Super Investor #24 in our series is John Templeton, a legendary investor known for his contrarian mindset and global approach to value investing. Templeton built one of the most successful investment careers by seeking undervalued stocks worldwide, often going where others feared to tread. His ability to find hidden gems in distressed markets and his philosophy of “buying at the point of maximum pessimism” made him a pioneer in international investing.
Templeton founded the Templeton Growth Fund in 1954, achieving annualized returns of approximately 15% for nearly 40 years. His influence on value investing and global market expansion remains profound, inspiring generations of investors to think beyond their home markets.
John Templeton: Early Life and Background
From Small-Town Roots to Wall Street
John Marks Templeton was born in Winchester, Tennessee, in 1912. His early years instilled in him a sense of frugality and financial discipline. He earned a scholarship to Yale University, where he graduated near the top of his class in 1934. He then attended Oxford University as a Rhodes Scholar, studying law before shifting his focus to investing.
Early Influences and Career Beginnings
Templeton was deeply influenced by the Great Depression, which shaped his contrarian mindset. He saw that times of extreme pessimism often created the best buying opportunities.
His first significant investment move came in 1939, during World War II. As war fears gripped the markets, he borrowed $10,000 and bought 100 shares each in 104 U.S. companies trading below $1 per share—including some that were in bankruptcy. His reasoning? The war would eventually end, and economic recovery would follow. Four years later, he sold the portfolio at a substantial profit, laying the foundation for his investment philosophy.
Investment Philosophy: How John Templeton Approaches the Market
Core Principles: Value, Patience, and Global Perspective
Templeton’s investment philosophy revolved around three key principles:
- Seek Deep Value: He looked for undervalued stocks with strong fundamentals and potential for long-term growth.
- Be a Contrarian: He believed in buying when others were fearful and selling when optimism was at its peak.
- Think Globally: Templeton was one of the first investors to look beyond the U.S., recognizing that opportunities existed worldwide.
Investment Approach
1. Stock Selection Criteria
Templeton searched for stocks that were:
- Undervalued relative to earnings, book value, or long-term potential.
- Ignored or out-of-favor in the current market sentiment.
- Located in distressed markets with strong recovery potential.
2. Research Process
He conducted deep fundamental analysis, prioritizing:
- Low price-to-earnings (P/E) ratios compared to industry peers.
- Strong balance sheets with manageable debt levels.
- Management quality and long-term growth potential.
3. Risk Management and Portfolio Strategy
Templeton believed in broad diversification, often holding 100+ stocks across different countries and industries. By doing so, he minimized the risk associated with individual markets while maximizing opportunities for growth.
Track Record: The Wins (and Losses) That Defined John Templeton
Notable Investments
- Japanese Stocks in the 1960s
- In the early 1960s, Templeton recognized that Japanese companies were undervalued relative to their U.S. counterparts.
- He invested heavily in firms like Hitachi and Toyota, long before Japan became an economic powerhouse.
- This move yielded enormous returns as Japan’s economy surged in the following decades.
- Emerging Markets in the 1980s and 1990s
- He invested in Brazil, South Korea, and Taiwan before they became mainstream investment destinations.
- His willingness to go where others hesitated allowed him to capitalize on high-growth markets early.
Performance Over Time
The Templeton Growth Fund, which he managed from 1954 until 1992, delivered:
- 15% annualized returns over nearly 40 years.
- Outperformance of the broader market while taking a disciplined, value-based approach.
Challenges and Losses
- His contrarian strategy sometimes led to early investments that took longer than expected to pay off.
- Some foreign investments carried currency and political risks, but his broad diversification helped mitigate losses.
Lessons for the Everyday Investor
1. Buy at the Point of Maximum Pessimism
- When markets are crashing, great companies are often undervalued.
- Example: During the 2008 financial crisis, high-quality stocks like Microsoft (MSFT) and Johnson & Johnson (JNJ) traded at deep discounts before rebounding strongly.
2. Look Beyond Your Home Market
- Templeton recognized that the best opportunities aren’t always in the U.S.
- Example: Today, investors may find growth in companies like Alibaba (BABA) in China or MercadoLibre (MELI) in Latin America.
3. Be a Long-Term Investor
- Short-term market swings are noise; focus on long-term value.
- Example: Holding Amazon (AMZN) through the early 2000s volatility would have resulted in massive gains.
4. Diversification Matters
- He balanced risk by investing across multiple sectors and countries.
- Example: Investors today can use ETFs or individual stocks to create diversified portfolios.
John Templeton: Overcoming Challenges and Criticism
- Templeton faced skepticism for his global approach in an era when most investors focused domestically.
- He missed some of the U.S. tech boom in the late 1990s due to his strict valuation principles.
- Despite challenges, his discipline in avoiding bubbles helped him sidestep major losses during market crashes.
The Legacy of John Templeton
Influence on Investing
- He pioneered global value investing, proving that opportunities exist worldwide.
- His contrarian mindset influenced modern investors like Howard Marks (Oaktree Capital).
Philanthropy and Impact
- Templeton donated over $1 billion to charity through the Templeton Foundation, funding research on science and spirituality.
Timeless Quotes and Wisdom from John Templeton
- “The four most dangerous words in investing are: ‘This time it’s different.’”
- “If you want to have a better performance than the crowd, you must do things differently from the crowd.”
- “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
Conclusion: The Enduring Influence of John Templeton
John Templeton’s disciplined approach, global perspective, and contrarian philosophy made him one of the greatest investors of all time. His ability to identify value where others saw fear serves as a lesson for every investor.
By embracing his principles—buying when pessimism is high, thinking globally, and focusing on long-term value—today’s investors can improve their success in the stock market.
Final Thought on John Templeton
The next time the market is in turmoil, ask yourself: What would John Templeton do?
Happy Investing!