble burst.
A FOCUS ON MICRO RESULTS IN STRONG BETS ON MACRO. Templeton was often praised for his well-timed macro bets, for example both when he went long Japan (50s and 60s) and when he went short Japan (80s and 90s). There was no advanced macro analysis behind the decisions. The focus arose when Japan during the time periods had many low- and high-valued shares. In order to identify and carry out these counter-works, Templeton was a diligent student of historical bubbles.
MINIMIZED THE FX-EXPOSURE. Templeton was careful to avoid countries with unstable economies and stuck to those that had a debt / GNP ratio’s below 25% and a positive current account – i.e. exported more than they imported. He considered that the currency cycles generally lasted several years and could vastly affect an investment’s outcome. He also carefully studied historical devaluations to learn what had gone wrong and what type of properties those countries and currencies had.
MARKET VALUE VS. REPLACEMENT VALUE. Templeton observed many historical periods when market prices for properties far exceeded the replacement value as well as periods when properties were valued below the replacement value. He applied the same way of thinking with great success to all sorts of industries that were currently in crisis.
MORE CLEAR-MINDED WHEN AWAY FROM THE BUZZ. Templeton began his career on Wall Street but later moved to the Bahamas. Templeton’s performance was significantly better when he worked upstairs in a Bahamas police station than when he had a stylish Wall Street office. He was able to behave more rational when he was freed from the daily buzz of Wall Street.