John Templeton: Buy When Everyone Is Selling



John Templeton was one of the great legends of investing.

Growing up poor in Tennessee, John Templeton climbed out of poverty by using his brains. He attended Yale University on a scholarship and graduated with a degree in economics in 1934. He also was a Rhodes Scholar and earned a master of arts in law.

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When he came back to the United States in 1936, he worked in New York as a trainee for Fenner & Beane, which merged with Merrill Lynch in 1941. During the depths of the Great Depression, Templeton co-founded an investment firm, Dobbrow & Vance, in 1937.

In 1939, when Hitler and the Nazis were conquering most of Europe, stock prices were depressed, and in most cases stocks were trading for less than their scrap value. Templeton, by then a “seasoned” 27-year-old, saw this as an opportunity and began buying stocks. He placed orders to buy $100’s worth of every stock trading for less than $1 per share ($17 in 2012 dollars) on the NYSE and the American Stock Exchange.

He bought the stocks of 104 companies in all, of which 34 went bankrupt. However, his total investment of $10,400 was sold four years later for more than $40,000. In 1954 he started the Templeton family of mutual funds, which had in it some of the largest and most successful international investment funds. In 1999, Money magazine called him “arguably the greatest global stock picker of the century.” He died a billionaire in 2008 at the age of 95.

John Templeton – Investing Lessons

Templeton’s style was simple; he called it “bargain hunting.” He didn’t limit his search for value to just the United States but instead shopped the world for bargains. His investing mantra was to “search for companies around the world that offered low prices and an excellent long-term outlook.”

He loaded up on stocks that were tossed into the unloved and unwanted piles in exchanges across the globe. He didn’t let the day-to-day gyrations of Mr. Market shake him out of his positions—instead, he looked at the fundamentals of a company and bought or sold only when the stock price disconnected from the underlying lying worth of the business.

John Templeton’s approach was very similar to the one we use for finding stocks as well. He bought quality companies— those that were leaders in their fields, well capitalized, or had some other competitive advantage.

Next, he would buy value and NOT try and forecast the economic outlook. Templeton, like many great investors, knew that at the end of the day it’s the company’s fundamental value that will dictate its stock price. There would be times when quality companies would be neglected or overlooked by Mr. Market. That didn’t change the company’s underlying worth. Instead of panicking or selling, John Templeton saw those periods as buying opportunities and loaded up on stocks.

While the market trend can and will influence stock prices over the short term, over the long term the stock price will track the underlying worth of the company.

As we head into the last month of 2015 the S&P 500 index is about flat … but the portfolios of most investors, both retail and institutional, are down considerably more. In fact many name brand name hedge funds are down double digits.

One of the reasons for their underperformance is their trying to outguess the economy and geopolitical events. By trying to time their purchases, they missed out on a great year. Instead of focusing on what is unknown, it would’ve been a better bet for investors to focus on what is knowable … such as a company’s balance sheet.

Because if they had, they would’ve been able to add many great stocks to their portfolios throughout the year.

If your portfolio continues to be made up of financially sound companies purchased at discounted prices, you should be sleeping very well at night–regardless of market gyrations.

Like John Templeton, you need to know that over time the stock price eventually catches up with the underlying worth of the business.

And it’s for that patience that we will be rewarded.